RGLD

Royal Gold, Inc. (RGLD)

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Royal Gold, Inc. (RGLD)

F4Q10 (Qtr End 06/30/10) Earnings Call Transcript

August 12, 2010 12:00 pm ET

Executives

Karen Gross – VP and Corporate Secretary

Tony Jensen – President and CEO

Stefan Wenger – CFO

Bill Zisch – VP, Operations

Analysts

Kevin Chiew – CIBC

John Doody – Gold Stock Analyst

Adrian Day – Adrian Day Asset Management

David Christie – Scotia Capital

Andy Schopick – Nutmeg Securities

Presentation

Operator

Good afternoon. My name is Mason and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Gold fiscal 2010 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions).

Thank you. I would now like to turn the call over to Ms. Karen Gross. You may now begin.

Karen Gross

Thank you, operator and hello, everyone. Welcome to our fiscal fourth quarter and year-end 2010 conference call. This event is being webcast live. You will be able to access a replay of this call on our website at www.royalgold.com. Also on the website, you will find your release detailing our financial results.

As always, 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 statement in today’s press release and is presented in greater detail in our filings with the SEC.

Participating on the call today are Tony Jensen, President and Chief Executive Officer; Stefan Wenger, Chief Financial Officer and Treasurer; Bill Heissenbuttel, Vice President, Corporate Development; Bill Zisch, Vice President in Operations; Bruce Kirchhoff, Vice President and General Counsel; and Stanley Dempsey, Chairman.

A Q&A will follow our comments. We will also be discussing the company’s free cash flow, which is a non-GAAP financial measure. There is a free cash flow reconciliation in today’s release.

Now, I will turn the call over to Tony.

Tony Jensen

Good morning and thank you for joining us today. We are pleased to share with you details about our record financial results for fiscal 2010 and for the fourth quarter.

Fiscal 2010 was a banner year for Royal Gold. We recognized record revenue and cash flow during the year and continued to execute on our long-term growth plan by adding quality, long-life royalties to our portfolio. In total, we increased the assets of Royal Gold by $1 billion.

With the acquisition of International Royalty Corporation and the Andacollo transaction, we expanded our number of producing and development royalties by 60% and grew our total royalty portfolio from 118 to 189 properties. This is a remarkable growth when you consider that just two years ago, our total royalty count stood at 44 properties.

While we are proud of the portfolio growth in terms of total numbers, we are even more pleased with the quality of assets that we have added over the last year, such as royalties at the Andacollo mine, additional royalty interest at Barrick's Pascua-Lama project and Vale's Voisey's Bay mine. Together with the recently announced Milligan transaction, we estimate that by 2013 two-thirds of our revenues will come from assets having a life of 15 years or more.

With this, this will provide a solid base to continue to grow Royal Gold through internally generated cash flow. In addition to significant increases in our financials and asset base, we have also seen substantial growth in the number of precious metals equity ounces subject to our royalties. Including Mt. Milligan, which I will discuss in detail later, precious metal equity ounces have grown 203% since our fiscal 2009 reserve release.

Our strong revenue during fiscal 2010 was primarily driven by production growth at Taparko, Peñasquito, and Dolores; new revenue from the IRC portfolio; initial production at Andacollo; and higher metal prices, particularly for gold. We are especially pleased to see the turnaround at Taparko, which became our largest revenue contributor during the year. We have been patient and supportive of the project and that strategy has now paid off. Taparko has returned about $50 million on our original $35 million investment and that project still has about a seven-year mine life ahead of it.

All of these factors contributed to a year of impressive asset, reserve, revenue, and free cash flow growth for Royal Gold. Importantly, in fiscal 2010, we derived 84% of our revenue from precious metal production and I think a distinguishing factor is 81% of that came from gold. In the fourth quarter, we derived 78% of our revenue from precious metal production, even after adding the IRC assets.

Looking ahead, fiscal 2011 is shaping up to be an excellent year. We anticipate strong revenue growth from Andacollo and Peñasquito, the commencement of production at Canadian Malartic and Wolverine, the potential resumption of full production at Voisey's Bay and increased production at Las Cruces and Dolores. We are confident that this expanding royalty pipeline will more than offset the anticipated revenue decreases at Taparko, Siguiri, and Cortez.

Now, I will ask Stefan Wenger, our CFO, to review the financial highlights for both the year and the quarter. And after that, Bill Zisch, our Vice President of Operations will provide an update on certain producing and development royalties. Stefan?

Stefan Wenger

Thank you, Tony and good morning, everyone. For the full fiscal year, we had record revenue of $136.6 million, an 85% increase over last year's revenue of $73.8 million.

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