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Royal Gold (RGLD)
BoaML 18th Annual Canada Mining Conference
September 06, 2012 08:50 AM ET
Bill Heissenbuttel - VP, Corporate Development
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Good afternoon ladies and gentlemen. I'd like to thank Bank of America Merrill Lynch for the opportunity to present this afternoon. I will be making forward-looking statements so I must ask you to familiarize yourself for the safe harbor statement. And as this is our really our first investor presentation after our June fiscal year end, I'd like to give you a summary both of financial results and some of the other events that marked our year.
Our revenues were up 21% as higher gold prices and greater contributions from Andacollo, Penasquito and Holt offset lower base metal prices and production declines at Cortez and Leeville. Our adjusted EBITDA which is just EBITDA adjusted for non-cash stock compensation was $238 million for 25% increase. And as a royalty company, we've been able to maintain our attractive high margin business model with over 90% of revenue reporting as adjusted EBITDA. From a geographical perspective, our revenues will drive from safe political jurisdictions such as Canada, Chile and the US. We saw an increase in reserves subject to our royalty interest even though higher cost has started to impact reserve calculations in the industry.
During the year we completed two capital markets transactions and equity placement and a convertible note both of which allowed us to position the company well from a liquidity perspective to continue to find new investments. And in keeping with our history over the past decade, we again increased our dividend. And our current calendar year dividend payout is up over 100% relative to what it was in Calendar 2008.
Now one of the struggles many gold companies have had over the past few years in the inability to outperform the gold price for the ETF. It does us real good to talk about the fact that ETF buyers do not receive dividends and do not benefit from reserve expanses if in fact the share price cannot outperform the gold price. So if we look back from our last fiscal year end, the total return on Royal Gold shares has outperformed the gold price over the last one, three and five year periods.
Now a few of the issues to consider when assessing the quality of our royalty portfolio really tied to operators. Ideally what one wants in a royalty asset, we'd like to see operators that are highly experienced, with sufficient capital to meet construction and operating issues that eventually arise.
Two, we want the assets on which the royalties apply to actually be important to the operators themselves. And three, we want the assets to be low cost producers or at least able to withstand sustained production at a lower commodity price environment.
Now Teck, Gold Corp. and Barrick, we have operators with a combined market capitalization of $180 billion and considerable experience in building and operating mines. These four account for almost 60% of our revenue and they operate 10 of our revenue generators. And although we cannot characterize all of the assets operated by these companies as court east portfolio, the important contributors to our business like Andacollo, Penasquito, Voisey’s Bay are meaningful to each of the operators. And in the case of Alamos and St. Andrew, the underlying properties are really core revenue generators for each of them. And Mulatos is actually one of the lower cost gold producers in the industry.
Also during our fiscal year, gold accounted for 68% of our revenue and total precious metal revenue was 74% and of the non-precious metal revenue Voisey’s Bay accounted for more than half of that figure. Our gold will always be to increase precious metal base revenue and with the revenue expected to be generated by Pascua and Mt. Milligan over the next few years. We should see gold price revenue continue to move up.
I mentioned the political jurisdictions from which we generate revenue, Chile and Canada account for almost half of our revenue with Mexico in the US accounting for another 38%. And if we adding Pascua and Mt. Milligan to the total, this will also increase the contribution from our top two host countries and further enhance the political risk profile of our revenue stream.
The industry wide we're hearing about cost pressures both from an operating and a capital perspective, you’ve seen it in our own portfolio at Pascua and Mt. Milligan and then at a recent (inaudible) presentation showed that almost 85% of what they called mega projects have seen cost overruns of some scope.
Now we don't have direct exposure to these over runs in terms of the investment returns obviously except with respect to delays, nor do we need to allocate resources to address these issues. In fact, one might say investing in a royalty or streaming company can offer a hedge against higher capital cost and since the cost over runs can create an opportunity for us to invest.