U.S. Markets open in 7 hrs 38 mins

Edited Transcript of RGLD earnings conference call or presentation 10-Aug-17 4:00pm GMT

Thomson Reuters StreetEvents

Q4 2017 Royal Gold Inc Earnings Call

Denver Aug 14, 2017 (Thomson StreetEvents) -- Edited Transcript of Royal Gold Inc earnings conference call or presentation Thursday, August 10, 2017 at 4:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Karli S. Anderson

Royal Gold, Inc. - VP of IR

* Mark E. Isto

Royal Gold, Inc. - VP of Operations

* Stefan L. Wenger

Royal Gold, Inc. - CFO, Principal Accounting Officer and Treasurer

* Tony A. Jensen

Royal Gold, Inc. - CEO, President and Non Independent Director

* William H. Heissenbuttel

Royal Gold, Inc. - VP of Corporate Development

================================================================================

Conference Call Participants

================================================================================

* Andrew Kaip

BMO Capital Markets Equity Research - MD of Mining Equity Research and Precious Metals Mining Analyst

* Lucas Nathaniel Pipes

FBR Capital Markets & Co., Research Division - Analyst

* Michael Jalonen

BofA Merrill Lynch, Research Division - MD

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, and welcome to the Royal Gold Fiscal 2017 Fourth Quarter and Year-end Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Karli Anderson, Vice President, Investor Relations. Please go ahead.

--------------------------------------------------------------------------------

Karli S. Anderson, Royal Gold, Inc. - VP of IR [2]

--------------------------------------------------------------------------------

Thanks, Carrie. Good morning, and welcome to our discussion of Royal Gold's fourth quarter and fiscal 2017 results. This event is being webcast live, and you'll be able to access a replay of this call on our website.

Participating on the call today are Tony Jensen, President and CEO; Stefan Wenger, CFO and Treasurer; Bill Heissenbuttel, Vice President, Corporate Development; Mark Isto, Vice President of Operations; and Bruce Kirchhoff, Vice President, General Counsel and Secretary.

Tony will open with a brief overview of the quarter, followed by Stefan with a financial update. After they complete their opening remarks, we'll open the line for a Q&A session.

These discussion falls under the safe harbor provision of the Private Securities Litigation Reform Act. A discussion of the company's current risks and uncertainties is included in the Safe Harbor and cautionary statement in today's press release and slide presentation, and is presented in greater detail in our filings with the SEC.

Now I'll turn the call over to Tony

--------------------------------------------------------------------------------

Tony A. Jensen, Royal Gold, Inc. - CEO, President and Non Independent Director [3]

--------------------------------------------------------------------------------

Thank you, Karli. Good morning, everybody, and thank you for joining the call. I'll begin on Slide 4. Fiscal 2017 was a record-breaking year for Royal Gold. We posted new records for revenue, cash flow, volume and dividends. This includes revenue of $441 million, cash flow from operations of $270 -- $266 million, volume of over 350,000 Gold Equivalent Ounces and $61 million return to shareholders in dividends. These results were highest in our 36 years as a public company.

We paid down $95 million in debt and expanded our revolving credit facility. We now have over $850 million in available liquidity. We have no additional capital commitments, so all cash flow going forward will be available for acquisitions, debt reduction and dividends. And as we pursued our growth opportunities that drove these record results, we stay disciplined in our capital structure. We focused on per share results. We funded our investments out of cash, debt and cash flow without any stock dilution.

Turning to our quarterly results, we had very strong revenue and operating cash flow, quite consistent with the average of the other 3 quarters of the fiscal year. And all financial measures were up notably compared to the prior year quarter. The earnings were impacted by 3 noncash items related to foreign exchange, compensation and mark-to-market of securities. Collectively, these noncash items drove $0.04 charge to our quarterly earnings. In addition, we incurred higher exploration and a legal cost that impacted quarterly earnings by about $0.02.

As we look forward, 3 projects are currently under development or expansion, and we are not required to make any capital contributions to any of the 3. We have a sequential growth catalyst expected with Rainy River in 2017, Cortez Crossroads in 2018, and Peñasquito Pyrite Leach in 2019. All 3 projects continued to advance during the quarter, and I'll speak more about them later.

On Slide 5, Royal Gold entered a new phase of growth during fiscal 2017, driven by investments made near the bottom of the market. The chart on the left side compares fiscal 2017 cash flow to prior years. Our operating cash flow is up 56% over 2016, while the gold price was flat. The chart on the right side provides detail on the drivers of our revenue. Growth from some of the interest we added 2 years ago provided the catalyst to our record financial results. Pueblo Viejo contributed an incremental $52 million in revenue relative to what it generated in the prior year, followed by incremental gains at Andacollo, in Mount Milligan, while the rest of the portfolio was relatively stable.

Turning to Slide 6. Our 39 operating properties continued to deliver solid performance. Barrick reiterated its calendar 2017 production guidance at Pueblo Viejo for 625,000 ounces to 650,000 ounces of gold. The mine recorded 14% higher throughput and improved gold recoveries relative to a year ago, slightly offset by lower grades.

Barrick also announced that they are exploring the opportunity to add a bioleaching and floatation circuit at Pueblo Viejo, which could enhance processing of lower grade ore and possibly extend the mine life, which is already over 25 years.

Golden Star reiterated its guidance of 255,000 ounces to 280,000 ounces of gold production for this calendar year. Production from Mampon deposit is providing a nice source of incremental volume and is helping to smooth the transition from open pit to underground production. Commercial production was declared at Wassa Underground in January, and Golden Star currently expects that Prestea Underground will retain commercial production in the fourth calendar year -- in calendar quarter of this year. And according to our stream agreement, we expect our interest at Wassa and Prestea to increase from 9.25% to 10.5% on January 1 of next year.

And at Mount Milligan, Centerra report said it expects to achieve gold production at the low end of their guidance, which is 260,000 to 290,000 ounces of gold in between 55 million and 65 million pounds of copper production in calendar 2017. If the lower end of the production guidance is met, that would require 60% of the gold and 50% of the copper produced in the second half of this calendar year. That would result in record annual gold production for the mine. And Centerra continues to work towards higher throughput and improved recoveries at the site. As a reminder, there's about a 5-month lag between production and delivery to us, since Centerra's late calendar 2017 production will be delivered to Royal Gold in the first half of calendar '18.

As shown in the chart at the bottom of Slide 6, we continue to estimate that we'll have about 85% of our revenue from precious metals, even with our new Mount Milligan copper contributions, which began in April. And I should add that it is great to see these first deliveries at a time when copper prices are beginning to strengthen.

Now I'll turn the call over to Stefan.

--------------------------------------------------------------------------------

Stefan L. Wenger, Royal Gold, Inc. - CFO, Principal Accounting Officer and Treasurer [4]

--------------------------------------------------------------------------------

Thanks, Tony. On Slide 7, I've summarized a few of our financial highlights. Fourth quarter revenue of $109 million was up 16% from last year. The gold price averaged $1,257 per ounce for the quarter, in line with the year ago quarter, thus higher volume drove the increased revenue.

Due to the low-cost nature of our business, coupled with our low share count, relatively small changes to the P&L are notable. As Tony mentioned earlier, we incurred a few noncash items in our Q4 that impacted our reported earnings per share by about $0.04 collectively. These include a noncash adjustment of -- to certain of our Canadian-deferred tax liabilities, which are recorded locally in Canadian dollars and get marked for book purposes to U.S. dollars each quarter. With the pullback in the U.S. dollar in late June, we were required to make an adjustment that affected reported earnings by about $0.02.

We also had additional noncash compensation expenses that affected EPS by about $0.01 per share, as our record cash flow triggered divesting of some of our performance shares.

And finally, we had a mark-to-market adjustment on the value of some outstanding warrants that also impacted reported EPS by about $0.01 per share. We also incurred higher exploration and legal costs that collectively impacted quarterly earnings by about $0.02 per share. Exploration expenses will continue to be success-based, and we are currently expecting costs will average about $3 million per quarter in fiscal 2018, with the largest spend expected during the summer season, particularly in the June quarter. Legal costs in fiscal 2018 will be higher than fiscal 2017 due to trial preparation.

DD&A was about $460 per GEO for both the fourth quarter and the full fiscal year 2017. Looking ahead to fiscal '18, we currently expect DD&A to be between $450 and $500 per GEO. Our effective tax rate increased to 31% in Q4, due in part to the adjustment to deferred tax liabilities that I just mentioned. Our effective tax rate for the full year was 22%.

For fiscal 2018, we expect an effective tax rate in the range of between 20% to 25%. We paid $61 million in dividends during fiscal 2017, resulting in a 23% cash flow payout ratio. We paid down $95 million on our revolver in fiscal 2017. We currently have $750 million available and a [drawn] balance of $250 million.

Our net debt-to-EBITDA ratio is currently just under 1.7x, resulting in a borrowing rate on our drawn revolver of 1.75 -- of LIBOR, plus 1.75%, or about 3% all-in before tax, and we also incurred commitment fees of 35 basis points per annum on the undrawn capacity. In fiscal 2018, we will continue to apply free cash flow to debt reduction, and then when we're at or below 1.5x net debt-to-EBITDA, we'll have a decrease in our drawn interest margin to LIBOR plus 1.5% and lower undrawn fees of 30 basis points.

We ended the quarter with about $860 million in total liquidity, an increase from $460 million last quarter. This includes about $110 million of working capital, plus $750 million of our expanded revolver capacity.

In fiscal 2018, we expect to pay down debt aggressively, while maintaining the increased credit facility to fund acquisition opportunities. We will continually evaluate our capital structure to determine the most advantageous cost of capital for future opportunities.

Now I'll turn the call back to Tony.

--------------------------------------------------------------------------------

Tony A. Jensen, Royal Gold, Inc. - CEO, President and Non Independent Director [5]

--------------------------------------------------------------------------------

Thanks, Stefan. I'll transition our focus from the past to the future, on Slide 8. As I mentioned earlier, we have a growth catalyst to look forward to this calendar year as well as each of the 2 subsequent years. Leading off with the Rainy River project in Ontario, we are on the cusp of construction completion.

New Gold expects first production next month, and I should add that our board will be at the site in 2 weeks time to have a first-hand look at the progress. Commissioning of the primary pressure in the conveyor system was completed in May as planned, and the mining rate in June averaged approximately 125,000 tonnes per day and New Gold expects to build momentum throughout the remaining summer months.

Work continues with authorities to obtain the scheduled 2 permit, which is necessary for the long-term operations at the Tailings facility. New Gold recently guided that this permit is expected before the end of the calendar year.

Our first investment was just over 2 years ago, so we are keen to have royalty revenue, generated -- sorry, a stream revenue generated from Rainy River in just the next few months, and we look forward to more than a decade of strong contributions thereafter.

Royal Gold has a stream of 6.5% on the gold and 60% of the silver at Rainy River, which adds an impressive 3.9 million ounces of gold and 10 million ounces of silver reserves.

Turning to the Cortez Crossroads deposit, Barrick reports that it continues to conduct stripping and dewatering at the Crossroads pit in preparation for ore production, which is expected to begin in calendar 2018. We anticipate production will be weighted to the second half of the calendar year. Royal Gold has both a 4.5% net value royalty and a 5% gross return royalty on the total of 2.7 million ounces of reserves at Crossroads. As a result, we'll be talking a lot more about Crossroads next year.

Finally, the Peñasquito Pyrite Leach Project continues to advance. Goldcorp reiterated its expectation and start up to begin in early calendar 2019 and reported it achieved 14% construction progress and 94% engineering completion at the end of June. The project is expected to generate an incremental 100,000 to 140,000 ounces of gold, and 4 million to 6 million ounces of silver beginning in 2019.

Goldcorp also reported that it's constructing a carbon-free flotation project to mitigate the organic carbon content before mineral is treated in the pyrite leach process. Both gold and silver are subject to our 2% NSR royalty, which also includes lead and zinc.

Wrapping up on Slide 9. Royal Gold invested in our industry, when traditional providers of capital are minimizing their exposure to the gold business. It's gratifying to see the outcome of these efforts manifest themselves in our record financial results. Just as important, it is terrific to see Mount Milligan in stronger hands, Andacollo and Pueblo Viejo thriving, Wassa and Prestea posting their best-ever financial results, and Rainy River nearing production start. Look for Royal Gold to do more of the same. We will continue to focus on per share returns, to repay debt, to diligently return capital to shareholders and to be prepared for future opportunities.

With that, operator, we are happy to open the line for any questions there might be.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question comes from Lucas Pipes of FBR & Co.

--------------------------------------------------------------------------------

Lucas Nathaniel Pipes, FBR Capital Markets & Co., Research Division - Analyst [2]

--------------------------------------------------------------------------------

So Tony, I wanted to kind of follow up a little bit in terms of the Pueblo Viejo anniversary, I think it was 2 years ago and 5 days. And I wondered if you could maybe get some perspective, both looking back and then also forward with that asset?

--------------------------------------------------------------------------------

Tony A. Jensen, Royal Gold, Inc. - CEO, President and Non Independent Director [3]

--------------------------------------------------------------------------------

Lucas, thanks for the more theoretical-type question. So we are just extremely pleased to have the opportunity to get an opportunity to participate on one of the world's best and lowest-cost gold properties. We just don't get that opportunity very often, and we were positioned at the time to do that and other business, and I mentioned those remarks in my prepared comments. We structured that, we think, in a very, very intelligent way, particularly around the silver. We were a bit nervous with the recovery on the silver. We thought it could get there overtime, but we structured that in a way that we were -- we'll minimize our exposure to the silver recovery, and it's really great to see that the folks at Barrick and Goldcorp have now gotten silver up to levels that I think are close to the feasibility study work that was originally anticipated. So the project has gone from strength to strength and we just like to hear that they're starting to think about new ways to maybe even improve the project further. But if I remember, Mark, if you can correct me, I think the cash cost are around $450 an ounce at the project and it's just a wonderful piece of business for us to be part of it. So it's going quite well. And Bill, if you can help me on this project and help us comment. I think I just heard you say the other day that we have almost 20% of our deposit...

--------------------------------------------------------------------------------

William H. Heissenbuttel, Royal Gold, Inc. - VP of Corporate Development [4]

--------------------------------------------------------------------------------

A little bit less.

--------------------------------------------------------------------------------

Tony A. Jensen, Royal Gold, Inc. - CEO, President and Non Independent Director [5]

--------------------------------------------------------------------------------

Pardon me?

--------------------------------------------------------------------------------

William H. Heissenbuttel, Royal Gold, Inc. - VP of Corporate Development [6]

--------------------------------------------------------------------------------

A little bit less.

--------------------------------------------------------------------------------

Tony A. Jensen, Royal Gold, Inc. - CEO, President and Non Independent Director [7]

--------------------------------------------------------------------------------

A little less than 20% of our deposit already returned on the project after being there for a couple of years. So it's just a great piece of business for us, Lucas.

--------------------------------------------------------------------------------

Lucas Nathaniel Pipes, FBR Capital Markets & Co., Research Division - Analyst [8]

--------------------------------------------------------------------------------

Great to hear. Great. And then, I have a little bit of a kind of higher-level question. So when I think about the refinancing of your revolver, you have a tremendous amount of firepower. And obviously, you've been very successful in layering in growth over the years. And so kind of when I think about your business, it also makes it harder for you to find opportunities of size that really move the needle, given your success. So how do you think about that? And yes, I would appreciate your perspective.

--------------------------------------------------------------------------------

Tony A. Jensen, Royal Gold, Inc. - CEO, President and Non Independent Director [9]

--------------------------------------------------------------------------------

So first, let me say that we are very excited to already have a layer of growth built into the company. We have those 3 bids that I spoke of in my prepared remarks, and so we don't feel like we have to immediately correct the declining production balance in our company. So that gives Bill and his team a little bit of a chance to look out a little bit further. And we've been in this business a long, long time and we've seen the cycles that happen in the business, and it's a very, very flexible product. So we may not be dealing the major restructuring, the balance sheet-type work that we did 2 years ago -- or 18 months ago, but there are still very interesting opportunities for us out there. We continue to be quite creative. We've introduced to the public the Peak Gold project that could be a very interesting way for us to create our own type of pieces of business going forward, and we just don't look at that as being our main new model, but it's just one of many arrows in the quiver that we want to continue to foster. And so we're always challenging ourselves to look creatively. When you say it's hard to move the needle as a large company, that's absolutely true, but we still believe around the steep end of our growth curve. We love to be able to say we're the smallest of the 3 biggest, and for us, we can still do a $100 million and $200 million deal that's meaningful, but I'm not sure that our 2 very well-healed competitors are able to have anything meaningful with those kinds of levels of deal structure. So we're still excited about the business, and yes, you might have to work a little bit harder and be a little bit more creative, but opportunities are there.

--------------------------------------------------------------------------------

Lucas Nathaniel Pipes, FBR Capital Markets & Co., Research Division - Analyst [10]

--------------------------------------------------------------------------------

Great. Great. And if I may squeeze in just a few follow-ups, because your comments were super helpful, and I just wanted to expand on some points you raised, if that's all right? The first was you mentioned the Peak Gold project, I notice you spend a fair bit of exploration capital on that project. And so 2 follow-ups on that: one, where do you see exploration spending in 2018; and then, where do you think this project fits in, in your portfolio?

--------------------------------------------------------------------------------

Tony A. Jensen, Royal Gold, Inc. - CEO, President and Non Independent Director [11]

--------------------------------------------------------------------------------

So playing around $3 million a quarter, but let me give you a little more specificity on that. This isn't Alaska, although we do have the capability and we have growth all year long there. We tend to spend more of our money in the June quarter, and the second-highest would be the September quarter and then kind of balance that, maybe even the lowest will be the December quarter, I would imagine. So if you can kind of think about that level of spending, but maybe move it back and forth a little bit, weighted to those months that I just -- or quarters that I just mentioned. It's all success-based, as Stefan mentioned in his prepared remarks. We are very excited about getting the property to the level that it is right now. We announced 1.3 million ounces of gold at 3.5 grams right near surface mineable. It's still a very, very early day for this project, and we're excited about the targets that we see in the project. So we continue to expect to spend going forward, but it's still a little bit too early for us to transition into your next question, that's where does it fit with Royal Gold going forward? There's going to come a time where somebody else is better equipped to take this project to the next level, and we certainly will look for ways to exit into our core business when that happens. And I might just remind you that we already have a very nice royalty on the project, so we're already well into the core business on the project, but we think we can perhaps have some strategic value with this. We enjoy thinking about what it is that we might be able to do with a partner or our success around the project.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

(Operator Instructions) The next question comes from Mike Jalonen from Bank of America.

--------------------------------------------------------------------------------

Michael Jalonen, BofA Merrill Lynch, Research Division - MD [13]

--------------------------------------------------------------------------------

Just a couple of questions. Lucas asked my question on Peak. I guess, that project still has to reach its peak, I guess, with more spending going on?

--------------------------------------------------------------------------------

Tony A. Jensen, Royal Gold, Inc. - CEO, President and Non Independent Director [14]

--------------------------------------------------------------------------------

Well done. Well said.

--------------------------------------------------------------------------------

Michael Jalonen, BofA Merrill Lynch, Research Division - MD [15]

--------------------------------------------------------------------------------

But the legal cost, Stefan, you cryptically mentioned higher in 2018, what would be the definition of higher? In the millions of dollars? Or...

--------------------------------------------------------------------------------

Stefan L. Wenger, Royal Gold, Inc. - CFO, Principal Accounting Officer and Treasurer [16]

--------------------------------------------------------------------------------

You know we -- it's hard to say specifically what our costs for the Ballard litigation will be next year, but I can guide generally higher than this year. We are entering into an expected trial in the second half of calendar 2018, and we expect it will be quite active there. So I apologize, I'll have to be more general with the guidance there on Peak and the spending for the legal cost.

--------------------------------------------------------------------------------

Michael Jalonen, BofA Merrill Lynch, Research Division - MD [17]

--------------------------------------------------------------------------------

Second effort. 2018, is that calendar or near fiscal?

--------------------------------------------------------------------------------

Stefan L. Wenger, Royal Gold, Inc. - CFO, Principal Accounting Officer and Treasurer [18]

--------------------------------------------------------------------------------

That's calendar.

--------------------------------------------------------------------------------

Michael Jalonen, BofA Merrill Lynch, Research Division - MD [19]

--------------------------------------------------------------------------------

Maybe I can ask the question a different way. What was your legal cost in fiscal 2017?

--------------------------------------------------------------------------------

Stefan L. Wenger, Royal Gold, Inc. - CFO, Principal Accounting Officer and Treasurer [20]

--------------------------------------------------------------------------------

We had legal cost -- we had overall G&A for fiscal '17 of about $33 million. About $10 million of that is noncash compensation expense. So think of our base G&A about $20 million and it was probably high, call it, $23 million of cash this year because of higher legal cost related to the Ballard litigation.

--------------------------------------------------------------------------------

Tony A. Jensen, Royal Gold, Inc. - CEO, President and Non Independent Director [21]

--------------------------------------------------------------------------------

Would you say that's consistent with what we anticipate?

--------------------------------------------------------------------------------

Stefan L. Wenger, Royal Gold, Inc. - CFO, Principal Accounting Officer and Treasurer [22]

--------------------------------------------------------------------------------

Yes, I'd expect we'd have about the same G&A run rate next year. You might have higher litigation cost by a couple of million dollars spread throughout the year.

--------------------------------------------------------------------------------

Tony A. Jensen, Royal Gold, Inc. - CEO, President and Non Independent Director [23]

--------------------------------------------------------------------------------

And some are $23 million to $25 million in overall G&A, including the additional legal expense that we anticipate.

--------------------------------------------------------------------------------

Stefan L. Wenger, Royal Gold, Inc. - CFO, Principal Accounting Officer and Treasurer [24]

--------------------------------------------------------------------------------

That's correct. Yes.

--------------------------------------------------------------------------------

Michael Jalonen, BofA Merrill Lynch, Research Division - MD [25]

--------------------------------------------------------------------------------

Before noncash comp, I assume?

--------------------------------------------------------------------------------

Stefan L. Wenger, Royal Gold, Inc. - CFO, Principal Accounting Officer and Treasurer [26]

--------------------------------------------------------------------------------

Before noncash comp. That's right, Mike.

--------------------------------------------------------------------------------

Michael Jalonen, BofA Merrill Lynch, Research Division - MD [27]

--------------------------------------------------------------------------------

And then, maybe just on -- you had 350,000 GOEs in fiscal 2017. I've been reading (inaudible) was there any guidance for fiscal 2018, like Franco provides? Or can you not provide that number?

--------------------------------------------------------------------------------

Tony A. Jensen, Royal Gold, Inc. - CEO, President and Non Independent Director [28]

--------------------------------------------------------------------------------

You know, Mike, we haven't provided a lot of guidance. You remember last year, in our Investor Day, we did go up 5 years. And if I could just kind of talk generally around that subject, we expect somewhat of a flat production guidance for next year, similar to what we did in fiscal 2017. We saw -- you'll have noted that Rainy River pushed out a little bit of its production timing startup. So that pushed out a little bit of what we anticipated in fiscal 2018. But overall, the growth profile is still very much intact, like we will be -- had guided the market a year ago, at this time.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

The next question comes from Andrew Kaip from BMO.

--------------------------------------------------------------------------------

Andrew Kaip, BMO Capital Markets Equity Research - MD of Mining Equity Research and Precious Metals Mining Analyst [30]

--------------------------------------------------------------------------------

You indicated that you are going to begin talking more and more about Crossroads in 2018. So I thought I would just jump start the discussion and ask you if there's any additional information you can provide us on what you think is going to materialize at the Crossroads, and what deliveries are going to be contributed. You've indicated that we should be thinking about it ramping up more towards the second half of fiscal year 2018. But any additional color would be advantageous for us.

--------------------------------------------------------------------------------

Tony A. Jensen, Royal Gold, Inc. - CEO, President and Non Independent Director [31]

--------------------------------------------------------------------------------

Let me start off with some general comments, and then I'll ask Mark if he's got some more detailed knowledge of now the Crossroads deposit kind of ramps up and such. But you remember that Cortez was our first royalty that started Royal Gold's modern business model, and so we're very excited to be back in a stronger way there, we've never gone away from Cortez, but it hasn't been a very significant model. When I first joined the company, it was 90% of our revenue, so we're very excited to see that come back. And when I was the mine manager at Cortez, we actually permitted the Crossroads deposit and it has about 600 feet of strip on top of it. And now, Barrick is a long, long way into that strip. So every load of material you bring out of that pit, the more economical in a forward-looking basis that deposit gets. So we're quite confident that this is a very routine piece of business for those folks. They know very much how to move the material, and this is largely heap leach. So what you won't compete for the mill or at the pipeline complex, with higher Cortez hills grade. So expect a lot of this to come into the heap leach, and because of that, you'll see some delay in the first or on the pad, and (inaudible) out the backside. But Mark, could you, beyond those general comments, could kind of give a feel for -- is this a slower start up in the first couple of years? And then...

--------------------------------------------------------------------------------

Mark E. Isto, Royal Gold, Inc. - VP of Operations [32]

--------------------------------------------------------------------------------

Yes. I mean you were talking about the second half of 2018. It would be more like the fourth quarter is our expectation, and then as you pointed out, being heap leach fee that there's yet additional time to consider production from the heap leach versus the mill. So it would be modest production I think that we would expect in routine and wrapping up significantly for fiscal 2019.

--------------------------------------------------------------------------------

Andrew Kaip, BMO Capital Markets Equity Research - MD of Mining Equity Research and Precious Metals Mining Analyst [33]

--------------------------------------------------------------------------------

So really, in fiscal 2019 is probably when you're going to be in a position where you can give us a sense of what kind of production contribution Crossroads is going to represent for...

--------------------------------------------------------------------------------

Tony A. Jensen, Royal Gold, Inc. - CEO, President and Non Independent Director [34]

--------------------------------------------------------------------------------

We should be reporting very strong production in 2019, I would think. Yes. Correct.

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

And this concludes our question-and-answer session. I would now like to turn the conference back over to Tony Jensen for any closing remarks.

--------------------------------------------------------------------------------

Tony A. Jensen, Royal Gold, Inc. - CEO, President and Non Independent Director [36]

--------------------------------------------------------------------------------

Well, thank you very much for taking time to join us today. We very much appreciate your interest and continued support in Royal Gold, and we very much look forward to updating you on progress during the next quarterly call. Thank you, everybody.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

The conference has now concluded. Thank you for attending today's presentation, you may now disconnect your lines. Have a great day.