rgld

Analyst: Victor Sula, Ph.D.Initial Report

March 27th, 2009

Royal Gold Inc. (NASDAQ: RGLD) 1


March 27, 2009

Recommendation

Highlights

MARKET DATA

Symbol

Current price

Low/ High 52 weeks

Average Volume

Market Capitalization

Shares Outstanding

Source: Reuters.com, SEC Filings. Year-

RGLD

$45.37

$22.75 –

49.81

686,906

$1,542 Mn

34.01 Mn

Revenues, $ Mn.

Gross margin

Operating margin

Net margin

EPS, $

48.4

93.2%

59.0%

40.8%

0.79

66.3

94.5%

49.7%

36.3%

0.61

27.2

93.6%

49.4%

37.3%

0.30

30.7

95.2%

35.3%

88.4%

0.79

12.9%

1.6 b.p.

-14.1

b.p.

51.1 b.p.

163.3%

37.0%

1.3 b.p.

-9.3 b.p.

-4.5 b.p.

-22.8%

Increasing revenue stream

RGLD has reported strong growth over the years, despite the volatility in gold, copper and other metal prices. Annual revenue for the fiscal year ended June 2008 was a record $66.3 million, compared to revenue of $48.4 million for the fiscal year ended June 2007, an increase of 37%. For the first half of fiscal 2009, the Company recognized total royalty revenue of $30.7 million as compared to $27.2 million for the same period of fiscal 2008. The increase

volume

50

48

46

44

42

40

38

36

2

1.5

1

0.5

© BigCharts.com

Mill

ions

Share Statistics

(03/23/09)2007 2008 %Chg %ChgH1

2008

H1

2009

27/03/09RGLD daily

09 Feb Mar

Royal Gold Inc.’s (RGLD) business model is very sensitive to the movements of gold prices, which positions the company to grow higher than its peers as long as metals prices cooperate. We believe the stock is quite attractive as a long-term play and we rate it as a Speculative Buy.

Royal Gold Inc.1660 WynkoopStreet Suite 1000Denver, CO 80202

Phone: +1-303-5731660 Fax: +1-303-5959385E-mail: [email protected]


March 27th, 2009


resulted primarily from an increase in the average gold price and production from the recently acquired Barrick Gold Corp. royalty.

Agreement with Barrick Gold Corp. added royalties on more than 70 new properties

Effective October 1, 2008, the Company completed its agreement to acquire a portfolio of royalties from Barrick Gold Corp. in ex-change for net cash of approximately $150.0 million. The Barrick royalty portfolio consists of royalties on 72 properties, including nine producing royalties, three development stage royalties, and 60 exploration stage royalties. Eighteen of the exploration stage projects are considered to be in an evaluation stage, as these prop-erties are engaged in the search for reserves but currently contain additional mineralized material. More than 75% of the portfolio consists of precious metals royalties. Initial revenue contributions from the producing properties acquired in the Barrick transaction totaled $4 million during the first quarter after transaction was completed.

Solid Dividend payments

Strong operating fundamentals and a diversified portfolio of roy-alties gave the Company the ability to deliver dividend payout, and it continues to maintain a capital surplus that ensures long-term financial strength. RGLD has been paying a dividend to shareholders since 2000. The Company’s dividends have steadily increased for each of the previous consecutive nine years. Accord-ing to the dividend history of RGLD, the Company issued divi-dends of $0.05/share that grew to $0.32/share in 2009.

RGLD is the largest U.S.-based precious met-als royalty company engaging in the acqui-sition and management of precious metal — most of which contain gold and silver - roy-alties. The Company seeks to acquire existing royalties or to finance projects that are in pro-duction or near production in exchange for royalty interests. RGLD also funds explora-tion on properties thought to contain precious metals and seek to obtain royalties and other carried ownership interests in such properties through the subsequent transfer of operating interests to other mining companies.

P/E comparision

Fiscal year ending June 30.

40,39

17,24 13,36

RGLD Ind Avg S&P 500

0,190,11 0,12

0,21 0,17

Q1FY08 Q2FY08 Q3FY08 Q4FY08 Q1FY09 Q2FY09

Royalty Revenue, $ millions

Source: SEC filings.

6.012.3 15.8

21.4 25.328.4

48.4

66.3

1.1

10.7 6.7 8.9 11.5 11.4

19.724.0

0

10

20

30

40

50

60

70

2001 2002 2003 2004 2005 2006 2007 2008

Royalty RevenueNet Income

Price Change

GROWTH (%)

RevenuesEPS

RETURN ONEQUITY (%)

q. 2 2009. ttm5 Yr. avg.

3 Mo.

-7.34

LastQtr.

-0.60463.00

RGLD

8.477.56

1 Yr.

47.91

12 Mo.

30.9065.85

Ind Avg

0.469.95

3 Yr.(Ann)

12.8%

3 YrCAGR37.86

4.11

S&P500

25.5420.74

STOCK PERFORMANCE (%)


March 27th, 2009



March 27th, 2009


Strong gross margins due to costless business model

As for gross margins, RGLD is one of the most gainful compa-nies in any industry. The Company’s gross margins continued to improve over the last quarters with a slight decrease in Q1 2009. RGLD succeeds to achieve margins of more than 90%, mainly due to its business model, which avoids the rising cost structures that miners are experiencing in the current environment and allows the Company to efficiently grow royalty revenue without adding significant overhead costs. RGLD’s gross margin tends to remain stable over time.

Cash and cash equivalents significantly decreased after Barrick acquisition

Over the time, the Company had a strong balance sheet with solid cash and cash equivalents resources. RGLD’s liquidity allowed the Company to compete for royalty acquisitions by means of a purchase, by providing financing, or by entering into a strategic exploration alliance in exchange for a royalty. As a consequence of Barrick’s acquisition for net cash on hand of $150 million, RGLD’s cash and cash equivalents decreased to $55 million by the end Q2 2009 from $210 million by the Q1 2009.

Gross Margin, %

Source: SEC filings; analyst estimates.

12.814.7

19.5 18.9

16.1 14.6

93.3%

93.9%

94.6%

95.6%

94.7%

95.8%

92,0%

92,5%

93,0%

93,5%

94,0%

94,5%

95,0%

95,5%

96,0%

0

5

10

15

20

25

Q1 08Q 2 08 Q3 08Q 4 08 Q1 09Q 2 09

Royalty Revenue, $millionsGross Margin, %

Source: Company presentation / LAPP Resources, Inc. geological report, April 2008.

Selected consolidated balance sheet data, $Mn

Total Assets, includingCash and short term investmentsLiabilities, includingDebtEquity

545.9192.062.615.8

483.2

556.9209.869.919.3

486.9

682.655.074.919.3

507.7

30-June-08

30-Sep-08

31-Dec-08

Source: SEC Filings; year-ending June, 30.

INCOME STATEMENTNet Sales ($mil)EBITDA ($mil)EBIT ($mil)Net Income ($mil)

BALANCE SHEETCash & Equiv. ($mil) Total Assets ($mil) Total Debt ($mil)Equity ($mil)

PROFITABILITYEBITDA MarginOperating MarginSales Turnover Return on AssetsReturn on Equity

DEBTCurrent RatioDebt/Capital Interest Expense ($mil)Interest Coverage

SHARE DATAShares outstand.(mil)EPSBook value / shareInstitutional Own % Avg Daily Volume

Q2 FY2008

31-Dec-07

14.710.0

6.44.6

195.6542.115.75

480.90

67.95%43.43%

0.03 3.40%3.83%

25.00.03

0.417.8

300.1118.0

NA610,908

Q2 FY2009

31-Dec-08

14.610.9

2.421.4

55.0582.6

19.3507.7

74.71%16.32%

0.03 14.69%16.86%

3.60.04

0.83.0

340.6217.1 NA

771,031


March 27th, 2009


Steady gold prices

Since August 2007, gold prices have steadily climbed to reach new records. In March 2008, gold prices hit the record $1,009 per ounce on the New York Mercantile Exchange before slipping back. The current turmoil in the financial markets is creating enormous con-fusion, and demand for dollars is rising as investors head for cash, all of which is weighing on gold. The recent bailouts and added money from the government have raised the concerns of inflation once again, and many investors have taken the recent government actions as simply one more reason to invest in gold or gold pro-ducers. Experts think gold prices will climb back above $1,000 per ounce this year, as inflationary pressures and financial turmoil prompt investors to seek safe havens. Overall, analysts expect the bulk of trading in 2009 to be within the $700/oz to $1,300/oz range.

RGLD is engaged in the acquisition of existing royalties or financ-ing projects that are in production or in development stage in ex-change for royalty interests. The Company holds royalty interests in properties located in the United States, Canada, Mexico, Africa, Argentina, Chile, Australia, the Russian Federation, Finland, Co-lumbia and Central America. Its royalty portfolio consists of 119 properties, 22 of which are producing properties, six development stage properties, 27 evaluation properties and 64 exploration stage properties.

The Company recently paid $150 million to Barrick Gold Corp. in exchange for a royalty portfolio consisting of 72 properties at various stages. In connection with the Barrick transaction, RGLD recorded a $31.5 million gain resulting from the restructuring of its royalties at the Cortez Mine. The Barrick portfolio pitched in $4 million in revenue for the first quarter after the transaction was closed. On the other hand, the acquisition left a deep hole in the Company’s balance sheet, and implicitly in its cash and cash equivalents.

RGLD portfolio is concentrated in gold, and during the past six months, 81% of revenue came from gold. Meanwhile, gold is seen as a safe haven against inflation and the current economic envi-ronment. In addition, recent bailouts from the government have raised the concerns about inflation once again. Analysts consider that prices could achieve a fresh all-time high in 2009 as net invest-ment surges.

Analyst opinion

EPS, $Revenue, $Mil

FY 200930-Jun-09

0.6882.2

FY 201030-Jun-10

0.9797.3

Consensus Estimates -

RGLD

consensus estimates are provided by Thomson Financial

0.791.722.530.582.01

0.68

2.021.751.740.822.41

0.97

156%2%

-31%41%20%20%

43%

AEMABXAUGGNEMPeers Median

RGLD

Ticker Symbol

EPS consensus estimates

2009 2010 %Chg


March 27th, 2009


Through its portfolio of royalty interests, the Company holds in-vestments in a number of properties without incurring ongoing capital or operating costs. RGLD has generated a track record of strong performance blending the operational risk with strong long-term growth potential. In addition, because of its long-term investment strategy and dedication to the fundamentals of its business, the Company is able provide an increasing dividend, while maintaining the company’s financial strength.

Though the recent volatility in gold prices has made some inves-tors uncertain about future growth for RGLD, we believe that the Company will outperform the market due to solid portfolio of gold properties, a low-cost business model that is heavily replicated by other gold players, and uncertainties about the credit crunch reso-lution. RGLD business model is very sensitive to the movements of gold prices and positions the company well to grow higher than its peers as long as metals prices cooperate. Some analysts expect $1,300 for an oz. of gold by the end of 2009.

All above mentioned makes the stock quite attractive as a long-term play and we rate it as a Speculative Buy.

Agnico-Eagle Mines Ltd. Barrick Gold Corp. AngloGold Ashanti Ltd. Goldcorp Inc.Newmont Mining Corp. Peers Median

Royal Gold, Inc.

AEMABXAUGG

NEM

RGLD

57.7533.0338.0934.9346.9

46.22

8,940 28,830 13,620 25,490 22,940

1,570

73.1019.2015.0660.2223.33

23.33

67.97

28.5918.8721.8942.6019.46

21.89

47.65

TickerSymbol

Company Name

Price perShare, $

Mrkt. Cap.$ Mn 2009 2010

P/E

Source: Yahoo Finance!


March 27th, 2009


Disclaimer

DO NOT BASE ANY INVESTMENT DECISION UPON ANY MATERIALS FOUND ON THIS REPORT. We are not registered as a securities broker-dealer or an investment adviser either with the U.S. Securities and Exchange Commission (the “SEC”) or with any state securities regulatory authority. We are neither licensed nor qualified to provide investment advice.

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Information contained in our report will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934. Subscribers are cautioned not to place undue reliance upon these forward looking state-ments. These forward looking statements are subject to a number of known and unknown risks and uncertainties outside of our control that could cause actual operations or results to differ materially from those anticipated. Factors that could affect performance include, but are not limited to, those factors that are discussed in each profiled company’s most recent reports or registration statements filed with the SEC. You should consider these factors in evaluating the forward looking statements included in the report and not place undue reliance upon such statements.

We are committed to providing factual information on the companies that are profiled. However, we do not provide any assurance as to the accuracy or completeness of the information provided, including information regarding a profiled company’s plans or ability to effect any planned or proposed actions. We have no first-hand knowledge of any profiled company’s operations and therefore cannot comment on their capabilities, intent, resources, nor experience and we make no attempt to do so. Statistical information, dollar amounts, and market size data was provided by the subject company and related sources which we believe to be reliable.

To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in the report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information).

We encourage you to invest carefully and read investment information available at the websites of the SEC at http://www.sec.gov and FINRA at http://www.finra.org.

All decisions are made solely by the analyst and independent of outside parties or influence.

I, Victor Sula, Ph.D, the author of this report, certify that the material and views presented herein represent my personal opinion regarding the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compensation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and shares or securities in any of the companies featured in this report.

Victor Sula, Ph.D. - Senior Analyst

Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquida-tion. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.

rgld

Documents

barrick gold

marroyal gold

portfolio of royalties

average gold price

movements of gold prices

revenue stream rgld

producing royalties

dividend history of