It's my pleasure to kick off events today with Royal Gold. Royal Gold's a leading precious metal streaming and royalty company that owns interests in several of the world's most attractive mines. And representing Royal Gold, we have Senior Vice President, Investor Relations and Business Development, Alistair Baker. Alistair's been with Royal Gold for almost 10 years now, which means he's overseen a lot of the growth and the value creation in the company. So Alistair, there's been periods of time in your tenure where capital has been flowing and times where it's been tougher to do deals. What's the outlook for new investment opportunities today? And do you see returns getting better, or is this still a competitive deal environment?
Right. I guess the first thing I'd say would be, thanks very much for the invitation to be here today. Appreciate it. Obviously, I will be making forward-looking statements, so just keep that in mind as I go through the comments. But the deal environment that we see today is kinda similar to what we've seen over the last couple of years. It's been pretty consistent, that $100-$300 million deal size, which is, you know, it seems to be kind of focused towards development stage assets, earlier stage assets. You know, it's a good environment, but you have to be choosy. You have to be careful because earlier stage assets obviously have more risk. You just have to do more due diligence when you're looking at these things.
You know, when we think about the deal environment of that size, it doesn't sound all that exciting for those who are looking for several hundred million dollars of transactions, but for us, it's actually a very good environment. We're of a size where we can finance that size of transaction using our internal resources and our revolving credit facility without issuing equity, and we're still able to show growth by doing smaller transactions. And we always point to the Khoemacau transaction as an example. That was $265 million, and at the time, it was about a 5%-6% increase in revenue for us. So it's a good environment for us, and we're very comfortable with it. We see that size of transaction as being a solid base hit. We don't need to swing for the fences.
We're happy doing base hits, and eventually, you start driving in runs if you do enough of them.
If you're using or able to use your RCF for some of these deals, how are you looking at other uses of cash? Are you looking at dividends, buybacks, or do you think you can put some of your excess cash to work on new investments?
We've had a very consistent approach to capital allocation, really since the founding of the company, and so we always wanna make sure that our balance sheet is strong. That's gonna be the first use of cash, just to make sure that we're able to act on opportunities, and we've got a strong balance sheet to be able to move forward on things. The second is the dividends. I mean, that's to us, the dividend is a very core part of our business, and so we look at the dividend as a bit of a fixed obligation to our shareholders. Then thirdly is growing the business.
But I think in terms of cash flow, and a lot of analysts are looking forward and saying: "Well, you guys are gonna generate a lot of cash flow in the next couple of years. What are you gonna do with that excess cash?" We've never really had a problem with excess cash building up on the balance sheet. We've always seemed to find something. Opportunities come up, sometimes, they're quite unexpected, and they come up quickly, and you always wanna be in a position where you've got cash to be able to execute on transactions. So, for us, having, you know, quote, "excess cash" is not necessarily an issue for us.
I think, you know, there may be a point in the future that if we're unable to do any transactions, that we'd have to think about it differently, but at this point, I think the, you know, the steady growth in the dividend is a focus for us, and then, obviously, redeploying cash as we find the right opportunities is gonna be the main focus.
When we look at the deal environment, do you consider looking at non-precious metals assets? If so, any commodity categories that are interesting?
So we are a precious metals company. Obviously, the name of the company is Royal Gold, so that's our primary focus. We will look at. If we have a slate of opportunities ahead of us, we will look at the gold and the precious metals assets first, and when I say precious metals, that'd be gold, silver, platinum, palladium would fall into that category, but gold will certainly be the focus. If we see very good opportunities in other metals, we will look at them as well, but it's not something we're out there actively looking to do. We're not looking to diversify our revenue outside of precious metals, but if we see good opportunities, we'll look. Now, we're not going to go into certain metals where, or certain commodities where, we don't have expertise.
One of our competitors has an oil and gas part of their business. That's a very different kind of business. We don't understand it. We don't have the technical depth in the company to manage oil and gas assets, so that, for us, is not of interest. We're not interested in things like cobalt or lithium, where you don't have the transparency on pricing isn't the same, and you actually have to work to market those commodities. Exchange-traded commodities like gold, silver, copper, things like that, are very easy. There's very transparent pricing, and you know there's a market. Some of the more specialty metals, where you're selling to off-takers who may have, you know, needs for long-term contracts and things like that, we don't have that expertise.
We don't have a marketing department within the company, so those things would not be of interest to us.
... Got it. Okay, so if we look at areas where you have been active, I guess one thing that stands out in recent years, you've been busy adding some longer duration assets, right?
Mm-hmm.
Deals in Nevada, Great Bear in Canada. How do you look at the duration in the Royal Gold portfolio now? Is that somewhere you still wanna add, or is it more about filling the near-term pipeline?
We're always interested in high-quality assets, and the way that we think about assets is you've gotta have long mine lives to be able to get to provide our shareholders with exposure to metal price volatility over a longer period of time, is what we're really trying to do. So longer-dated assets are always better, or at least assets that have the potential to become longer-dated. That's where that excess return will come from, is if mine lives are extended. We don't look forward and say, "Okay, in years three to eight, we have a you know, maybe there's a dip in production." We don't say, "Let's fill that gap," necessarily.
We look at each opportunity on its merits, and certainly, duration is something that we do like to see. You're quite right pointing out some of the asset transactions that we've done recently have been more long-duration assets, and, you know, it is because they're high-quality assets. But there's also a strategic focus because one of the things that I think that there's a perception in the marketplace that our portfolio does not have the same mine life or duration as some of our peers. And so, you know, for us to get assets like Cortez and Great Bear in the portfolio, which are multi-decade, we think it goes a long way to addressing that.
One of the things I'd point out is that when we talk about our mine lives, and we talk about in our disclosure we talk about the lives of our assets. It's based on reserve lives as disclosed by operators. So we don't include our estimates of resource conversion. Now resource conversion could extend mine life significantly. In some cases there are several assets in our portfolio that have very big resource endowments, but we don't consider those endowments to actually be adding mine life, and we don't disclose that we think that'll add another five or ten, or whatever the case may be. That's for the operator to decide. They have better information than we do. They're the ones who develop mine plans.
We disclose reserve lives only, and resources are on top of that.
Got it. Maybe a good time to ask you about, you know, if we're going off of operator reserves, you know, market will come to a certain valuation. Do you have an idea of what you think are, you know, some of the assets that the market may undervalue from a value creation perspective? What are some of Royal Gold's most important, like, long-dated assets people could be underestimating?
I think it's hard for the market to estimate valuations on assets that do have resources that haven't been put into a mine plan. That is something that. It takes us a long time to evaluate those things. When we look at a new opportunity and we do our due diligence, we spend a lot of time looking at resource potential and mine life extension potential. There is tremendous value there if you can pick the right assets where they have those characteristics. It's hard for the Street to look at those assets and be able to value them because there is nothing for them to base a value on, right?
So if you're looking at a mine life that's been published by an operator that says it's gonna be 15 years, but there's a tremendous resource that, you know, that you'll be able to do a net asset value estimate of that 15 years. But then how do you value that resource? And that is the struggle, I think, that the Street often has with some of these assets that have growth potential is just how to value that growth potential. And we do spend a lot of time looking at that because that is... To us, that's kind of the key to what we do. In terms of the assets that we've got in the portfolio, where we have that potential, I think you can look at, you know, Cortez, you've already mentioned. That's a great example.
There's tremendous exploration potential there, and it's still probably in its early days of being defined as a complex. You look at what Barrick has talked about more recently in some of the at Fourm ile, some of the potential there is enormous. And so that, I think it will take the Street time to understand what the value is because, you know, there's a lot of work that needs to be done to be able to quantify what those resources are going to be, what the mine life could be, and so on. So I think that's a good example. Another one is Red Chris.
That's a royalty that we acquired three or four years ago now, and that was basically, you know, it's a relatively small open pit. It is in production, but the resource potential there is huge, and it's all underground. It's a large block cave operation, potentially. That's what Newmont is working towards. But how to value that is hard. Newcrest, the previous owner, they put out some estimates of mine lives and, but they didn't really talk about production levels and things like that in much detail. So it's very difficult for the Street to say, "Okay, well, that asset is worth a certain amount in Royal Gold's hands," because there is a lot of uncertainty yet.
Now, if we do our work, and we do our due diligence on these assets, and we're able to get comfort that the potential is there, we can build our own estimates of value. But it really is up to the operator to try and prove that out, and it takes time. So it is a difficult thing for the Street to do.
... So a lot of that due diligence is gonna be geological-
Yeah
- work?
Yeah, it is. Yeah, we have. So the way we approach due diligence is very fundamental. It's very much asset driven, so we have a technical team in-house, and all of the due diligence that we do, you know, we'll recommend to the board when we're looking at a transaction, and there'll be somebody on the Royal Gold side who is responsible, and so there's accountability. But we'll have a technical team in-house that will look at things, and we'll bring in specialists and consultants who can help us in certain styles of deposits, for example, or certain types of operations where we may not have that expertise in-house. We'll bring in somebody who can help us, and so they'll add to our team, but they'll be a peripheral member of the team.
The team is still internal. It's still accountable, but it's definitely... Our focus is definitely on the fundamentals of the asset, 'cause if the geology isn't right, then it doesn't matter. You can structure the best transaction in the world, but if the asset itself isn't fundamentally sound, then it's obviously not gonna be a good transaction.
Got it, and how are you thinking about regional exposure right now? You recently did another Canada deal. I guess you've done a few Canada deals.
Mm.
But you've also got Africa-
Yep
... in the portfolio.
Yep.
How are you viewing country risk exposure?
We feel very good about our portfolio. I mean, if you look at last quarter, we had 56% of our revenue came from Canada, the U.S., and Australia, so three of the best countries in the world for stability. We are in other places as well. We have a couple of investments in Africa, but we're very select when we look at new places. We don't see Africa as one place. It's a continent with many countries, and some countries are good and some are not so good. We're in Ghana, and we're in Botswana, and we're happy, and we've been successful in both. We will look at new jurisdictions outside of where we are.
If you look at where we are on a map, I mean, we're basically North and South America would be the center of gravity of our revenue. But we will look at other jurisdictions, but they've got to be places where there's personal security, there's rule of law, risk of expropriation is low or non-existent. You know, it's the typical things that you would look at from a jurisdictional risk perspective, and it's a big factor that we think about when we look at a new country. In fact, investing in a country where we have existing investments, we always look at that stuff because it changes over time.
Right. And, on that, the Canada deal I was referring to as Goose, were there any sort of key de-risking events that triggered that increase in your stake in the Back River Gold District?
Yeah, I think the biggest change that made it... I mean, it was a very attractive project, and fundamentally, it's got great geology, and it's very, it's got a lot of potential. The biggest change was change in ownership. It was a single-asset junior before, you know, very well-run company and so on, but you know, when you're talking about something, an asset that's in a remote location, logistical challenges, it is a, it's a big capital project. I mean, a single-asset company, are they really necessarily the best people to move it forward? Do they have the depth of resources to be able to move it forward effectively? When B2Gold got involved, it changed the complexion of the project for us.
You know, they're a well-capitalized, mid-tier producer, and they've got lots of project development experience, and they're the same group of people who built the Kupol asset in Northern Russia, so similar kind of environments. So we were very impressed when they took over, and it created a bit more interest on our side in those new royalties that we acquired.
Got it. Okay, maybe just a few more going back to the current environment. Interested in your view on how you see interest rates affecting the project financing environment. We've got falling rates now. How is that affecting the stream and royalty space, and you know, how do you stay competitive versus some of the alternative funding routes?
Yeah, well, you're right to say that, you know, being competitive against alternative funding is really our biggest question. We have to be competitive against debt and equity, and obviously, falling rates will make debt more attractive, there's no doubt. But the interesting thing, though, is that many of the companies that we talk to, they probably wouldn't use debt in the first instance. Some of these companies are smaller companies. They may have projects, they may not have any cash flow, so debt may not be something they'd be looking for in the first instance, so it doesn't matter what the interest rate environment is like. The other thing, though, when you think about debt and equity is the product that we provide is actually...
It's interesting in that it's much more flexible than both. It's different from both of those. Debt, you know, somebody developing a project may decide that they want to use debt financing, but often, your bankers are gonna demand that money back at some point, and it's often at the time where it's least convenient. You're in the middle of a ramp-up, things aren't going well, and they say, "This is your debt repayment is due at this time." The product that we provide, we will collect our revenue as the project produces. There's a lot less. It's a lot more flexible. That would be one thing about debt that is different.
The second, when you think about equity as well, though, you know, a lot of people in our sector think equity is free, and you've seen that in the gold sector. It's been kind of a common thing, and it's not. I mean, there is a cost to equity, and there's also a dilution factor. When you think about equity, companies will raise equity to fund a project build. But when they raise equity, they're diluting their shareholders' exposure to all assets in their portfolio. With the product that we provide, there is dilution for sure, but it's focused on that one particular asset. So that's an interesting consideration as well, and I think a lot of operators are becoming...
They're thinking about our product a lot more differently, and so we're getting brought into discussions where somebody's looking to raise capital for whatever reason. They may be looking at debt, they may be looking at equity, but they'll also look at our product as well. And I think 10 or 15 years ago, that didn't occur. It was. We were always viewed as being a financing tool that people didn't want to use. But I think a lot of people now think about it as kind of a core part of the package.
Interesting. Okay, so, interest rates may not have the, you know, the biggest, competitive impact in your, in the discussion regardless.
Maybe not. I think they are a factor-
Yeah
... for sure, but I don't think they will be, just because interest rates are coming down, I don't think it means that our opportunity set is going to dry up.
The other change going on in the space has been the global minimum tax, which, I guess affects some of your peers more so. There's a few companies that have been heavier users of the offshore, tax arrangement. Do you see any impact from the GMT?
Not for us. I mean, I think the GMT will affect our Canadian peers who have used the low or no tax jurisdictions, and now the GMT is supposed to see them pay, you know, a 15% in total tax rate. We have. Our streaming business is actually structured in Switzerland, so it's a relatively low tax jurisdiction. It's not a no tax jurisdiction. But several years ago, in 2017, with tax reform in the U.S., there was a new regime put in place called the U.S. GILTI regime, which is essentially a global minimum tax for U.S. companies. So we pay, right now, on our streaming business, we pay about 13% tax, and that's going to 16% in 2026.
We're right around that 15% GMT level, and we have been there for several years and it's a structure that has been tested over time, and it hasn't changed. We don't see for us, we don't see any impact from the GMT. Now, what it will do from a competitive perspective is perhaps it'll level the playing field. Our competitors who are able to bid more aggressively because they were factoring lower taxes into their economics will now have to think about bidding things on using a tax rate that's very similar to what we have been paying. That's a positive for us.
Got it. By the way, we're happy to take questions from the floor. There is a microphone, I think. Okay.
Can you talk a little bit about yourselves and the sector beta, the price of gold? You know, you've got a chart in your presentation. The long-term beta is quite strong, but in the last five years, that's gone away, and it's different.
Yeah.
Maybe I'll just say, just 'cause we're webcasting, it was a question about beta of the stocks to the gold price. It's a very interesting thing, and obviously, we're, we look at that as well, and it's a little confusing. You would think, I mean, our revenue, 76% gold, you'd think we would have tremendous beta to the gold price. But, oh, you're right, over the last little while, we have not seen that, and I think there are a couple of factors. I think if you think about the market generally, recently, that you don't need to be invested in gold to do well. I mean, all you need to do is buy Microsoft and a handful of other companies, and you'll do very, very well.
So the gold sector, I think, has been forgotten by a lot of people, despite the fact that the gold price and the outlook for gold is very good. I think it's just been something that people haven't needed to invest in. So it has been. Yeah, I think a lot of money has come out of the gold sector generally. I think another thing is the. If you look at some of the things that have happened in our sector in the last couple of years, there have been some problems. You've had operating problems, which is always, and mining is a complicated business, and you've always had operating problems, but you've had some fairly high-profile incidents, and I think that scares some investors away.
And then the other is, in the streaming sector particularly, you've seen one of our competitors have a big jurisdictional issue. And so I think in a sector where generally investors see the streaming sector as being a very safe place to park their capital, and they want exposure to the gold price through the streaming sector, I think they've come to the realization that there is risk in portfolios, and so that has been a drag as well on performance. I hope that this is a short-term phenomenon. I think it doesn't stand to reason.
If multiples stay where they are, it doesn't stand to reason that our stock price will continue to lag the gold price because every dollar that gets added to the gold price is more revenue for us, so it should correct, but it hasn't really done that yet.
By the way, Microsoft hasn't done that much better than gold in twenty-four years.
If you go back long enough, but I'm talking about the last couple of years, really. There's been this tremendous bifurcation in the marketplace, where you look at the large caps on the S&P, and they've just done well, and everybody else is, like the other four hundred and ninety companies, have not done very well.
Maybe on the risk, you know, front, as we've seen a couple streaming and royalty companies impacted by concentration in large assets, where if something goes wrong. We've also seen a few deal syndications. Just interested on your view on syndicated deals, where multiple streaming and royalty companies are participating on the same financing?
I think syndication is an interesting, interesting concept. I mean, there are a couple things. I mean, obviously, it reduces risk. In a large transaction, if you have a couple of people working together, then funding something, it just reduces your concentration, so it reduces risk. The other thing is that when you do a transaction with somebody else, you often get the benefit of their perspectives on due diligence, so it. That reduces risk as well. We've tried to do a couple things with peers to syndicate. We have not been able to get those transactions across the line for various different reasons, but we found it to be for the right opportunity, it can be quite an interesting concept, and we're not against it at all.
In fact, I think if we saw large transactions that we thought had additional risks that we were unwilling to bear ourselves, I think we'd be quite happy to share those risks with one of our competitors. We just haven't found the right opportunity yet for us. There's not a lot of syndication in our sector, and I think it's generally, when you're talking about transaction sizes of what we're talking about at the beginning, smaller transactions, there's not a lot of benefit for us to syndicate. If it's a really risky transaction, small, we're probably not gonna do it. We'd rather have all of the economics of a small transaction.
But if, you know, we see large transactions, and they will come back at some point, then, yes, syndication may be a way for us to do some of those.
Yeah, no, that, that's great. If you can do enough of these smaller deals that you know, hopefully, have the sufficient return and stack them up, it could be the way to go rather than big deals, but you know, when you're talking about these small deals coming into the market, smaller size, $100-$300 million, what are you seeing as the balance between producing versus development assets? Is it... Are you seeing the junior market, you know, starting to tee up some of these development projects, or are there producing asset opportunities as well?
There's always a mix of both. I think right now, though, that you're seeing more development assets. I think, you know, companies who have projects, obviously, the stronger metal price environment is helping those projects, so a lot of companies are very motivated to push those forward quickly. We are seeing more development assets. We like development assets, there's no doubt, but you've just gotta do a lot more work to be able to get comfort with the plan. You know, are the right people there? Do they have the financing? Is the plan sound? Have they done enough studies? You know, there's a lot of due diligence that goes on when you're looking at something that is still in development. Whereas if it's producing, a lot of that risk has been taken away.
You can look at performance and things like that and get comfort very quickly, but we like development assets for sure.
Well, it's a very unique environment with record gold prices and still discounted valuations on a lot of these juniors. So hopefully the streaming and royalty space can take advantage of that window to provide the financing. Anything else in the sort of closing minutes you wished I'd asked you about or you'd like to share?
I think we've covered a lot of ground. I guess, you know, one of the things that I just wanna highlight, 'cause we're in New York City now, obviously, is that we are a U.S.-domiciled company, and we're the only company in our sector that has a U.S. domicile, and I think that's quite interesting. You think about the way that our stock moves, it's often related to a large index and passive component on our register, simply because we're part of U.S. indices that our peers may not. But I think one of the things that I would point out, in this environment where the gold price is doing well, the outlook is very good for gold.
Large U.S. generalists, if they wanna play the gold sector, and they wanna play a royalty streaming company, we are the only choice of any size they have, so we can stand to do very well when the U.S. generalists turn their attention to gold, and so I think we believe that the gold price outlook is quite good for macro reasons, so we're feeling pretty good about the future.
Great! Well, thank you very much for sharing your thoughts on the Royal Gold story, and we'll look forward to seeing how things materialize over the rest of the year.
Thanks very much, Matt. Great to see you.