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

Okay. We are going to kick off the Royal Gold session. Royal Gold is a precious metals royalty and stream company with a portfolio of 364 properties across 30 countries at various stages of development. And joining us today from Royal Gold is President and CEO, Bill Heissenbuttel. Thanks for joining, Bill. We're going to do a fireside chat here, and feel free to send questions in the app if you want to get involved.

Bill, you described 2025 as a transformational year for the company. And rightfully so, there were several big deals, including the acquisition of Sandstorm and Horizon. How do you feel about the portfolio that you've built so far? Does it have enough growth in it? Are you happy with the duration, the maturity, the stream, royalty mix? the geographies? Or are there any areas you're still looking to optimize?

Sure. And first of all, thank you for allowing us to participate in the conference. I agree with Paul's comments that this is probably the premier investor event put on in our industry. So thank you again. Yes, last year was really busy. And we are extremely pleased with where the company sits right now. The Sandstorm, Horizon transaction really allowed us to take the strengths of both companies and put them together into one company. And by that, I mean, we had a very strong producing portfolio, whether that's Milligan, Pueblo Viejo, Cortez. What Sandstorm brought was actually a very strong development portfolio. I think most of the value of that company was in development assets like Platreef, like MARA, like Hod Maden. And you put those assets together with our growth assets, Red Chris, Great Bear. And I would say the number of growth assets that we could point to has probably more than doubled. So we now have a slide, we're probably talking about 10 different properties on the growth side. So it was strength and strength in putting it together and making, I think, a stronger company. Diversification has been a long-term focus for us. I think if you follow the industry, everybody has a concentration, whether it's Wheaton at Salobo or it's Franco (sic) [ Franco-Nevada ] at Cobre or us at Milligan. And that subjects you to event risk, which we have seen. And so trying to reduce the biggest assets to something smaller has been a core focus. And the way we calculate the consensus NAV for assets is that Milligan is the only asset that's above 10% of our portfolio on a NAV basis. And I think that's really strong. In terms of the rest of the issues that you raised, the number of royalties versus the number of streams, we don't really care what they are. I think when I first started as CEO, people would ask me, are you going to do more streams or royalties? And I would have said we're going to do many more streams. And I think 6 of the first 7 deals were royalties. You just -- you never know in this industry what's going to come forward, and we don't really care. Political risk, even though we did add a number of countries, we added South Africa, we added Turkey, we added Zambia last year. But again, the diversification certainly helps that. People say, well, you're new in Turkey. Well, okay, Turkey is 4% of our NAV as it stands right now. So I think that's good. And we like the countries we're in. I would say when we look at political risk, it's really about understanding how important is this industry to the country. Does the government understand the importance? Does it produce important tax revenue? I think where mining companies get in trouble, sometimes you go into a country that does not have that culture, does not have that understanding. And so when things go wrong, you don't have the industry coming behind you to sort of support you with the government. So I think that's good. And I think the final thing you touched on was duration. And that includes Sandstorm and Horizon, but includes Kansanshi, which is a couple of decades. And then 2 events that we really had nothing to do with, and that was the Mount Milligan life of mine extension, taking that mine life from the mid-2030s to 2045. Our biggest asset now has 2 decades of potential life in front of it. And then there was Fourmile at Cortez, and they've laid out a plan of 600,000 to 750,000 ounces over 25 years. And I'd say we've been associated with Cortez for 3.5 decades, you may see us associated with it for another 3.5 decades.

Yes. So maybe let's spend some time on some of the bigger assets that you talked about there. Mount Milligan, you mentioned, continues to work on the life extension to 2045, which is a big positive. But Centerra has also been looking to improve its understanding of recovery and throughput. So how much optimization do you think is possible there this year? Is there anywhere the market might be misunderstanding the potential of the asset?

Yes. I don't know if it's recovery so much as I think it's grade. And I think they've done a lot of infill drilling to better understand some of the grade issues that they've had. They have had issues with guidance in the last 2 years, but my understanding is the drilling that they're doing has actually helped to inform some of the life of mine plan. And so it's always when you have challenges that you learn something and you use that to make things better going forward. I really think when it comes to Milligan, investors sort of take a show-me approach as opposed to just saying, oh, it's 2045. They want to see the results. They want to see Centerra address some of the short-term issues. The one thing I don't think people really appreciate is that if you look at the life of mine extension plan, the tailings storage facility they're building will accommodate much more material than a 2045 mine plan. And I know Paul has been talking about a longer mine plan than that. So I think there's a lot more potential at Milligan than people really appreciate.

Interesting. Another asset I was curious about Pueblo Viejo. Metallurgy has been a bit challenging there. Do you have any sense how far away the operator is from figuring out the -- I mean, the gold side of things and ultimately driving up the silver?

Yes. To be frank, PV has been disappointing recently. And I know Barrick has tried very hard to address a number of the issues on the recovery side. I think our understanding of the issue right now is the weathered nature of the stockpile is causing some of these issues. And from what we've heard, that stockpile is going to continue to be processed over the short term. So I still think we go there every year. We've actually brought metallurgists to site to talk to them. I think there's a potential solution. I just don't think it's in the short term.

Okay. Also, you touched on Kansanshi in Zambia. That was the addition of another cornerstone asset for Royal Gold. Actually, First Quantum said yesterday, biggest ever investment by a U.S. corporate in Zambia. We actually got to go see the asset late last year and met with the President. And I think it seems like a great jurisdiction where they want to grow copper. But what do you see to the upside of Kansanshi in the long term?

Yes. So we start with a 20-year mine plan, which is a great start. Our area of interest covers the entire mining license. I think it's somewhere on the order of 250 square kilometers. Our geologists have looked at it and sort of said, well, we think there's potential here, potential there. I think the other upside is I will refer to it as laterite gold, but there's -- they've been working on that concept, that idea. And people will say, well, but your stream is geared towards copper production. So if that gold production actually started, you won't see anything. And I would say, at the time, we would have had no idea what we were buying. They would have had no idea what they were selling, but we have a relationship, we have a contract. And to the extent that opportunity comes up in the future, we are very well positioned. And I see that as a potential upside.

Interesting. Another big area of discussion in the gold sector has been Cortez in Nevada. The JV has been advancing Goldrush and Barrick's adding ounces on Fourmile. So has the magnitude of Fourmile been surprising to Royal Gold? And do you have a view on how Royal Gold's cash flow profile plays out in that district?

Yes. The only thing I think that has surprised me personally at Fourmile is the speed with which it has developed. When we did the Royalty acquisitions in 2022 and people criticized us. They said, you paid a lot of money for what you see. And our geologists, again, I go back to we've been associated with the property for 3 decades. And to criticize the transaction in 2022 would be to say, Cortez is done. There's never -- there are no new ounces. And we -- our geologists looked at the upside and said, that's not the case. So we expected a Fourmile. I didn't expect it in 3 years. I thought that would develop over time. And in my opening remarks about the potential there, Fourmile, when I say 25 to 30 years, they're going to study it for the rest of the decade. So it's probably 25 to 30 years from 2030. And so it just -- there's a long runway there ahead for us.

Interesting. Yes, we did a site visit there and one of the exploration guys said they were trying to shorten the gap between major discoveries from every decade to every 3 years. So maybe it's right on pace.

Yes.

Elsewhere in the portfolio, which of your assets have important expansion studies or ramp-ups occurring this year that the market should be aware of?

Well, I think the first thing to appreciate is the fact that Kansanshi only contributed a quarter's worth of revenue. The Sandstorm assets only contributed 70 days to our portfolio. So now we've got a full year of all of those assets. So that is one primary source of growth for 2026. I think the other one is Goose is ramping up. Now the Goose royalty that we have starts at 0.7% and over a couple of years goes up to 3.3%. So that will take a little more time, but you will see that progress. And I think the other one I might just mention is Platreef, which, as you know, just started production in the fourth quarter of last year. Again, this is one of the Sandstorm growth assets, and we would expect to start receiving deliveries in -- sometime during this year.

I'd like to touch upon Hod Maden, one of your assets where you've got a 30% equity stake. Can you talk about the time line to deliver that project? And how can you go about customizing your exposure, maybe maintaining more conventional streamer royalty exposure to the asset?

Yes, when we talk about time to deliver, we're not trying to deliver Hod Maden as a joint venture partner. So really, our priority here, Hod Maden came with the Horizon Copper acquisition. You could have said, well, you could have just bought Sandstorm and left Horizon alone, but there were so many intercompany issues and instruments that we just said, let's just buy -- let's get both companies, get rid of all of the complexity, but we're going to have to deal with the joint venture. It's not something that is part of our strategic focus. Buying Hod Maden is not an indication that we're going off into joint ventures as an acceptable form of investment. So the priority for this year really is to try to sell that 30% interest and convert it into something that looks a bit more normal for what we do, whether that's a royalty or a stream, you just have to get the valuation right. You have to get the structure right. I think SSR has been kind of focused on the technical study that was done towards the end of last year and then the press release that came out, and now having a dialogue with the partners about an investment decision. So there's not much to report in terms of progress there. But again, it is a priority there to try to convert what has cost overrun risk to something that doesn't have cost overrun risk.

Is there anything else in the portfolio after the acquisition of Sandstorm that you would look at as noncore or that should be rationalized? And what are the catalysts to realize value on those assets?

We've done a pretty good job so far. The Versamet block that we sold towards the end of last year and people would look at it and say, well, a big mark-to-market loss there. But you're talking about a 25% equity position in a company with no liquidity and the shares actually had trading restrictions for a period of time. So we had to get Versamet involved to be able to do it. You're just going to sell that at a discount. There's no way around it. So really pleased to generate almost USD 150 million and pay down debt with it. There have been -- there are a number of other smaller equity positions in the portfolio that we've been chipping away at. No one's really going to notice. But again, it keeps people focused on royalties and streams as opposed to what do I do with this equity position. The other big equity position is Entrée. It's a little bit like Versamet. It's 20-plus percent. But I think with Entrée, they got to get the licenses into OT LLC to get the development of Lift 1 going. And if they can do that, there may be a valuation enhancement that goes on. So I think we might be a little more patient with that one and see what happens. Other than that, it's really the Hod Maden joint venture. The only other thing that I would say just really doesn't fit. We're not looking to sell the royalties and streams in the Sandstorm, Horizon portfolio that we inherited.

Okay. Let's move the conversation over to the deal environment. I thought it was interesting in your Q4 conference call, there was a comment, maybe the $100 million to $300 million category deal has evolved into a $200 million to $500 million deal size bracket. Is that just a function of metal price and the amount of -- the ounces that you're looking to acquire in a given transaction? What's driving the size upgrade?

Yes. We haven't set a minimum investment hurdle that we have to get to. We're not targeting specific volumes of GEOs. It's just the reality that in this gold price environment, every GEO you buy is more expensive than it was 3 years ago or 2 years ago. So the market really hasn't changed. Yes, we have seen a number of billion-dollar transactions. I don't know that, that is now the norm. I think it's still going to be the sub-$500 million. It's just those transactions are more expensive these days.

And what types of deal motivation are you seeing in the market right now, M&A, debt, project development or exploration?

There's always project development. There's always something gold at these prices, you're going to have projects move forward into development. You just have to be a little bit picky about the assets that you invest in because we all know projects that didn't work at $2,500 or $3,000 and now they work, okay, is that really the investment that you want to make. So we got to have a little bit of discipline on that front. I think one of the greatest things, and it's really come up just in the last few days is M&A because if you go back, Milligan was actually originally an M&A transaction, primarily. Most of the money was to buy Terrane, and there was a small piece for construction of Mount Milligan. But then we went through this period where Newmont bought Goldcorp. They're going to be -- they're going to divest noncore assets. They are going to be streaming opportunities, Randgold-Barrick, exact same thing. Nothing ever happened. And so I kind of lost faith that these things would actually lead to opportunities. Now we weren't the ones to do the transactions, but a Casa Berardi, a Porcupine, a Hemlo, it just establishes the industry as a source of financing in M&A, like I've never really seen it. And I think that's really positive. And I think you just talked to Paul about the fact that doing a big deal in Australia, fantastic. We always said we need one to get everybody else in Australia to at least listen to us. All we want is to be able to walk in the door and just pitch what we do because we think it makes sense. And then the large Antamina transaction, if BHP is willing to do it. Okay, Rio Tinto, are you thinking of Antofagasta, Southern Copper. Every time a bigger company uses the streaming product, it potentially opens the door at least to a conversation where we can say this is why we think our product makes sense. So I feel as good about the doors being opened in this industry as I've ever been. And I've been here for 20 years, and I started -- we were the lender of last resort, right? You didn't get to see anything of the debt and the equity markets were open. And now we are part of the conversation when it comes to raising capital.

Interesting. But did you make a comment earlier that you didn't think we'd see that many above billion dollar deals?

It's just rare. I mean if you go back, I mean, you had Cobre was $1 billion. The Vale, Sudbury, Salobo transaction was above -- was $2 billion. didn't see any other ones. And all of a sudden, last year, you've got Cote $1 billion, Kansanshi $1 billion. You can throw Sandstorm at $3.5 billion in there. And now we have Antamina. So because they're more expensive, but I just think there's more opportunity.

And then the other theme in the space is consolidation, and you've been a consolidator. How do you feel about the current state of competition? And are -- you still think that we're going to see more of that in the market?

Yes. I have joked we've done our part. I would say right now, we're really focused on integrating. And as simple as this business appears, when you inherit 200-plus properties and you have due diligence, not so much before the acquisition, but when I say diligence, I mean, understand each and every asset, hire law firms and just say, does the royalty still exist? Is it registered? Should it be registered? It takes a lot of time. So I can't see us being involved in the short term. I think if OR and Triple Flag, there were to be consolidation there, I think it would help competition a little bit. We see them in most every bidding process that we're involved in. I think the smaller guys right now, we don't really see them that much. So from a [ talent of hawks ] happen to get together, I don't think it would change the competitive landscape. But for competition, all you need is 2, 2 or 3. And as long as we've got 4 or 5, the impact on competition is going to be, I think, marginal.

Another theme that I've asked about in some other sessions is around North America getting more serious about mining, supporting the sector, streamlining permitting. You've got a big footprint in Canada and the U.S. Are you seeing any benefit of those efforts in your asset portfolio?

I'm hopeful because some of the assets that have benefited very recently. You have a federal -- in Canada, you have a federal designation associated with Red Chris. You have provincial designations of Milligan and Great Bear. And anything that is designed to advance permitting quicker is just good for our portfolio. So that's where most of the impact is. And within the U.S., we bought a royalty on the Cactus project in Arizona, copper being a critical mineral. I'm hopeful that they will also see sort of a fast track to permitting.

And then I mean, maybe in the closing moments here, just interested if there's assets in the portfolio that you think have the best long-term organic growth potential that you think might be underappreciated in the market. I'd be interested to hear your take on them.

Well, Cortez, we've talked about. I think that will always probably have the best organic growth potential. I think second, I'd probably put Xavantina. And I don't know if you recall Xavantina, we made the investment in 2021, and the mine plan at the time ended in 2026. And our geologists said, I don't really care if it's a 5-year mine plan. The potential here is substantial. And we get to 2026 at the end of -- well, the end of last year, Ero filed a technical report with a mine plan that starts in 2026 and now goes to 2032. And that's the kind of upside. That's the secret sauce. If we see that kind of upside, we -- I think we're doing our job properly. And then we made another investment early last year, and you may say the economics didn't change all that much, but what we did is we increased the area of interest. And again, our geologists remain really, really excited about that one. I think Wassa, when Chifeng bought Golden Star, I think Wassa kind of disappeared from public view a little bit. And you go back to 2015 when we made that investment, the mine plan went out to 2022, still operating. Chifeng did an Independent Competent Person's Report a couple of years ago showing the potential to 2049. And again, when we got into the investment, that was the kind of upside we were hoping to see. I think the last one, I'll put Milligan on that list. You're building a tailings storage facility for much more than 20 years. There's a lot of material there, and you may see that one show a lot of organic growth.

We're going to go see Xavantina with Ero in the fall. So they had this pile of gold concentrates that they've been selling. Is that something you knew about in the deal? And was it easy to put a value on it?

We didn't know about it when we did the deal, but that was our idea. We had a guy on site who said, look at all this material, have you ever thought about marketing that? So when we say we're a partner, we're not just a financing partner. We like to think of ourselves as an operating partner and the idea was a member of our team being on site and calling it to their attention.

That's great. Well, I think we covered a lot of bases there. Really appreciate the Q&A. Thanks, Bill.

Thank you.