Good day, ladies and gentlemen, and welcome to the Royal Gold Fiscal 2019 First Quarter Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. At this time, I would like to turn the conference over to Alistair Baker, Director of Business Development. Please go ahead, sir.

Thanks, Denise. Good morning, and welcome to our discussion of Royal Gold's first quarter 2019 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; Bill Heissenbuttel, CFO and Vice President Strategy; Mark Isto, Vice President, Operations; and Bruce Kirchhoff, Vice President, General Counsel and Secretary. This 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. Tony will give you an overview of the quarter; followed by Bill with a financial update, and then we'll open the lines for a Q&A session. Now, I'll turn the call over to Tony.

Thanks Alistair, and good morning, everyone. Thank you for joining the call. I'll begin on Slide 4. Our revenue for the quarter was $100 million, which includes the effects of lower shipments from Mount Milligan due to the temporary shutdown it experienced from reduced water supply in early calendar 2018. As such and consistent with our guidance last quarter, volume was about 10% lower than the June quarter and inventories remained flat. We also experienced a weaker metal price environment, with realized gold price is down 5%, copper price is down 11%, and silver price is down 4% compared to the prior year quarter. Earnings for the quarter were $0.23 per share, which were directly impacted by the lower revenue as well as higher legal fees, higher DD&A and the adoption of an accounting standard relating to the value of equity securities. Even with volume and price headwinds, operating cash flow was $45 million, which comfortably allow the payment of another $16.4 million in dividends, while continuing to strengthen our balance sheet. We have over $1 billion in total liquidity for new opportunities. We also had success this quarter on some projects we've been working on for some time. Namely, settlement to the Voisey’s Bay Royalty Dispute with Vale, and completion of PEA on the Peak Gold Project, both of which I'll touch on in a bit more detail shortly. I will close up my summary comments by saying that we continue to be active on new business opportunities. And to further strengthen our team, we have added Dan Breeze to lead our international business development efforts from our office in Zug, Switzerland. Many of you probably already know Dan. He has been involved in the business for the past couple of decades, most recently with BMO Capital Markets where…

Thanks, Tony. As Tony mentioned at the beginning of his remarks, revenue this quarter of $100 million was negatively affected by reduced gold and copper stream sales from Mount Milligan, as well as low lower metal prices. The reduced sales volumes were expected as we disclosed in our March and June quarter end communication and further when we reported stream sales for this quarter in early October. Earnings were $15 million down from $29 million in the first quarter of the fiscal year and $25 million in our June quarter. The biggest impacts to earnings were the lower volumes and prices as well as the new accounting standard for the recognition and measurement of financial instruments that we adopted on July 1. This new standard resulted in $1.5 million loss in the current quarter, which relates to equity we hold in third-party companies. The standard requires us to mark-to-market our equity interest each quarter, so we expect increased volatility in our earnings in the future. As you'll see on Slide 8, we've prepared a waterfall reconciliation of this quarter to our last quarter ended June 30 in terms of earnings per share. Compared to the June quarter, lower volumes and prices reduced earnings by a combined $0.24 or a net $0.15 per share once you offset the lower volumes with a reduced cost of sales. Beyond those significant changes, the higher DD&A costs associated with Voisey’s Bay and the new accounting standard for equity securities supplied the remaining reduction in EPS to $0.23 per share. It's worth noting that our low share account makes relatively small earnings changes appeared more significant on a per share basis. Continuing my comments on the quarter, I'll now turn to Slide 9. Our DD&A expense for the quarter was $43.2 million or $524 per…

Thanks, Bill. I'll conclude on Slide 10. Our strategic focus has remained consistent and that is to generate cash flow that is allocated towards strengthening the balance sheet, paying a sustainable dividend, and deploying capital and new business opportunities when we see good value. We have remained very active in the business development front over the past several quarters. But we also have remained patient and disciplined regarding capital allocation and having invested resources within our portfolio where we have seen opportunities. Resolving the Voisey’s Bay litigation gives us exposure to world-class operating asset that should provide Royal Gold shareholders many more years of royalty revenue. We expect Voisey’s Bay will once again be among our top 10 revenue generators. Similarly, the results of the Peak Gold PEA had demonstrated the value of that project. We recognized the potential when we first got involved with the project in 2014 and have worked hard to advance that project. What we believe is one of the most interesting early stage gold projects in the market today. We look forward to working with our joint venture partner to realize the value of our investment. That said we also believe this is a very interesting market for us to be a provider of capital. Operators continue to have limited access to equity markets and the cost of debt is climbing. The industry will always need new capital for project development, M&A and balance sheet recapitalization. And although the specific need any one time may shift from one of these to another, we will be there to provide capital. The rest assured and regardless of the need when we continue, we will continue to remain disciplined and if we don't see good value, we're quite happy to stay patient and apply our cash flow to further building of the balance sheet and paying of the dividend. This focus has served as well as we strive to be the most valuable company in our business with over $400 million of dividends paid to shareholders since 2001 and only 65 million shares outstanding, which is one of the lowest share counts in the industry. Operator, with that our prepared remarks are complete and we'd be happy to take any questions if there are some.

Thank you, Mr. Jensen. We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from Cosmos Chiu of CIBC Capital Markets. Please go ahead.

Hi. Thanks Tony and Bill. Maybe my first question is on Mount Milligan. I just want to once again clarify in terms of the timing of the revenue to Royal Gold in terms of – what's the time lag again between productions at Mount Milligan and when it would hit the books at Royal Gold?

Yes. Thanks for the question Cosmos and good morning.

Hi Tony.

Generally that's about five months. The contract says it can be no later than five months and so at times will receive some shipments that are earlier, but we tend to track each one of the shipments as it leaves and they range almost the full contractual period. I think it's best just to plan for that.

And Tony, I guess Bill had previously mentioned some rail issues at Mount Milligan. Again, when is that, so when Bill sort of mentioned that sales volumes are going to be somewhat similar next quarter versus this past quarter, what are we talking about once again?

So generally we'll get a good solid shipment near the end of the month. And in July that shipment did not happen. My understanding is that there were some railcars that came in that were rejected by the operator. And for whatever reason, I don't know what the reason was. And so that shipment ended up slipping over into the first part of August. And as we roll that forward, then we really expect to receive two major shipments from Mount Milligan early in January. So to be specific, the shipment that we would have normally have received in December would have come from July, but that's just slipped now.

Okay. So when you talk about…

Let me just be clear Cosmos, we expect it will slip. There's always a chance it could come in early. We're just giving you that guidance and we – on average, we think that's going to slip into the January quarter.

So that’s from the perspective of Royal Gold, so let me talk about this. Fiscal Q2 2019, from the perspective of Royal Gold, Mount Milligan’s contribution is going to be similar to what happened in fiscal Q1.

Well, I can't speak directly to that. Let me be a little careful before I confirm what you just said there. But overall, the overall sales level we believe is going to be quite close to…

Overall sales level.

Yes.

Okay.

So it's just a matter of timing. That's the only issue. There is no – you have complete clarity on the production because it happens essentially five months before we get paid.

Of course, maybe switching gears a little bit in terms of – maybe an accounting question here. Usually, I don't focus too much on the changes in working capital in your cash flow statements because again, Tony, as you said it is a timing issue at usually reverses itself out either the quarter afterwards or the quarter later on. But if I look at your working capital changes in the past quarter, there were actually some pretty big items that that went through quite a few word tax related. Could you maybe talk a bit more about that and sort of what happened? There's a $10 million for income, taxes payable, uncertain tax positions, $3.3 million, the other direction, $6.3 million in income tax receivable, just the working capital changes seem to be larger than usual in this past quarter?

Right, Cosmos, saying that as Bill will address that question.

Hi, Bill.

Yes. How you’re doing Cosmos?

Good.

So the movements in the balance sheet with respect to tax reflect two things. Number one would be cash tax payments that we actually make. And we did make we effectively make an annual tax payment to the Swiss government in this quarter. So we made tax payments to Switzerland. We made tax payments to Canada with respect to IRC, the other thing that goes through all of these accounts other than at year-end. So every quarterly period we are trying to estimate what our tax rates going to be over the full-year. And so you will get movements and assets and liabilities quarter-to-quarter that are not really cash related. And in particular that income tax receivable of $6 million is not a cash asset that we expect to receive in the form of a refund. What it is as we look out over our pretax income, we apply the U.S. rate of 21% to all jurisdictions. And by doing that you're effectively saying I'm paying 21% in Switzerland, which we're not. And that's where the tax receivable comes from. So it's not a clear answer, but you just have to understand that during quarterly periods as opposed to year-end, we're going to have the movement based on estimates as opposed to sort of actual assets and liabilities.

I guess just to add to what Bill said from a cash consumption basis that that did run through the working capital was the $16 million in actual cash we paid for tax this quarter. So you'll see that right there and the income statement. And then we also paydown accounts payable. We had a large expense that we had accrued with regard to exploration activities on the Peak Gold project and that went out as well. So I think those two items alone will probably be the bulk of your change there Cosmos.

Yes, of course. Maybe one last question, if I may. Looking at table three here, do a good job comparing, the operators production guidance versus what's been done so far? And as you mentioned in the press release, you talk about Peñasquito likely having a good Q4. Pueblo Viejo, higher grades and whatnot. The other one that I want to focus on is Cortez, it looks like they're sort of running behind so far in the first nine months, when compared to guidance, based on your knowledge and I know the asset quite well Tony. Are we expecting like a fairly good Q4 sort of stipulated here and in the guidance?

I think as more to speak more clearly to Cortez and where they're at and just a moment, but let me add some color on the front end of that. I wouldn't necessarily a look at these numbers and leap to the conclusion that fourth quarter is going to be strong for Cortez as it relates to our royalty. What we're guiding is that we expect a lot of our revenue to build in 2019. They're still stripping at the Crossroads deposit and that's really where the big revenue sources going to come from into the future. In the meantime, when they're producing outside of the Crossroads that's a bit of a hit and miss game because they get a few – they're in some of our areas sometime and they're not in some of our in another time. So it's a little bit harder for us to project that. But once we get into Crossroads in a more sustainable fashion, I think we're going to see a much more sustainable gold production as well.

Of course.

Mark, do you have anything to add to that?

No, I think you had a good explanation.

Great. Those are the questions I have. Thanks, Tony, Bill, and Mark.

Thanks Cosmos.

[Operator Instructions] And the next question will be from Tanya Jakusconek of Scotiabank. Please go ahead.

Good morning, Tanya.

Good morning, gentlemen. Good morning, Tony. Maybe for Bill. Thank you very much for the guidance on the depreciation and taxes. Maybe just your annual guidance for G&A and exploration.

We don't give any guidance in terms of G&A. Let me speak a little more broadly about that, Tanya to – that might be helpful and still responsive to your question.

Yes. And maybe Tony just because – you have limited number of shares, so million here and there really has an impact on earnings.

You're absolutely right, and thanks for highlighting that. So I think the biggest areas this quarter that may have not been clear or transparent to the marketplace were higher legal costs associated with Voisey’s Bay litigation. And then also a bit higher exploration costs. So if I can speak to both of those and assume that we don't have a lot of change with the rest of G&A anticipated. With regard to those two issues, we really don't anticipate any more cost related to the Voisey’s Bay litigation. So had we continued with the litigation, we would have been seen extremely large legal bills, but that's now behind us, so that's when we can put behind us. The other than would be exploration and we're going to be coming into the winter months as we always do at a much lighter fashion with regard to any cost we might consume on the joint venture of Peak Gold. So I think those two pieces of guidance might be helpful.

How much was the legal cost in G&A in Q1?

I don't have the specific number in front of me, but our G&A delta I think was around $3 million. So as you said, the movements like that can be pretty material to our earnings per share.

Okay. And then maybe just – thank you for the guidance on Cortez because we did find that to be a little weak. So I guess, from what I understood from Cosmos’ question is that Q4 could be similar to Q4 or your fiscal Q2 could be similar to Q1 until we get into Crossroads in calendar 2019?

Let me just add a little color to that as well. I don't think we've seen that soft a quarter from Cortez even when they were off of our property…

I know.

It’s hard to add it over Cortez sales, so that was a pretty soft quarter. We might see a little bit better. I would expect to see a little bit better in the fourth quarter, but – fourth calendar quarter. But really the big build I guess I mentioned to Cosmos is going to be coming in the New Year.

Yes, I mean we found it to be quite weak too. And maybe just lastly on the M&A side that you mentioned that at any given point in time, you're looking at either project financing or helping with balance sheet repair, et cetera. Right now, what are you seeing; number one, more of and number two, size wise? What are you looking at?

Yes, I think there's no restructuring going on now. People are somewhat healed and so it's really turned the M&A and project development. So we were probably seeing equal amount of that activity in both of those types of areas. They generally I guess M&A is going to be largely on potentially producing assets. But when it comes to project development, in this environment, we're really talking about builds. And so that would be probably in the $200 million to $500 million range, certainly aren't seeing things over $500 million very frequently in this environment.

Yes, that makes sense. Well, thanks a lot, Tony, and thanks for the clarity on Cortez.

Appreciate it. Thanks Tony.

[Operator Instructions]

Well, operator I think we’ll leave at right there.

Actually Mr. Jensen, we do have another party in the question queue, if you'd like to take them.

Perfect, love too. Yes.

Thank you. It’s Carey MacRury of Canaccord Genuity. Please go ahead.

Hi, good morning, guys. Just had a question on the Peak project, you've got the PEA done now. I'm just wondering, is that project from in terms of work, are you done with that at this point or is there more work that you're contemplating there?

Carey, thanks for the question. With regard to the PEA itself, we're not doing a significant amount of work. We are doing some additional engineering, but we think that that report stands firmly by itself and is a good piece of work for us. Now what we do with the project from this standpoint, this point forward is another question. We are at a point I think where it would be a healthy to have somebody else come in and move the project forward with their skill set. And we're just contemplating with our joint venture partner, how best that might happen and we always want to belong on this project. We quite like it. We have the royalty interests there already and so we would be quite keen to see how it is that we can really monetize and I'm not talking about cash today, but how can we see value in exit value over the core pieces of our business with this asset? So we're excited about what the future brings there and just give us a little bit more time and we'll provide a little bit more guidance as it becomes clearer to us.

Great. Thanks so much.

Thanks Carey. End of Q&A

And at this time, we will conclude the question-and-answer session. I would like to hand the conference back to Mr. Jensen for his closing remarks.

Well, thanks again for joining us today everybody and we appreciate your interest in our Company as always, and let’s look forward to updating you as new developments come our way.

Thank you, sir. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. At this time, you may disconnect your lines.