Dear Fellow Shareholders,

Since Royal Gold obtained its first royalty in 1990 at the Cortez mine, we have been positioning the Company as a unique investment opportunity for precious metal investors. One that provides many of the positive attributes of a gold producer, but with a lower risk profile. As we reflect over the past year, it is gratifying to recognize what we have accomplished to date.

Diversified Portfolio

Royal Gold now has a thoroughly diversified portfolio of 36 properties providing royalty revenue to the Company. Over the past year, three development properties joined this list, including the Canadian Malartic, Holt and Wolverine mines in Canada. Our producing portfolio is anchored by the Peñasquito, Andacollo and Voisey’s Bay mines. Both Peñasquito and Andacollo completed construction and reached commercial production during the fiscal year, and the Voisey’s Bay labor dispute was resolved in February. Revenue from these cornerstone properties grew from $13.7 million in fiscal 2010 to $97.8 million in fiscal 2011. These three properties are now our largest revenue contributors. We expect further production gains in fiscal 2012 from the Andacollo, Peñasquito, Holt, Wolverine, and Canadian Malartic mines as they work to achieve full capacity.

Favorable Geopolitical Jurisdictions and Counterparties

The properties where we hold interests are positioned in favorable jurisdictions with 77% of production and 97% of our gold equivalent royalty reserves occurring in the United States, Mexico, Canada, Chile and Australia. Net of depletion, gold and silver reserves subject to our royalty interests increased 7% to 83.9 million ounces and 4% to 1.4 billion ounces, respectively, during the year.

To better reflect our direct interest in reserves, we determine royalty ounces by calculating gold equivalent reserves based on metal price ratios for a property and then multiplying by the royalty rate for that property. On that basis, our gold equivalent royalty ounces increased by 25% to 7.0 million ounces during the year due to increases throughout the portfolio and the successful completion of the Mt. Milligan acquisition. And 73% of these royalty reserves are associated with mines operated by proven and well financed operators such as Barrick, Newmont, Goldcorp, Kinross, Teck, Vale, Xstrata and Thompson Creek.

"Our compounded annual growth rate over the past decade in revenue per share, EBITDA per share and earnings per share was 28%, 37% and 35%, respectively.”

Efficient Business Plan

It is important to remember that as a royalty company, we do not have to pay the operating or capital costs to mine and process ore. As such, we are not exposed to inflation pressures that tend to erode profit margins in gold operating companies. While the average industry cash cost to produce an ounce of gold increased 20% to $581 per ounce over the past calendar year, our EBITDA margin was 88% in fiscal 2011, due to our growing revenue and relatively fixed cost structure.

Record Financial Results

We achieved record results in all financial measures. Revenue increased 59% to $216.5 million while revenue per share increased 26% over the prior year to $3.93 per share. Free cash flow increased 90% to $190.2 million or an increase of 51% to $3.45 per share compared to last year. Likewise, earnings increased 232% to $71.4 million while earnings per share increased 57% to $1.29 per share on a year-over-year basis, excluding one-time costs for fiscal 2010. These increases were due to significant additional production attributable to our interests from Andacollo, Peñasquito, and Voisey’s Bay, as well as a 26% increase in the average price of gold over the fiscal year.

The gold bull market began in mid 2001 and continues today. We are particularly pleased with our financial performance on a per share basis over the ten subsequent years ending at the conclusion of fiscal 2011. Our compounded annual growth rate (“CAGR”) over that period in revenue per share, EBITDA per share and earnings per share was 28%, 37% and 35%, respectively. This compares to a CAGR for the gold price of 19% over the same period, illustrating the additional value Royal Gold has generated for its shareholders.

During the same ten-year period, our CAGR in dividends was 20%. We declared our first dividend in 2000 and have increased it every year since 2001. In fiscal 2011, we increased the dividend to $0.44 per share, representing a 22% increase over the prior year.

Inherent Growth within Portfolio

We also made some very important additions to our portfolio during the year. We increased our interest in the Pascua-Lama royalty and now own a 5.23% net smelter return (“NSR”) royalty on the gold produced within Chile, at gold prices above $800 per ounce. We also acquired the right to 25% of the gold production from the Mt. Milligan project in Canada. Both of these projects are now in construction and are scheduled for production in 2013. These projects are designed to be long lived, low cost producers. Once in production, we believe that these operations will become our largest revenue sources.

We also obtained an option to acquire a 1.25% NSR royalty, and the ability to increase that percentage to 2.0%, on the future gold and silver production from the Kerr-Sulphurets-Mitchell (“KSM”) project in Canada. The KSM deposit hosts proven and probable reserves of 2.2 billion tonnes, at an average grade of 0.55 grams per tonne of gold (38.5 million ounces), 0.21% copper (10 billion pounds), and 3.04 grams per tonne silver (214 million ounces). This transaction offers Royal Gold an excellent entry point into one of the largest undeveloped gold deposits in the world. Once built, the economies of scale are expected to provide for low production costs and a robust production schedule, over a projected 50+ year mine life.

In addition to the 36 producing royalties mentioned earlier, we have 21 properties in the development stage and 126 properties in the evaluation and exploration stage.

These projects are located in some of the most prolific gold regions throughout the world and represent potential future value as the operators and developers of these properties work to make discoveries and move them towards production.

Gold is Currency

The global economic conditions continue to provide for a strong gold price environment. Excess spending by many sovereign economies over many years has resulted in a devaluation of fiat currencies and a loss of confidence in those currencies. Investors the world over have returned to gold to protect their wealth against negative real interest rates created as a result of weak sovereign monetary policy. This is particularly noteworthy in China, where a growing middle class concerned about inflation has fueled gold investments. Central banks have recognized the value of holding gold in their portfolio for the benefit of foreign exchange diversification and have become net acquirers of gold. At the same time, we have seen political unrest within the Middle East and Northern Africa which has raised security concerns.

Interestingly, gold production has not responded to the increase in gold price as one would expect in other commodities and businesses. Over the last decade, the gold price has increased 456% while gold production today is essentially at the same level as 2001. This is the very reason gold has value. It is a scarce element in the surface of the earth and not easily discovered. Many of the rich ore bodies have been consumed or are maturing and the average grade of worldwide reserves is falling, also pressuring the cost of production. It is much more difficult to permit new mining projects, and the industry suffers from manpower shortages for developing deposits. All these factors restrict the production of gold.

The combination of these supply and demand factors suggests a bright future for gold, and for Royal Gold.

New Generation of Royalties

Fiscal 2011 results represent the beginning of a fundamental shift in the source of our revenue as we transition away from maturing projects to our new generation of long-lived core properties, including the Andacollo, Peñasquito, and Voisey’s Bay mines currently in production, as well as Pascua-Lama and Mt. Milligan now under construction. Our growing cash flow should allow us to invest internally generated funds and reduce our need for external resources. We are keen to grow our business through creative structures that meet the needs of our counterparties, while at the same time offer our shareholders an attractive return.

Royal Gold Team

In the past year, we increased the size of our board from seven to eight directors and elected Gordon Bogden to fill this new position. Gordon has a unique blend of technical, financial and transaction skills, as well as significant industry experience that will add great strength to our current board as we continue
to grow the Company.

We had an excellent fiscal 2011 due to your support and the dedication of Royal Gold employees. Our team has now been working together for several years and has demonstrated the ability to create shareholder value. I am very appreciative of their talent and commitment to the Company. We, as a management team, are honored to have the opportunity to represent our shareholders and will continue to work diligently to preserve Royal Gold as a premium gold investment.

Sincerely,

Tony A. Jensen
Back to top President and Chief Executive Officer