Royal Gold's Management Presents At Bank Of America Merrill Lynch Global Metals, Mining & Steel Conference (Transcript)

Royal Gold, Inc. (RGLD)

Bank of America Merrill Lynch Global Metals, Mining & Steel Conference Call

May 16, 2012 4:45 pm ET

Executives

Stefan L. Wenger – Chief Financial Officer

Analysts

Michael Jalonen – Bank of America/Merrill Lynch

Presentation

Michael Jalonen – Bank of America/Merrill Lynch

And continuing on in the royalty environment, very happy to have Royal Gold. Joining us from Royal Gold is, like Franco-Nevada involved more in the precious metals, gold streams and royalties. Presenting from Royal Gold is Stefan Wenger, who is the CFO and he has been in this position since 2006, but was been with Royal Gold since 2003. And Stefan Wenger without further ado, I’ll past it on to yourself.

Stefan L. Wenger

Well, good afternoon and I’d like to thank the Bank of America/Merrill Lynch for having us here at the conference today. And Mike thanks for the very nice introduction. Before I start, I’d just like to note that I will be making forward-looking statements today and I’d ask that you make yourself familiar with our Safe Harbor statement.

Going to divide the talk today into three basic categories, we spend a little bit of time talking about our company performance, financial position in revenues and let’s spend quite as much time on the efficient business model, you’ve heard Franco-Nevada in several weed but we’re very similar in that regard. And I do want to mention our reserves, which we just announced with our third quarter earnings release recently.

And then I’ll move on and talk a bit about our five cornerstone assets. Looking at our financial position, while we’ve been very active in recent years and we funded part of that growth with the equity market. We still just have under 60 million shares outstanding for a $3.8 billion market cap company. And as of the end of March, we had a $183 million of cash on hand. We did fill up the cash position during the quarter with an offering, worry to recapitalize the company following two deals that we did in December of 2011.

And as we look further down our balance sheet, we do have debt outstanding of $114 million. To put that into perspective, we could almost pay that offer two quarters of our operating cash flow and the debt is at a very low cost of LIBOR plus 1.75%. So it’s a nice piece of capital to our structure. In addition to our cash, we have $225 million available under our revolving credit facility and that’s fully available today to give us nearly over $400 million of resources available to fund future acquisitions.

We do pay a dividend, we’ve paid a dividend for 12 years and we’ve have actually increased that dividend 10 over the last 11 years. Our dividend is $0.60 of share and that’s double what it was just in 2008 and we want to continue that dividend growth going forward. We finally are looking at share price performance, as you would expect from a royalty model and a premium investment. We have outperformed the GLD over this last five year period and we’ve also outperformed an average of senior producers over that same period.

Just looking ahead revenues, we’ve been growing revenues consistently and we expect that trend to continue. Keep in mind that we have a June fiscal year end, so the bar on the far right represents the first three quarters of our fiscal 2012, compared to just left about our fiscal 2011. For the nine month period, our revenue and our adjusted EBITDA were $203 million and $183 million respectively. That compares to a $157 million and a $138 million for the same period one year ago. Most of the revenue increase was attributable to price, as ramp ups in Andacollo and Peñasquito, among others were affected by throughput issues, which limited production growth attributable to our royalties.

A quick snap indicates that the adjusted EBITDA percentage increase was greater than the revenue percentage year-over-year. And in part the fact reflects the fact that our cash operating cost are not impacted by many of the factors giving rise to an inflationary cost environment in the industry. I’ll come back to this issue a bit later. From a country and operator perspective, our top four countries for revenue were Chile, Canada, Mexico and the United States and our top four operators by revenue were Teck, Vale, Goldcorp and Barrick which represent diversity, quality and those operators are really key characteristics of our portfolio.

One last note, we are heavily focused in precious metals. For the nine months, we’ve recorded 74% of our revenue from precious metals including gold and silver. And as we look forward, we expect that percentage to increase significantly in Pascua-Lama and Mt. Milligan begin production.

And whether it’s related to lower grades, higher strip ratios, rather import costs. We’ve seen cash cost increase in the industry and it’s really compressed unit cost, unit margins. Our business is a little different. As a royalty company, we have fixed cash cost if you will. And our margins for the past fiscal 2011 were 1,200 an ounce compared to the operators margins in calendar 2011 on the average of $900 an ounce. This represents the fact that we have 20 people on our company really our only costs are related to those 20 people and the cost of being a public company. And just to update you for our most recent nine months, our cash cost have come down to $85 an ounce for the most recent nine month period and $71 an ounce for the most recent three month period.

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