Royal Gold, Inc. (RGLD) Earnings Call Transcript & Summary

We're very pleased to host Alistair Baker, the Vice President of Investor Relations and Corporate Development for Royal Gold. This year, we've made a particular emphasis on the royalty and streaming companies and a high inflationary environment, they don't suffer CapEx and OpEx inflation. But if inflation drives up the price of gold or silver or copper, they benefit. So we think that the large royalty streaming companies are a safer play than new mine or Barrick or most of the producers. Alistair, please tell us everything that's going on in Royal Gold.

Well, thanks very much, John. Certainly appreciate the opportunity to be here today and to tell our story. Hopefully, next year, you will do that in person, and we can do it in person. So I'm going to just give an overview of Royal Gold, and John, I'm expecting you're going to jump in with questions as I go along. So please do so whenever you like. And if there are questions from the audience, happy to take those as well at the time they're launched. I will be making forward-looking statements today. So that's the one thing that I have to tell you. Risks and uncertainties could cause actual results to differ materially from these statements. All of these risks and uncertainties are discussed in our most recent Form 10-K filed with the SEC. So now that I've done that, I can move on to what we're going to talk about. So I'm going to talk about the investment thesis for Royal Gold and what we provide to our investors, which is precious metals exposure with consistent financial performance and a focus on per share metrics. So there are 5 sections in this presentation. I'm going to talk about the low-risk leverage to gold, talk about our long history of executing on a very simple business strategy. I'll talk about our unique business model and the optionality and the efficiency inherent in that business model. I'll talk about our portfolio, which is broad and deep and has good organic growth potential from within. And I'll talk about valuation at the end, just talk about where we are relative to where we have been over the past decade or so. So this slide here shows Royal Gold at a high level. And to summarize in one sentence, we're a high-margin business that generates consistent cash flows for precious metals. We've been in the business since the mid-1980s. We've been on the NASDAQ exchange for 41 years, over 41 years. So a very long history and track record. And when you think about our business, in 2022, we have 2 segments. We have streams that were about 69% of our revenue, and we have royalties, which are about 31% but both provide the same thing, which is really top line exposure to precious metals assets or mining assets. In 2022, we had very strong financial results and operating results as well. We had volume of about 335,000 GEOs or gold equivalent ounces, and that's simply a way of taking our revenue divided by the average gold price for the period and you come up with this number of GEOs and it gives you a sense of how we compare it to operating companies. But our revenue last year was over $600 million, $603 million to be precise, $417 million of operating cash flow and earnings per share of [ $3.63 ]. Our most recent financial results we published in early August for the second quarter this year. We had similarly strong financial results, $108 million of operating cash flow in the quarter, $0.97 of earnings, and we repaid $100 million of our revolving credit facility last quarter. We are going to be putting out our Q3 results in early November, actually on November 1. So for the course of this presentation, I'll refer to our June 30 financials because we don't have the new numbers out yet. So if I look at Slide 5 here, this is a bit of a historical slide. It's a bit dated now, but I just want to give this because it provides some context when I talk about our strategy and execution. 2022 is a pretty busy year for us, and we did a lot, but everything we did was pretty well focused and very consistent -- consistently focused with our long-held strategy, which is really around providing accretive growth to our shareholders in precious metals. So we completed 3 transactions on 2 long-lived assets; Great Bear and Cortez. We showed a lot of organic growth from within the portfolio from several assets in advanced during the year. And then we completed a number of strategic initiatives, which we think position the company that much more strongly. . So again, this is all about just putting into context the way we think about our business and the way we think about executing on our strategy. And 2022 is a good example of a year that was successful and exactly that. So I'll move on to Slide 6 here. I'll just show you how we compare to our peers in this sector. We sit in a pretty interesting position. Royal Gold is big enough to compete for the largest transactions in the marketplace. We have significant cash flow and we have access to low-cost capital. Yet we're also small enough to show growth and a small transaction like Khoemacau, which we did in 2019, can actually add meaningful value to our company, just given the size of the company based on market cap and operating cash flow. So I want to keep that in mind as we talk further on about our portfolio and some of the opportunities that we see ahead of us today. So I'll start the presentation by talking about our low-risk leverage to gold. And John, you're very well-versed in this, you understand exactly how we position ourselves. But for those who don't, there are different ways you can invest in gold. Our model provides a lot of the exposure to precious metals without the risks that come with operating and development companies. And we provide the upside exposure to gold and to properties while reducing our downside risk by having a first portfolio that does not have direct exposure to operating and capital costs. And this is very important in today's environment where you're talking about inflation and the way that inflation has impacted operator costs, our business is insulated somewhat from that because we don't have that direct exposure. Now there are different ways you can invest in gold. You can be super conservative invest in the precious metal itself, but an ounce will always be an ounce. It will never pay you a dividend. You can be more aggressive and there are lots of good operating and development companies out there too strong. But unfortunately, with those, they are also getting exposure to operating and capital cost risk. So we think that we're in the middle there as a nice baby step into the precious metals sector. And if you look at this next slide, Slide 9, just shows our historic performance. And over time, going back to the beginning of the GDX index in 2006, shows why we think we're a good alternative for somebody who wants a conservative exposure to gold. On the left-hand side of the slide, you see our beta to gold is actually 1.9. So it's a pretty high beta. But on the right-hand side, you can see our share price performance over the past almost 20 years. And you can see that since the beginning of the GDX Index, we've beaten the index, but we've also beaten the gold price. But more interestingly, we've beaten the general market indices, so they're down in the S&P 500. So very interesting performance when you think about the metal that we're tied to. Now I'll talk, at this point, about the history of execution. We have a long record on consistent and disciplined performance. And this slide here shows a 20-year history of our capital allocation and growth, the numbers behind those. And that is really driven by the strategy of providing accretive growth to shareholders. And since 2000, you can see our revenue and cash flow growth have both been significant. But there are 3 aspects of this growth, and I just want to zero in on for a moment. The first is our business is high margin and it's scalable. So our revenue growth has far exceeded the growth in G&A that we've seen over the past 20 years. The second is our revenue growth is not dependent only on the metal price. Sure, the gold price has risen fairly consistently for the past 20 years, but we've added volume to our portfolio over that period of time. And then the third thing is that we financed our growth internally, and that's without a significant rise in our share count. We're one of the original members of the GDX Index, and we have the lowest share count in the entire GDX Index. So we want to avoid shareholder dilution. If we can fund our business internally, and using cash flow in our revolving credit facility, it means that we don't have to be issuing shares. And that provides per share growth to our shareholders. I'll talk on this slide about our liquidity. We have to have strong liquidity in our business. We have to -- we're a patient investor, but we always need to have a strong balance sheet and access to liquidity because opportunities often come up very quickly on a left field. And so you want to make sure that you have the ability to execute on those transactions if they occur. So using our cash on hand and our operating cash flow and our revolving credit facility, those are the 3 things that we really -- we prefer to use and then equity is the final source of funding. So we've got to make sure that we've got good liquidity on hand. We have a $1 billion revolving credit facility, and that provides cheap and flexible financing to us. And at the end of June, we had $400 million outstanding on that credit facility. And it's interesting to note, we -- last year, we added a bit of leverage to the business because we did these transactions that I referred to a couple of slides ago. And we actually drew $200 million on our revolving credit facility at the end of December last year. Well, by the end of June of this year, we had paid down $175 million of that. So we've almost paid down the entire draw amount that we did to complete one of those transactions. And that just shows you the cash flow generation potential of our portfolio. We started the year with almost a 1x debt-to-EBITDA ratio, and now we're down to 0.61x at the end of June. And we have lots of liquidity on hand today. We have about $700 million in [ liquidity ] on hand, which we think positions us very well for the market that we see ahead of our ourselves today. Now I'll move to return of capital and our dividend. And this is a key strategic objective for Royal Gold. It is one of the things that makes us unique we think, amongst all of the gold investments you can look at. We have paid a growing and sustainable dividend. And that's the way we think about it, growing and sustainable. We've done that since 2000. We've increased the dividend every year despite volatility in the gold price. We've paid out about $865 million of dividends since we started paying a dividend. And we're the only company in the GDX that has paid an increasing dividend every year since the index was formed. And this is a real differentiator. We're the only precious metals company in the S&P High Yield Dividend Aristocrats index. That is something that sets us apart from the entire sector. Now another thing that we think sets us apart is our due diligence competency. We view due diligence and technical due diligence as a core competency for Royal Gold. And due diligence is really important because it helps us identify the right assets but also avoid the wrong assets. And we're always busy looking at opportunities. There's never a shortage, it feels like. But not all opportunities make it through to completion. And sometimes, it could be because there are risks that we find in our due diligence, we just don't think can be managed properly. And if we come up with risks that we don't like, if they're technical or legal or what have you, it could be social, environmental, whatever. If we find risks in transactions that we don't like, that we uncover during our due diligence period, we'll walk away from transactions. We don't feel any pressure to do transactions. We're happy to let the portfolio continue to produce. We'll build our balance sheet further, and we'll wait and moving patient because we know that there is -- history has shown us that there's always something else coming. Sometimes you just can't quite see it from how you're set. I'll make a brief comment about ESG, and we don't have operating control of the assets that we invest in. Our business model is unique in that respect. But ESG is definitely a core part of the way that we think about risk in our business, and it always has been. We invest for the long term in the assets that we're invested in. So ensuring that assets are sustainable, that's a very important part of our due diligence process. We also do things like if we're writing a contract or we're financing a new build or development or something like that, we'll build language into our transaction documentation that requires that operators operate at the highest levels. And where it makes sense, we're always looking for ways to help operators as well if they have specific things going on around the sites where we're invested, maybe some help from a funding perspective with ESG initiatives. We're happy to have those conversations and see if there is an opportunity for us to contribute. I've got -- on this slide here, I've just shown our ratings over time. We've done a lot of work over the past several years just to try and daylight some of our thinking around ESG and the risks -- the fall into this category. And I think we've been quite pleased to see how perception and recognition of our practices has actually improved over time. Now at this point, I'll talk about our business model. And the key to our model is optionality, and that's optionality to reserve and resource growth, and that's without having to make further investments. And I've got 2 examples shown on this slide. We've got PV and Wassa. We made both of these investments in 2015. And in both cases, today, total resources and reserves are higher than at the time that we made the original investments. And that's in addition to production that has come in and allowed us to generate revenue that has recovered about 80% of our investment in PV and over 100% of our investment at Wassa. But the interesting thing is that both assets today, there are growth projects underway. We don't have to contribute or fund any further to get access to these growth projects. So PV there's an expansion that's in the commissioning stage right now and a potential new tailings facility that will extend the life of the mine to the mid-2040s. Wassa, there's an additional resource that's being looked at by the operator. And they could add another 11 years of life to that asset if that moves forward. So that's an important part of our business and understanding the exploration and production pump side, when we look at new assets, that's a very important part of our due diligence process because it's a very important part of our business model. I'll talk a bit about the efficiency of our business model as well. We have 30 employees within the company. And that, as I said at the beginning, we produced $600 million of revenue last year. Our market cap today is just a shade under $7 billion. So on a per employee basis, we have an efficiency metric that is beyond that of most companies, and that's inside and outside of the precious metal sector. I don't think that's appreciated by a lot of folks. And our low employee count really means that we have a low fixed cash G&A, which further contributes to our efficiency. Our EBITDA margin is about 80% -- 79% last year. And our cash G&A was about 4% of our revenue. And our G&A is low and it's mostly made up of fixed cost. So inflation should not be a significant risk to our margins. And if you look at this next slide, our cost structure versus the cost structure of the average gold producer in 2022, you can see that our cost structure is very much insulated from inflation directly. Producers are exposed to inflation that varies from various different sources. So there's input costs to assets would include things like labor, energy, consumables, other site costs -- and a lot of those things actually, they rise when metal prices rise. Whereas if you look at our G&A costs, they're generally steady. So things like salaries, services, office rents, they're not typically subject to short-term increases. So that provides us that additional level of protection from inflation. And obviously, we're not directly exposed to the operating and capital cost inflation pressures that our counter-parties are. Now moving to our portfolio here, just talking about our -- the breadth and the depth of our portfolio and some of the organic growth within that. And this slide just shows our global portfolio. We're weighted towards lower risk and more mining-friendly jurisdictions. On the right-hand side, those 6 assets are what we call our principal properties. They provide the bulk of our revenues, about 70% of our revenue from those 6 assets. But our portfolio is well diversified. And so that obviously provides some stability to our cash flow. Our largest country exposures are to Canada, the U.S.A, the Dominican Republic of Chile. Our revenue comes from 39 mines in total. So that portfolio breadth compares very well to any mining company and obviously reduces our exposure to a single asset underperformance. And then finally, our underlying assets are about 50% precious metals, but then the other 50% would be comparable in other base metals. So a fairly well-diversified portfolio on the whole. And our portfolio on Slide 24, where you can see the different stages of mining project developments and our portfolio expands those stages. So we have 142 assets that are not producing today that are at various stages of exploration, evaluation or development, and we would expect there to be organic growth, as any of these assets move through this pipeline and advance to production. That's where we get our revenue. An example of something that did move through the pipeline for early -- recently was King of the Hills. It's been in our portfolio for well over 10 years. It's kind of a dormant asset. And a new management team came into that asset a few years ago, gave it a bit of a refresh, a rethink. And they just started production from a rescoped new operation at King of the Hills. And that's revenue that we're starting to see today. And that organic growth obviously is very important to us to be able to show because it's dormant assets that have relatively low value suddenly started to produce revenue. That's where you get that optionality. That's where you get that -- that kicker from developments within the portfolio. And to continue on the theme of organic growth, this slide just shows some of the key catalysts that we see in the portfolio today from various assets, the grouping at the top, blue assets in blue where we see potential for mine life extensions and production increases from assets that are already contributing revenue. The next grouping down, in the gold color would be new revenue from development assets. So we've got Goldrush at Cortez, where Barrick is expecting a record decision towards the end of this year. We're expecting new revenue from Bellevue in Australia later this year. And then next year, Cote, Mara Rosa, Manh Choh and then beyond that, Back River, and then I think it's worth pointing out that this is all -- free optionality within our portfolio. All of these are funded. We don't have to contribute any further to get exposure to this growth. Now we are -- obviously, the portfolio provides some growth, but we're not just sitting on our hands, expecting the portfolio to provide us growth into the future. We're also very active looking at adding new assets to the portfolio. And this slide summarizes what we've done over the past couple of years. We've deployed $1.2 billion on 6 transactions on 5 assets that provide gold exposure to assets with good production upside in safe jurisdictions. And we funded all of these acquisitions using our cash on hand, our revolving credit facility. And we haven't issued any equity to provide our shareholders access to these transactions and assets. And this slide here shows a little bit more detail. There's a lot going on in this slide, but I'll try and make this fairly easy to understand. But I just want to give a sense of the long-term potential that we see at these acquisitions. So starting on the left, at Cortez in Nevada. We did 2 transactions on this asset last year. We did one in early August, and one at the end of December. We bought royalties. This is a world-class gold complex in a minor friendly jurisdiction in Nevada. It is operated by Nevada Gold Mines, which is owned by Barrick and Newmont, 2 biggest companies in the gold sector. We've always own royalties at Cortez. Cortez is one of the foundational assets of Royal Gold. But with these 2 new transactions, we were able to broaden our royalty coverage and get exposure to additional targets within the Cortez complex. And Barrick is doing a lot of work here to push forward growth potential at Goldrush, Fourmile, Robertson. These are all projects that will -- we're expecting to see production over the next few years. And we think Cortez is one of the most prolific gold mine projects in the world. Moving over to Red Chris, the next one from the left in Northern British Columbia. It's operated by Newcrest, soon to be Newmont. Newcrest has done a lot of work, it's getting there exposure to this asset. They've done a lot of work on advancing studies to convert this mine from really kind of a small high-cost open pit to a large bulk tonnage underground operation. And they've been doing a lot of work on exploration. And they're continuing to find more and add to the existing resource. And earlier this summer, they announced that they're continuing to push east. They have the East Ridge target. Now they have another one called the Far East Ridge target, which they think is the fifth porphyry center that they found on this property. All of this is within our royalty ground. They're expecting to put on a resource at the end of this year. But I think it's probably a little bit too early to be able to include some of the other -- some of the -- perhaps some of the East Ridge and definitely some of the Far East Ridge resource that they -- or mineralization they found that they just haven't done enough work on that yet to be able to bring it into the resource. But the pre-feasibility study that they put out a couple of years ago, just after we acquired our royalty there, they expected a 36-plus year mine life from this asset. And that does not include the East Ridge and the Far East Ridge. So we think there's a lot of good to come still from Red Chris. And Xavantina in Brazil, this is in the middle column. This is the smallest of the transactions, the smallest asset that we've did a transaction on, this is operated by Ero Copper. And Ero has done a lot of work to do exploration to try and fill the mill and sustain annual gold production of 60,000 ounces a year from this asset. So we're very pleased with the results and the big coming out of this one has been coming faster than we certainly expected when we did our due diligence. At Cote Gold, this is a project under development in Northern Ontario by IAMGOLD. Construction is over 85% complete today, and IAMGOLD is targeting commercial production in the first few months of 2024. So that should be starting to [indiscernible] very soon. And then finally, at Great Bear in Ontario. This is a project that Kinross is operating. Kinross announced a 5 million-ounce resource in early February this year, but they're doing more drilling in this year now as we speak, that they hope to add to this resource over the coming years. And they're targeted first production from this asset in 2029. And I think if you were to step back and look at these assets together, you would say they're all very consistent with our strategies. They're all precious metals assets. They all provide further exposure to production with very good exploration upside. And 3 of these 5 are producing revenue today. So that's directly hitting our bottom line today. Now I'll end off with valuations, as I promised. There we go. So I just want to have a look at our multiples over the past 10 years. As I said, I think we're trading at pretty historic attractive multiples. We did very well in 2022. Our stock price did extremely well. We beat all of our large cap peers. And that really, I think, did reflect the strong company performance. But more recently, our multiple seems to be lagging. And obviously, the gold sector today isn't getting a lot of love. There's a lot of uncertainty in the marketplace. But I think when I think about Royal Gold specifically, when I look at our cash flow multiple and where we're trading relative to the rest of the peer group, which is near the bottom, it doesn't make sense to me. I think the market is not paying the appropriate multiple for the quality of the cash flow that we're delivering from our portfolio -- well-diversified portfolio of high quality assets. The market does seem to be giving us credit slowly for some of the transactions that we've done recently, but I don't think it's fully recognized or reflected [indiscernible] yet. So John, with that, I've come to the end of my formal remarks. I'd be happy to try and answer any questions.

Well, thank you. [Operator Instructions] Alistair, the Great Bear royalty was purchased before there was a resource. Kinross came through and published a 5 million-ounce resource. They had spent about a year drilling and documenting to do their own work and verify the sellers work. Their stocks seem to sell down initially as though some investors were disappointed it was only 5 million ounces. The grade was good at 3 or 4 grams. Why do you think that -- by the way, congratulations on the resource being documented. Why do you think the market sold off Kinross presenting a high-grade open pit and large resource like that?

That's a good question. I don't know except to say that perhaps there was an expectation that it would be -- they would get to a much larger number faster. I think from our perspective, it was exactly as we expected. I think the work that they have done, it takes a long time to convert drilling to resources. There's a lot of work that goes on. And they just don't have access to the full depth of the ore body from surface. They were able to drill from surface down to about a depth of 500 meters. I have a few holes that go a little bit deeper than 500 meters, but they just didn't have enough density of drilling to be [indiscernible] gold was lower or deeper than 500 meters right away into a resource. So they are planned and what they're doing right now is they're going through the permitting process to actually construct a decline into the ore body that will allow them to get access underground and drill further into the ore body and further [ ducts ]. So I think it was probably the market was just expecting it to a bigger number, although I think was unrealistic for the market to expect it to be a bigger number, just given the constraints that are on drilling at the ore bodies. So hopefully, over the next couple of years, they'll continue to add to the resource. From our perspective, it was what we expected. We didn't expect them to come out today or at the end of 2022 with the final resource number. We expect this number to change over time as they get more information, but it will take time.

So if they do something as simple as a 10,000 tonne a day open pit mine and mill at 3 or 4 grams with at least a 90% recovery, it should be about 365,000 ounces of gold. That seems like a very straightforward approach to me. What are the uncertainties in the ore controls that make them want to go underground, kiss the rock and drill from underground. Are there lenses where it's nonuniform and they don't trust the drilling results?

I don't know if I can speak to that specifically, John. I think what they're trying to do is scope out as much as they can before they make any development decisions. So I think they're trying to keep their options open. And so their view, I think, is just to take a very measured approach to trying to understand all of what [indiscernible]. I don't think it's necessarily around flat confidence. I think it's just a question of trying to scope it out as much as they can before they [indiscernible] .

When you [indiscernible] a 2% NSR on 365,000 ounces or a 10,000 tonne a day open pit, would be worth about 25,000 ounces to your 2% NSR, and that would be about 8% growth in your company. So is that a reasonable expectation thinking of it from the Royal Gold standpoint with the information we have in hand now?

Yes, I think your math makes sense. So I think the.

Maybe a 12-year life, 13-year life.

Yes, what they've talked about is -- roughly -- these numbers are rough, obviously, they're doing the studies we're doing thinking today. But they've talked about 450,000 to 500,000 ounces for a couple of decades would be the ultimate goal.

They're counting more reserves than they have, obviously, which -- they're allowed to do and they have the best information to make that guess.

I think that's right. The other thing I just want to point out just to make sure you don't forget, we -- so we have a 2% NSR on this property. It's a large property [indiscernible] kilometers. But we did this transaction, we did something very unusual. We actually got access.

They can buy back a quarter of it.

That's correct. So we offer that back to Kinross at our cost because they gave us access to information that helped derisk the acquisition from our perspective.

So if they did that, it would only be 5% or 6% net growth to you?

Correct. Yes, it would obviously...

[indiscernible] $51 million or $52 million check.

Yes, it would be [indiscernible].

May be you think they're going to have a PEA of fees, permits and begin construction.

They have put most of that information out into the market. I don't recall the specific dates for the PEA or the feasibility, but they're talking about a construction decision on '25, '26 to first production in 2029. So this is their biggest project. It's their biggest focus. They're working very hard on it. hopefully, they'll be able to compress that time line. But it really -- I think the critical path here is going to be permitting.

So in terms of Goldrush and Fourmile on the Cortez property, neither of those are permitted that Goldrush has been in the process of a good 5 years or more. When do you think those might have revenue for Royal Gold?

Well, Goldrush, they've talked about a record of decision. It keeps moving slightly. I think it's a Get closer. I don't know what the issues are, but they're talking about by the end of this year, a record of decision. So hopefully, that is very soon. Keep in mind that the test mining at Goldrush and we're able to extract very large quantities of ore while they're waiting for the record decisions. So if they are getting any revenue from that ore, than we are getting our royalty payment already. When it comes to Fourmile, there is no timing that's been put into the marketplace yet, by Barrick, but they did -- about 3 or 4 weeks ago, they put out a press release with a presentation that had a fair bit of information on Fourmile and how they think about it. And they're thinking about Fourmile is a 300,000 to 400,000 ounce producer on its own for at least a 10-year period. So very exciting to see what they're -- how they're thinking about that. Now that's what they call that a conceptual preliminary economic assessment. So it's a very high level estimate, but it's still, if that's an indication of how they're thinking, we're very excited to see that.

What might be the production rate at Goldrush?

I don't know that one specifically. I'd have to look for that one, John. I'll get back to you.

The processing facilities already exist metallurgically?

Right.

The -- so once they've already done exploratory tunnels. So once they get the permits in hand, that could be in production in 2 years?

It should be very quick, yes.

Now I'll have to get that number for you on Goldrush. I'm just looking at some of my colleagues here. I don't know if I have that broken out.

So the 3 transactions from last year might exceed 10% revenue growth. Where you got the upfront lump from the Rio Tinto acquisition where the royalty was already paying out. And then you've got the other things that may pay out GoldRush and Fourmile and Great Bear that just take time. Then you have a series of other not in production projects. Cote, Khoemacau just started, King of the Hills, Red Chris, Ero Copper, [indiscernible], Mara Rosa, Manh Choh, Bellevue Gold, Back River, do all these other things add up to another 10% sweetener on revenue?

So the way we've talked about it is if you take those small assets, you just ran through, it would be somewhere between 20,000 to 25,000 gold-equivalent ounces per year when they all hit their run rate. So that is about the equivalent of Khoemacau. So about a 6% -- 5% to 6% revenue growth. So individually, they're not that big. But when you combine them together, actually, they do amount to something that moves [indiscernible].

Once again, any questions from the audience are ouraged and appreciated. There aren't any at the moment. Do you have any fixed payments you required to make?

Nothing of any substance. We have a small payment, which I think is $6 million thereabouts to Xavantina in Brazil, and that's based wholly on success. They are successful adding resources, successful [indiscernible] more meters than we [indiscernible] to additional payments there, but is relatively nominal.

So your net debt could be paid off from 8 months of production. So then its probably a strong urgency in your team to find some more projects and make some more investments. Although today, if you hold cash, at least it pays 5%. And some royalty investments don't pay 5% that fast. So the opportunity cost if you were to hold cash isn't so severe.

We're happy to have cash on the balance sheet. Obviously, we think there's better value in deploying that cash into new assets. I think if you -- if you look at the way that we trade. If we're able to take cash at 1x NAV on the balance sheet and deploy into assets, you can get a 2x NAV in the marketplace. That creates a lot of value. So we would prefer to be investing in assets. But at the same time, we're going to be very disciplined, and we'll look to see each of the assets we see out there, are we willing to pay for those assets. And if not, we're happy to keep our cash. I think if you look at the way that our business has proceeded with acquisitions, it's fairly lumpy in terms of when we're able to get deals done. Sometimes deals come up very quickly and we don't expect them to come up. You always want to have that access to -- you always want to have that cash on your balance sheet, what a strong balance sheet piece, why are we able to make those acquisitions or at least give offers to people without any financing conditions. The last thing you want to be doing is [indiscernible] for financing. So not a strong balance sheet, cash on it. We're happy to have them.

Do you have any step downs that are going to impact your revenue in the next several years?

We have step-downs in most of the streams that we have -- and so that those step-downs are designed so that at the end of reserve lines at the time the acquisitions were done generally speaking, those step downs to occur and that's to share some upside of the projects with operators. We certainly want to incentivize the operators to continue investing in the assets and providing more and extending lives. And so that's why those step downs occur. So we do have shutdowns our screens.