Royal Gold, Inc. ($RGLD)

Next up, we have Dan Breeze, Senior VP, Corporate Development at Royal Gold. Morning, Dan. I've heard about higher royalties and not really complaining, but the producers are talking about higher royalties, and we have now Royal Gold, the recipient of some of these royalties, so.

Okay. Thanks for that context, Cosmos. Good to see you. Yes. Thanks for hosting this session again. Good morning, everybody. We certainly appreciate the invitation from the Denver Gold Group to be here, and thank you for your interest. I'm really pleased to update you on the Royal Gold story. The last year has been the most defining period in the history of the company. We're going to go through a few of the key items that we want to cover off for you. Just bear with me for a moment, I will be making forward-looking statements during this presentation. Actual results may differ materially due to risks and uncertainties. These details are in our most recent 10-K that was filed with the SEC. This is a high-level presentation and we'll get into a little bit of detail as we go through it. But I want to start with a summary of why we think Royal Gold is a compelling investment. We are a mine finance and portfolio management company. We are focused on making perpetual investments in royalties and streams, primarily in gold. And in fact, we lead the sector in terms of gold exposure as a percentage of our revenue. We are a high-margin business. It's supported by a 25-year track record of dividend growth. It's unparalleled in the industry. We have the most diversified portfolio in the sector with over 360 investments, and they're weighted more towards lower risk jurisdictions. Our model limits exposure to capital and operating costs. We are very uniquely positioned. We're the only streaming and royalty company domiciled in the U.S. In terms of the size, we sit between our 2 larger peers and everybody else in the sector, and we believe that is the optimal size to grow. Finally, our broad portfolio provides embedded growth that has been bought and paid for. We recently put out 5-year guidance, and that really shows that we have confidence in our growth profile going forward. 2025 was a transformative year for the company. We deployed $5.3 billion of capital really within a 6-month period. We acquired Sandstorm Gold and Horizon Copper. That was the largest corporate acquisition in the history of the sector. We acquired a $1 billion gold stream that's operated by First Quantum in the Kansanshi mine in Zambia, that's one of the largest streams to ever transact, and we invested in the Warintza copper project in Ecuador really just to extend out the long-term optionality. Let's take a closer look at some of the key attributes of Royal Gold. Let me use this as sort of a road map. We'll come back to this and cover off these points. So I think the case for gold is well understood, certainly well understood by this audience. I mentioned that Royal Gold has the highest gold revenue weighting in the sector. And when silver is added, almost 90% of last year's revenue came from precious metals. We've remained very disciplined and we focused on what we know. We haven't chased trends in the industry, and that consistency has really positioned us well for the gold price environment that we've seen, and it's resulted in a record $1 billion of revenue for last year for the company. Our share price has outperformed gold, the GDX Index and the broad market going back to 2006, that's when the GDX Index was created. We offer very strong leverage for specialist investors. You can see that with a beta of 1.6 to gold. At the same time, the lower beta versus the broad market offers diversification for generalist investors as well. So we can appeal to both types of investor sets. We look a little bit more now at margins and the dividend growth in the next couple of slides. In 2025, we delivered EBITDA margins of more than 80%, and that really reflects a lean, high-margin and scalable business. Cash G&A was just 4% of revenue. It's low, it's stable and it's largely unchanged over time. Our model mitigates inflation risk and protects margins, and we're going to get into that in a little bit more detail in a couple of slides. We love showing this chart. It's a little bit cheeky in some ways, but it underscores the efficiency and scalability of our model. And you can see when we look at enterprise value and revenue per employee, we benchmark very well against the major mining companies on the top of the chart. But we also stand out versus some of the large tech companies, and you can see what we've pulled as reference below that. We've added some new colleagues with our transactions in the last year, but we are just still only 39 employees. We're managing hundreds of investments. We have a $22 billion U.S. market cap. It truly is a unique business when you put that all together. So the strong margins have really allowed us to grow a very consistent dividend, and we've delivered a 15% CAGR over the last 25 years. In fact, Royal Gold has the longest track record of consecutive dividend increases in the GDX Index. We are the only precious metals company in the S&P High Yield Dividend Aristocrats Index. And we're sitting alongside of other very high-quality companies that you would know like Apple, IBM, Coca-Cola, Caterpillar, and so forth. While we don't target a specific payout ratio, we believe that, that dividend is going to continue to grow just based on our track record. We look at the portfolio for a moment. It's global, it's weighted towards lower risk and mining-friendly regions. It spans all stages of development. We have roughly 80 producing properties at the moment. There are 30 more in development and then more than 250 properties behind that in earlier stages of work. And that really just provides layers and layers of optionality to look forward to in terms of long-term growth and this is all bought and paid for. There's no incremental cost for our shareholders. Gold has always been the dominant focus by design and the 2025 acquisitions that we did really improve that weighting. Roughly 95% of consensus NAV comes from precious metals in our portfolio. We talk about gold. Gold is certainly the key driver of revenue in NAV, but we also have silver and copper exposure through high-quality assets. Geographically, 70% of the NAV here comes from the Americas, and that's primarily weighted towards North America. Reducing portfolio risk has been an ongoing focus for us as a company. And we're pleased to say today that Royal Gold offers the industry-leading diversification, not just from an asset perspective, but also from an operator perspective. A number of our operator partners are best-in-class. These are large, well-funded experienced companies. We've recently added the likes of Glencore, Rio Tinto and First Quantum among other Tier 1 operators. Our largest asset still is Mount Milligan. It's operated by Centerra Gold. It's in British Columbia. It roughly represents 12% of the NAV, and we're very happy with that exposure. The company recently extended the mine life to 2045, and there are likely more extensions to come if you listen to the company in terms of how they talk about that asset. So we know that investors have many ways to get exposure to gold, and we show this off, and just to provide a bit of a comparison, when we compare ourselves to physical gold, we offer exploration upside. We have production growth. We have a very broad portfolio. And when we compare ourselves to operators, we avoid the direct exposure to operating and capital cost increases. And you combine those features with a high-margin business, a growing dividend, it really creates a very differentiated product for investors to consider. Inflation has become topical again in the mining industry, it never seems to go away. We know that producers generally see cost increase over time. And typically, the margins follow. But for our model, our cost base is relatively static, and we're able to capture the margins. And I'm going to use the next slide to make the point. The bar chart on the left-hand side shows a comparison of the cost structure of Royal Gold versus the average producing company. And I think there are 2 key takeaways to leave with you. The first is you can see the cost per ounce is materially lower than the producers. That just means an overall higher margin in our business. But the second takeaway is only a small portion of our cost, really cash G&A related to employees is subject to inflation, whereas producers, as we know, they're experiencing inflation coming from labor and more recently, energy. So to sum up, we are levered to rising prices and not to rising costs. We believe our relative size is a differentiator versus the peer group. I'm just going to talk through this in a minute. Although the average transaction size in the industry has grown in the last few years that the large deals, the $500 million, the $1 billion deals, these are still pretty rare. It's really a collection of smaller transactions in the market. And so for us, given our relative size, a $250 million transaction is material. It will show up in our numbers. And I don't think that's necessarily the case for our larger peers. We had $1 billion of liquidity at the end of 2025. We have low cost to capital. We can compete across the entire market. We are really sitting in the sweet spot of the industry from our perspective. We're often asked about how we prioritize capital allocation and our priorities are very clear. They're written on the left-hand side. First, we look for accretive growth from high-quality, long-dated assets. Second, we maintain a strong balance sheet. We want to be positioned to execute quickly. And third, we're returning capital to our shareholders by continuing to grow the dividend. Our framework for capital allocation is very simple. I'm not going to go through this in a lot of detail, but we do focus on limiting equity dilution, and we do focus on showing per share growth. We do use the revolving credit facility. It's a fantastic tool to deploy in terms of growing. Our business is really well suited for debt. When you think about the high margins that we have and no sustaining capital, we're able to borrow. We deploy that money into assets that typically produce for decades, and we're able to pay off that debt in a matter of a few quarters just given the cash flow that we're generating as a company. I'm just going to make the point a little bit more on equity dilution and per share growth with this chart. This shows the cumulative view of our financial results going back to the year 2000. And you can see at the top, you can see the revenue and cash flow have grown materially faster than what we've seen for our cash G&A expenses and the gold price. And we've largely financed our growth without significant increase in the share count. Even with the shares that we issued last year to acquire Sandstorm, we still have the lowest share count in the GDX by a wide margin. Over the last 25 years, cash flow has increased 167x, and the shares outstanding have only increased 5x. So I think that's clear evidence that we are delivering accretive growth for our shareholders. I'm going to wrap up, Cosmos. I'm not sure how much time we have. Are we okay?

We're okay for time.

Okay. I'm going to just wrap up with the last couple of slides here. I want to share with you returns. This is -- this really demonstrates how value is created in our industry, and it's somewhat misunderstood, I think. So I want to spend a little bit of time on this. This slide shows the internal rate of returns or IRR for our 6 largest investments in the portfolio. The returns shown, the estimates that we see here in the blue bars are from Scotiabank's view of what the returns were at the time of these investments when they were made. And these have been updated for January of this year, that's the gold bars. And Tanya and team, thank you for providing the data. It was very helpful for us to utilize. What you can see here is the returns are very modest at the start and then they grow over time. And the question is, why? Why is this happening? And obviously, changes in commodity prices drive that value. However, there's a key reason that we spend so much time when we look at an opportunity. We spend months in diligence. We really look at the asset and then we go in with a transaction, but the market typically has a limited view on that information that we have. And that means that limited view translates into modest day 1 returns as assessed by the market. But as more information becomes available, maybe a study comes out and there's a mine life extension, those returns increase and the market starts to see what we've seen. It typically takes years for investment case to be fully understood by the market. And I think a good example of that is the Cortez Royalty acquisitions that we did in 2022. These were material acquisitions for the company. I think it's fair to say the market was lukewarm when we announced those deals in terms of the returns. But you fast forward to last year, Barrick put out a preliminary PEA in the Fourmile project. We hold a 1.6% gross revenue return on that project. And those returns have increased materially, as you can see. I think today, I think most analysts would agree that those were great transactions for us and some of the best royalties that have been created in the marketplace. This data set is just a different way to look at value in our portfolio. It covers the same 6 assets on the previous slide. The blue bars show the size of our initial investment that was made. The dark gold bar show cumulative cash received through to the end of last year. And then the light gold bars show the consensus, the current consensus NAVs for the projects, and they typically don't include resource conversion as well. So presumably, those will continue to grow in time. On a cash in, cash out basis, we've recovered our initial investments at Andacollo, at Pueblo Viejo and Mount Milligan. You can see the market still sees lots of more value to come on those projects. So I think the takeaway is our model requires time and excess returns do emerge over time if you're patient. We do invest in long-term assets. That's why we're very focused on that. And this value can be realized in our model because they are perpetual investments, and there is 0 sustaining capital, so we can really capture the value from that perspective. I'm going to pause there. Lots of things to be excited about in the portfolio going forward with projects moving forward and catalysts and all that. But Cosmos, I'm happy to take any questions.

Great. Any questions coming from the audience? Limit to one question, please. While you get the mic, I'll ask the question. So Dan, you've now had some time with the Sandstorm portfolio. And during the Investor Day in New York City, which I attended, we had talked about the different assets that you've acquired. Could you maybe, in about 1 minute or 2 minutes, summarize any surprises that you found in that Sandstorm portfolio, how that added to your production base or your sales base? And thanks again for giving us 5-year guidance, and maybe touch on that quickly as well.

Yes. Maybe I'll just give you a broad comment about that transaction and how it fit with Royal Gold. When you look at our, call it, the pre-acquisition portfolio, we were heavily weighted towards producing assets. And we didn't have a lot of -- we had a lot, but not as many as Sandstorm. We didn't have a lot of the longer-dated options and that optionality that Sandstorm has in their portfolio. And then you look at their portfolio, they have that, but not a lot of near-term production. And so putting the 2 portfolios together solved both issues, if you will. And out of that came a number of assets that we're looking forward to. I don't think there are any necessarily, like any surprises per se, Cosmos. But as you can see here, a number of the assets that we acquired have catalysts upcoming over the next 5 years and they feed into our guidance as a result.

Great. Question?

Dan, it's Tanya. I just wanted to ask, when you look at the opportunities in the market right now, are you seeing more in silver or gold? And in these opportunities, is it more double down on what you have? Or is it new opportunities?

Yes. It's going to be another very broad answer, Tanya. We're seeing everything right now. The market is very robust. I think the transaction that Wheaton and BHP announced really cast a spotlight on that potential area of growth in terms of minor metals in these massive deposits. Some of the more recent transactions in Australia, Australia has been a very hard market for us to break into for legacy reasons, and that's changing. And so I think there's renewed interest and focus on growth in the industry. So we're seeing silver, gold developments producing. It's a real mix right now, Tanya.

Great. Thank you, Dan.

Okay. Yes. Thanks.