Royal Gold, Inc.

Thank you very much. I do have some housekeeping to take care of. Sure. Well, I can do it. I just have to read our forward-looking statement here. So during today’s presentation, I will be making forward-looking statements. Risks and uncertainties could cause those actual results to differ materially from these statements, and these risks are discussed in our most recent 10-K filed with the SEC.

Great. Now to the fun stuff. [laughs] Well, maybe to start at a high level and to set the stage, for people in the room who don’t know the Royal Gold story, maybe can you bring us up to speed on where the company stands today following the Sandstorm acquisition and what you see as the investment thesis as it is today?

Yeah. I think last year was so transformational for the company as a whole, and the Sandstorm transaction and the Consanti transaction allowed us to do a few things that have been strategic goals on our end for a number of years. And the first one is diversification of the portfolio. Those of you who have followed us for a long time have followed Mount Milligan, the ups, the downs, when it was 25% or 30% of our revenue and our NAV, and that posed challenges at some point. With the transactions last year, for the first six months of this year, we only had two assets that generated more than 10% of revenue, and the largest was 12.5%. So what we’re talking to investors about at this point is relative to all the other royalty and streaming companies you may talk to, we believe we have reduced the event risk in our portfolio better than anybody else in the sector. I think everybody else has a concentration risk that far exceeds the concentration risk that we now have in our portfolio.

Secondly, growth. Again, if you followed us for a while, there was a question about the growth profile of the company. And by adding Sandstorm, which was a very development asset-rich portfolio, we were actually able to take our producing asset portfolio, which was quite strong, and put it together with the development assets. And that’s Mara, that’s Platt Reef, that’s Hag Modern. And so we have this nice balance. We’ve got a diversified revenue base currently. We have a nice growth profile, which we highlighted at our Investor Day in March. So I think we have a much more balanced portfolio.

I think the third thing about the portfolio that’s different is the duration. We’ve increased the average reserve life from fourteen years to eighteen years, and it’s not just the Sandstorm acquisition. If you’ll recall last year, Centerra announced a Mount Milligan life of mine plan extension that took that reserve life to twenty years, and it’s nice to have our biggest asset have twenty years of life in front of it. So I would say from a portfolio perspective that those are the things that we’re stressing.

I’d also like to stress that notwithstanding the equity we’ve issued for Sandstorm, we’re still the leader in our industry in terms of per share metrics, looking backwards. And I think one of the particular strengths is our management team, which has been around, I think, on average between ten and fifteen years. And one of the things this management team has certainly demonstrated is the ability to identify resource upside. So that when you look at a particular transaction, it might have a ten or a fifteen-year reserve life. Our team is able to look at that and say, “It’s not ten or fifteen years. It’s probably twenty, twenty-five, thirty years.” And so you see a growing IRR in that portfolio, and that skill base is still in the company.

Great. You touched on scale diversification, duration, that you achieved through the acquisition, but there were also more complex structures that came into the portfolio. As you think about the first, I guess, half year of having the expanded portfolio, what has been done to maybe simplify it? And as you think ahead to the portfolio, is there more simplification to come?

Yeah. I think the only complex thing that we really inherited was the intercompany relationship between Sandstorm and Horizon Copper. I don’t think investors understood it. I think some investors said, “I don’t really wanna spend the time to understand it.” And that was actually the easy part. We just brought the two companies together and collapsed it, so that complexity is gone. I would say we inherited a number of non-core assets when we acquired Sandstorm and Horizon. By that I mean public equity, debt, joint venture equity. And it was a priority of ours when we closed the transaction to try to simplify those things because they take time, especially if you’ve got a debt investment and the company needs a waiver, they need something else done with the agreement. You’re not focused on buying royalties and streams, you’re focused on something else.

So we’ve done a number of things. We sold the Versamex shares probably within a month of acquiring Sandstorm. We have rationalized the Americas gold and silver investment. We rationalized a very complex Bear Creek situation and really turned that into a very simple royalty, increased royalty on Kurani, which looks like it’s now moving forward. And then Hag Modern, we took that joint venture interest from 30% to 15%, and we took a royalty back. So I think we’ve done a very good job. We generated over $200 million in revenue from those transactions, and we were able to use that to repay debt. In terms of what’s left, okay, we do have a, say, a 24% interest in Entrée Resources, and we still have the 15% at Hag Modern. Ideally, those things will also be rationalized, but I think we have a bit of flexibility in terms of time to resolve those situations.

That’s super clear. And then as you think about the broader portfolio, there’s lots of growth and optionality if you think about Haat Modin, Plat Reef, Greenstone, Antamina. In your view, which assets or operator decisions have the greatest potential to move Royal Gold’s cash flow and NAV over the next few years?

Well, in the next few years, I think the decisions by the operators have been made, which is great. I would say if you’re gonna look at what might be the most impactful, probably Plat Reef ramp up. Next year, Kansanshi grades or throughput are supposed to increase, which will actually bring our gold stream up as copper production comes up, and towards the end of 2028 is sort of our expectation for Haat Modin. And I would say those probably would have the most material impact. But that sort of overlooks things like Robertson at Cortez or the ramp-up of our royalty at Goose. And I would say the thing about the growth portfolio is that it’s as diverse as the producing portfolio, which is nice. We’re not reliant on one big asset coming into production at a particular time that people are counting on.

Great. And then Royal Gold, like any royalty streaming company, has very limited direct exposure to mine site inflation. It’s one of the qualities of a royalty streaming company. But higher OpEx and CapEx can influence operator decisions and what your counterparties may do. Do you see risk across the portfolio as you think about what’s happening with input cost pressures or build-outs that are costing a lot more than initially expected? And does that present an opportunity for a company like Royal Gold?

I’m not too worried from our current portfolio perspective. As I look at where these assets sit on the cost curve, I just have a hard time imagining inflation getting to the point where a mine closes or suspends its operation, because that’s really the issue here. As long as they’re operating, the vast majority of our interests are revenue-based. So that’s good. I think the only NPI of any note is Antamina, and I think in the first six months of this year, that probably represented 2% to 3% of our total revenue. So as far as inflation’s impact on our current portfolio, I’m not that concerned about it.

Where you do have to pay attention to it is on the capital cost side for new projects. The projects that I noted for growth, I think one of the nice things is they’re sort of already in ramp-up or it’s an expansion and they’re relatively far along. And as I look in the portfolio, if there were a couple assets that I think you might wanna pay attention to inflation, it is something like Mara, it is something like Great Bear, maybe Red Chris, where they’re in the earlier stages of those projects.

But you did mention opportunity. Anytime this industry needs capital, we’re ready. And so if there are cost increases that a particular operator, developer cannot cover, we welcome the call. You go back to Mount Milligan. Mount Milligan was originally supposed to be a $314 million investment, and it became a $780 million investment because of cost overruns. We were able to cover it, and we’ve had a very successful investment. So we do have a history of helping when costs increase.

Great. I’m gonna turn to capital allocation. So the company is currently in the process of de-leveraging, which is going very well and should be complete by the end of the year. You’re paying a growing dividend, you’re repurchasing shares, and you’re continuing to evaluate new opportunities. How do you think about the priority between those uses of capital, and particularly on the deal pipeline? Now that Royal Gold has become a larger company, has the deal size become larger as well?

Yeah, this is the tricky one. I would say from a capital allocation perspective, I can make it very simple. We like to find new investments, priority number one. Priority number two, if we borrowed money to make an investment, we wanna repay that to restore our revolving credit facility so that we are ready for the next investment. And then there is our dividend. We’ve increased the dividend every year for twenty-five years. Nobody else in our sector can say that. So it is something near and dear to our heart. In the second quarter, we did introduce a share repurchase program. We looked at our share price and felt that there was just a fundamental disconnect between the way the market was looking at us and the way we looked at us, and we were active on that in the second quarter.

But it’s not a formula. This isn’t a math problem. We don’t look at free cash flow yield and the interest rate on the debt and the investment. To me, share repurchase is great in the short term, but if you ignore the long term, and the long term are those new investments, it’s putting that twenty or thirty-year mine life into the portfolio, that preserves value. It gives you, to my mind, net asset value. And so we don’t wanna go down one road and not the other. So it’s always a balance. I know that’s not the greatest response. I know people want to say, “I’m gonna allocate so much cash to capital returns.” But as you say, the opportunities are getting bigger and bigger, so having available liquidity is precious right now, to make sure you’re well-positioned if those attractive investments come up.

One of your competitors, and we may hear this tomorrow, is talking about we’re at a start of much larger transactions. We’ve seen a $4 billion stream transaction, which I never thought we’d see. But what are you seeing in the pipeline? Is that something that you’re anticipating as well? You alluded to that with the comment on liquidity just now, but just what’s out there? What are you seeing, deal sizes? Where are they coming from across commodities?

Yeah, we are extremely busy from a business development perspective. And I think the best thing about the $4 billion transaction, or one of the best things about it, is BHP did it. And there’s always been this group of companies within the mining industry that you say, “They’re never gonna talk to us. They don’t need us.” But if a BHP says, “There’s a real value creation here on a metal that means nothing in our portfolio, but we can create billions of dollars of value by doing it,” I always say it just takes one company like that to have others potentially say, “Well, maybe we should be considering that.” We see the same thing in Australia. First time ever we’ve seen a series of transactions in Australia. Well, you need just one Australian company to at least open the door and let us have a conversation.

So I still think the billion-dollar deals are gonna be few and far between. It’s not like the entire industry is moving in that direction. I think you’re still probably $200 million to $500 million will be the bread and butter. But I think the breadth of the market available to us is as big as it’s ever been.

Great. And then as you think about the portfolio, I wanna give you an opportunity to talk about assets that you think are underappreciated by investors that maybe are overlooked. It’s obviously a very diversified portfolio. There is quite a bit of growth. But I wanna give you a chance to maybe highlight a few that you think are just being overlooked.

Yeah, I don’t think it’s so much overlooked. The one question that we get, and I understand Cortez is a very complex operation. It’s a very complex royalty position. And we have spent the past year or so making sure that people understand, yes, Four Mile is covered by our 1.6% royalty. But the fact that we get that question surely means that they don’t appreciate the potential of that asset. Now, it’s a little bit longer term project. You might be talking the middle part of the next decade, but it is one of the greatest exploration stories ever. People are just having a hard time putting it into context of Goldrush and Cortez Hills and Crossroads, and that’s really up to us to explain.

I think the other thing I’ve always found investors are very much on the development asset side is show me. Don’t tell me that Mar is gonna be in production in 2031. Don’t tell me that Ha Jima is coming into 2020. I wanna see the cash flow. And so I always think there’s been a bit of a discount applied to the growth assets. They really wanna see the cash flow happening, and that’s when I think we get credit for it.

And then earlier in the discussion, you talked about per share metrics and how that’s very important. As you think about transactions and then looking back at transactions, what per share metrics would you look at to conclude whether a transaction was successful or not?

Well, when I say per share metrics, it’s very much for me a backwards looking... Okay, let’s talk about GEO per share. Let’s talk about net operating cash flow per share. Let’s talk about EBITDA per share. We have the highest metrics in the industry, and in some cases by a lot. And so if you’re gonna look forward, it’s about NAV per share. Now, what we have tried to do historically is primarily finance our acquisitions with debt, which I think has made our per share metrics looking backward look so attractive. But I would invite anybody to pick a per share metric and compare us to the others in our sector because, as I said, even with the Sandstorm acquisition and the equity issue, we’re still the tops.

Great. And then in the last few minutes that we have, I wanted to touch on, I guess, the evolution of royalty and streaming structures. We’ve seen more just different terms, whether that includes more buyback provisions, areas of interest. Some royalty streaming companies are providing debt in addition to a royalty and stream. Maybe just talk through what you’ve seen as just the evolution in the terms of these transactions and the structures of these transactions.

Yeah, life used to be so simple. [laughs] You remember when Wheaton was first formed and every transaction was $3.90 per ounce of silver with an inflation adjustment, right? No buybacks. Covered everything. Look, that’s what competition does. This is how we compete now. It’s not just on price. We try very hard not to compete on things like area of interest. I referenced earlier the management’s ability to find mines with upside. If you’re cutting off the area of interest, the whole optionality argument goes away. I think buybacks are certainly here to stay. It’s the extent of the buyback that you’re willing to offer. But when we offer a buyback, it’s not just a reduction in our economics. What we’re saying to the operator is, “We want you to have an incentive to continue to spend money on your project. I want you to take twenty-year mine life to a thirty or forty-year mine life, and if you get more of the economics in the long term, maybe that does incentivize you to do that.”

As for other products, we have made debt investments in two occasions. We got fully repaid, had absolutely no issues. Would we be willing to do debt and equity? Yes. But I would say the stream has to be 60%, 70%, 80% of the total investment. I think about Orion as a private equity. Their primary investment is the debt. Then there’s a bit of equity and a bit of stream. That’s not what we’re about. So it would be a little bit reversed, but we’re certainly open to it.

Okay. And then lastly, in the last minute, I’ve been asking everybody on stage your thoughts on the commodity price and where things are headed. We’re back to 4,000 almost.

I don’t know. I can’t figure it out. Long term, I am very positive about gold. You just look at Treasury yields, you look at $40 trillion of debt. I don’t know when the next leg of the gold cycle kicks off upward, but I think it’s coming.

Great. I think that’s a good place to stop. Bill, thank you very much. That was great.

Thank you. [audience applauding]