Royal Gold Earnings Call NUGGETS: Thompson Creek, Payment Schedule

On Thursday, Royal Gold, Inc. (NASDAQ:RGLD) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Thompson Creek

Tom Nowak – Advent Capital: You have an extremely strong balance sheet Thompson Creek clearly does not Thompson Creek’s bonds are trading in mid to high 70s for a yield of 13% a spread over treasuries over 1,200 basis points. So, the market is telling you that Thompson Creek, there is a material risk of bankruptcy with this name. Can you just kind of address putting an additional money into them and it seems like you’re assuming the role of vendor’s last resource for Thompson Creek. So, how much further you’re willing to go and how much do you monitor the overall financial health of the corporation beyond just the project integrity?

Tony Jensen – President and CEO: Let me first start by saying we first looked to the asset. We continue to believe that asset is quality asset as I mentioned in my prepared remarks and we think the asset will continue to produce in all reasonable price levels. So, that’s the first thing, but we also took a good strong look at where Thompson Creek is as an entity and before we made this investment, we’re comfortable with that – with the additional financing that they have on our credit facility of $300 million that should get them well over the required capital spend in Mt. Milligan and we’ve also looked at the service ability on the other end of this debt and we feel comfortable in the first year, after production for Thompson Creek to be able to service that, so we do take a look at it, we have some causes in our agreements and we will continue to monitor that rather closely.

Tom Nowak – Advent Capital: I didn’t get a chance to listen to the Thompson Creek call, is their credit facility going to be reduced as a result of this?

Tony Jensen – President and CEO: Say again Tom.

Tom Nowak – Advent Capital: I didn’t get a chance to listen to the Thompson Creek call, is their credit facility going to be reduced?

Tony Jensen – President and CEO: We don’t believe it will be.

Tom Nowak – Advent Capital: What are the amendments that they need to achieve with the lenders?

Tony Jensen – President and CEO: We have been knowledgeable about that, but that is really an agreement between Thompson Creek and their lenders, and I very much prefer to…

Tom Nowak – Advent Capital: Your claim on the Mount Milligan gold production, where is that priority claim within the Thompson Creek capital structure?

Tony Jensen – President and CEO: Let me to turn to Bill Heissenbuttel for that question.

William Heissenbuttel – VP of Corporate Development: We have a, we do have a security interest, that security interest for the most part is subordinated, but it is subordinated solely to the existing banks, so at this point.

Tom Nowak – Advent Capital: The senior to 12.5% bond?

William Heissenbuttel – VP of Corporate Development: Yeah. Those bonds are unsecured, they have a guarantee from the entity that owns Mt. Milligan, but that is an unsecured guarantee and ranks behind us.

Tony Jensen – President and CEO: Tom, we have installed a cap that any additional debt that might come to Mt. Milligan cannot exceed $350 million, which we would subordinate to, but we won’t subordinate anything more than that.

Payment Schedule

Shane Nagle – National Bank Finance: Just wondering on the payment schedule that remaining $252 million is that going to be equal installments here, previously I guess it ratcheted down a bit with the construction schedule, but is the being revised to five equal payments.

Tony Jensen – President and CEO: Let me turn again to Bill Heissenbuttel for that question.

Tom Nowak – Advent Capital: You have an extremely strong balance sheet Thompson Creek clearly does not Thompson Creek’s bonds are trading in mid to high 70s for a yield of 13% a spread over treasuries over 1,200 basis points. So, the market is telling you that Thompson Creek, there is a material risk of bankruptcy with this name. Can you just kind of address putting an additional money into them and it seems like you’re assuming the role of vendor’s last resource for Thompson Creek. So, how much further you’re willing to go and how much do you monitor the overall financial health of the corporation beyond just the project integrity?

Tony Jensen – President and CEO: Let me first start by saying we first looked to the asset. We continue to believe that asset is quality asset as I mentioned in my prepared remarks and we think the asset will continue to produce in all reasonable price levels. So, that’s the first thing, but we also took a good strong look at where Thompson Creek is as an entity and before we made this investment, we’re comfortable with that – with the additional financing that they have on our credit facility of $300 million that should get them well over the required capital spend in Mt. Milligan and we’ve also looked at the service ability on the other end of this debt and we feel comfortable in the first year, after production for Thompson Creek to be able to service that, so we do take a look at it, we have some causes in our agreements and we will continue to monitor that rather closely.

Tom Nowak – Advent Capital: I didn’t get a chance to listen to the Thompson Creek call, is their credit facility going to be reduced as a result of this?

Tony Jensen – President and CEO: Say again Tom.

Tom Nowak – Advent Capital: I didn’t get a chance to listen to the Thompson Creek call, is their credit facility going to be reduced?

Tony Jensen – President and CEO: We don’t believe it will be.

Tom Nowak – Advent Capital: What are the amendments that they need to achieve with the lenders?

Tony Jensen – President and CEO: We have been knowledgeable about that, but that is really an agreement between Thompson Creek and their lenders, and I very much prefer to…

Tom Nowak – Advent Capital: Your claim on the Mount Milligan gold production, where is that priority claim within the Thompson Creek capital structure?

Tony Jensen – President and CEO: Let me to turn to Bill Heissenbuttel for that question.

William Heissenbuttel – VP of Corporate Development: We have a, we do have a security interest, that security interest for the most part is subordinated, but it is subordinated solely to the existing banks, so at this point.

Tom Nowak – Advent Capital: The senior to 12.5% bond?

William Heissenbuttel – VP of Corporate Development: Yeah. Those bonds are unsecured, they have a guarantee from the entity that owns Mt. Milligan, but that is an unsecured guarantee and ranks behind us.

Tony Jensen – President and CEO: Tom, we have installed a cap that any additional debt that might come to Mt. Milligan cannot exceed $350 million, which we would subordinate to, but we won’t subordinate anything more than that.