Good to go? Okay. Royal Gold is a precious metals royalty and stream company with a portfolio of 175 properties across 17 countries at various stages of development. Joining us today from Royal Gold is President and CEO Bill Heissenbuttel. He's going to make a few comments, and then we're going to have a chat.
Good morning, and many thanks to BMO for the opportunity to present this morning and welcome Matt to the spotlight at one of the premier events in our space. I will be making forward-looking statements during my opening comments and during the fireside chat. These statements are subject to risks and uncertainties, and actual results may differ materially, and these risks are discussed in our 10-K filings with the SEC. I'm sure we'll get into a few more details during the fireside chat, but I thought I'd like to hit on a few opening themes. Number one is strategy. We remain committed to the precious metal space, gold in particular. Although we did purchase a copper royalty at the end of 2024, that was really a one-off opportunity and not an indication of any course correction with respect to our strategy.
And relative to the other peers in our space, we have the highest percentage of revenue attributable to gold at 75%, and that will remain our core focus. Second theme, political risk. Obviously, been very topical in our sector in the last couple of years. And I like to point out that 60% of our revenue comes from the U.S., Canada, and Australia. And every investment we've made over the last four years has been in the U.S. and Canada, really with one exception. We are in Ghana and Botswana and Africa. We feel quite comfortable in those jurisdictions. And that's not to say we won't find new countries in which to invest. I just say there's a little more caution, I would say, in our due diligence process. Theme number three, positioning. We like to say we're big enough to compete, small enough to show growth.
Being the largest, as the two gentlemen who just preceded me, is not easy when the average transaction in our space is in the $100-$400 million range. You know, an average-sized transaction, you'll see it in our numbers. And we don't have to string together a series of investments. And that allows us to be flexible. It allows us to be patient. And by saying big enough to compete, I'm really talking about liquidity, and we have $1.2 billion of liquidity currently. Theme four, equity. We hate issuing shares. We have 66 million shares outstanding. It's the lowest on the GDX, and we haven't done an equity issue since 2012. We operate in a business model with a business model that generates cash and can easily service debt. And we are not at all shy about using debt finance.
We recently paid off the debt used to complete acquisitions in 2022, and we now have a fully undrawn revolving credit. And finally, dividends. We do not like issuing equity. We do like returning capital to shareholders. We've paid a dividend since 2000. We've increased it every year since 2001. And we are the only precious metals company in the S&P High Yield Dividend Aristocrats Index. Our shareholders seem to appreciate the approach. Our average institutional shareholder has been with us for 16 years. So I look forward to the fireside chat, and I hope I can answer any questions you may have.
Bill, maybe we'll start at the asset level. I'd like to cover some of the catalysts for your key assets this year. Maybe we could start with Mount Milligan. What will you be looking for in their PEA on the mine life extension?
Yeah, I would actually say PFS in the third quarter. I think the thing we're really looking forward to is hopefully a longer reserve life. I think we have struggled a little bit since 2019, 2020 with the idea that our biggest asset has eight, nine years of reserve life. And remember, what this study is going to do is look at whether or not they should expand or build another tailings storage facility. And you're probably not going to do that if you're talking about five years of reserve life. And Centerra, I think last week, came out and started talking about multi-decades. They talked about a potential 10% increase in throughput, doing a lot of drilling. So hopefully what we'll see in the third quarter here is something where we're no longer talking about a short reserve life.
In fact, our number one asset is going to go on for decades.
Okay. And another big asset is Pueblo Viejo. When do you expect to start seeing those silver deliveries pick up as they deliver on the ramp-up?
If I had the answer to that, yeah, it's been frustrating a little bit. They have struggled with the throughput. If you go back to their investor day, I think they had two pages of throughput and process improvement projects that they will undertake over the next year or so. The silver recovery project, I think, is scheduled for the fourth quarter. So maybe we'll see some improvement in 2026. And I think they've guided to ramping up 2027, 2028. It actually works out, might work out relatively well for us because that is, when we look at the growth in our portfolio, the growth potential, you may actually see our second largest asset actually be a potential source of growth. So I hope to see improvements over the next couple of years. When we get the silver back, I just don't know.
Maybe we'll stick with some Barrick assets. Nevada is a big part of the portfolio. How do you feel about their attempts to control costs and secure the strong future for Cortez and Fourmile?
You know, I think they're doing a very good job, and we maybe take a different perspective. I was looking at their all-in sustaining costs, and I think they were $1,400 or $1,500 last year and about the same this year, so it doesn't seem to us that costs are out of hand, if you will, but we look at, we get excited. Goldrush is in the process of ramping up. Robertson received the Record of Decision last year, and Fourmile is really exciting. When we increased our exposure to that royalty a couple of years ago, Fourmile was mentioned, but really there was no separate line item on the resource side for Barrick, and now we're at eight million ounces, and we go back to the premise when we made the acquisition and people said, well, you paid a high price for what you got.
We said, this is what we expect from this property. It's very nice to see two years later, eight million ounces in resources. I think it's probably been historically our most important asset. I think going forward, it may end up being our most important asset.
Yeah. I mean, the drilling progress on Fourmile is pretty exciting. So do you think you had some insights into the geology, or is it just the importance of the district that drew you to it?
Remember, we've had a royalty position there since the early 1990s. So you can say we spent a lot of time on the property. And I think that did influence the decisions that were made when we came to the price in 2022. But I think we understood the property, and the people who looked at the acquisition and said, you paid a high price, were assuming that here is a property that has continued to new resources, new reserves constantly, that that was going to stop. And we knew that wasn't the case, so we remained bullish on Cortez.
And then Khoemacau is another one where they're going to have a feasibility study on the expansion. And when do you expect an update on that? And when do you think they start construction?
They just started the feasibility study in December of last year. So it's probably a little early to be commenting on the progress on that study. As you say, they have talked about starting construction in 2026. I think first production is 2028. We'll have to see. I think they're focused right now on getting back to the capacity of around 60,000 tons per annum of copper, which we have 100% silver stream. So that should equate to hopefully somewhere around 1.8 million ounces of silver. The only thing I just caution people is you hear MMG talk about going from 60,000 tons per annum to 130,000 tons per annum. That does not mean our silver interest goes from 1.8 to 3.6. There are ore bodies on the property that will feed into the expansion that are not part of our AOI.
I'm actually interested to hear more about the study so we can help people understand what the expansion actually means for our interest.
Got it. Okay. Maybe just you mentioned in your opening comments about the level of risk in the portfolio, political risk. You've added interest in Canada through deals on Great Bear, increased staking in Back River. However, Africa is also playing an increased role. So how do you view the risk exposure? Is it somewhere where you feel like you've got enough Canada weight now or U.S. weight that you can go further afield?
Yeah, I don't think we look at it that way. I think it's a little dangerous to say, oh, 60% of revenue is from the U.S., Canada, and Australia, and therefore I can go to this country X that is higher risk. We don't sort of want to gamble in that way with political risk. I think one of the key things to us, and it's true with where we are in Africa. Ghana has a long mining history. Botswana is a stable democracy, but also has a mining history if you look at Botswana. And I think our investments play out over decades. So we can look at the politics at any one point in time and say we're comfortable, we're not comfortable. I don't know where these countries are going to go in five, 10, 15 years.
So what we try to do is figure out, is there a mining culture? Is mining important? Because you go to Peru and you might have six presidents in eight years or nine years, but it's a mining country. And I think that's really important. It makes us feel a little bit safer about making investment decisions. And I feel very badly for Franco-Nevada in Panama. I would just say in Panama, was there a mining industry? Was there a mining culture? And if not, did that play into some of the issues that they had?
A question came in, and you did comment about the Nevada deal where there were accusations of overpaying. So the question was about overpayment. And what do you view as your cost of capital and what return on invested capital are you targeting?
I think our cost of capital is low single digit. When we talk about returns, we don't start with an initial hurdle rate. What we try to do is identify geologic upside. If we look at something and say, oh, I can invest in this and I get a 10% or a 12% return, it's a 10-year mine life and that's all it will ever be, that to me is not really the type of investment we want to make. We want to make an investment in an asset where five million ounces becomes 10 million ounces, becomes 15 million ounces. That initial return, which may look relatively low from the start, but at the end of the day is at double digits. Hopefully, I mean, if you're dealing with a 25-year mine life from the beginning, you're probably not going to get there.
But being able to make that initial investment and not paying for those additional ounces to be found, that to me is the secret sauce of what we do. And I think we've got a great team of geologists who have really identified some great assets.
Can we talk about the organic growth in the portfolio? If we look out a few years, what do you see as the organic growth opportunities and how do you think it compares with your peers?
You know, as I mentioned earlier, it's kind of interesting that some of our biggest assets are potentially some of our biggest sources of growth. And that's, again, the PV expansion, the Khoemacau expansion. I think Barrick guided their meeting last fall with investors. They're looking at over one million ounces of production at Cortez in 2027. These are some of our biggest assets and really a source of growth. You throw into that in the short term, we had a number of new operating assets last year, Mara Rosa being one of them, Côté, Manh Choh. I think they in total produced about $40 million of revenue last year. They'll now be at full production hopefully this year. And then you go out a couple of years and you've got Great Bear and you've got Red Chris.
I don't think there's a step change in our growth profile, but there's this great, I think, underlying trend that should produce growth just from the portfolio.
Then maybe some questions about the new investment opportunities deal environment right now. How are you seeing that play set up for 2025 and how competitive is the deal environment right now?
Yeah, I think the gold development project side is where I think we see most of the opportunity. I've made comments at other conferences before where the hardest thing we have right now is you've got a spot price at $2,900 and a long-term consensus price of $2,200. It's never been that big, and so when you're trying to negotiate with an operator, we want to buy at lower price as we can, and they want to sell it at as high a price as they can. That just makes it a little harder from a valuation perspective and can delay things. On the competition side, within our space, it really hasn't changed that much. We've been dealing with competition. I've been with the company for 19 years. We've had multiple competitors all along, so I don't think that's any different. Debt is a little more expensive.
We do look at debt and equity as the competition. When we look at things a few years ago when people could do bond issues at 3%, we were losing transactions to debt. Equity, it's good to see some equity come into the space. We don't want to fill the whole side of the right side of the capital structure. And so we really do need. It's good to have debt available, have us sort of sit in the middle and then have some equity come in behind us.
The other thing you mentioned in your comments were highest proportion of gold in the portfolio versus peers. So does that give you capacity to act outside of gold, or is it still just a real focus on?
It's a focus. People say you're at 76%. What would you like it to be? Higher? I mean, that's what we do. And I think that's why investors buy our shares. I'm not so sure an investor buys Royal Gold because they want exposure to nickel, to lead, to uranium, to lithium. You can find that somewhere else if you want to. Now, that being said, if something comes in the door that is attractive, which is what Cactus was, yeah, we may act on it and we may make that investment. But I'm always challenging our business development group to be proactive. And when we're proactive, we're talking precious metals. We're not going out there looking for copper royalties or iron ore royalties. But if happens someone calls us up and it's a good looking opportunity, sure, we'll consider it.
Did I understand you correctly when you were talking about returns? Did you make a comment that it's easier to make that bigger return if you're going into shorter duration assets that can?
Yeah, well, a great example is Wassa. So Wassa, we got into it in 2015. I think the initial Wassa mine plan would have mined this thing out in 2022. And the work that Golden Star did before it was sold had extended reserves and resources to a point where you could see it extending to 2037. That's one where you can achieve the higher returns. I think if you take, I'll take an example that's not in our portfolio, you take an Antamina, right? You got 30 or 40 years of reserves and they add five years. That's not going to do anything for your return. You're not going to take it from a low number to a much higher number. We're seeing the same upside at Xavantina. Again, we got into it, five years of reserves.
People looked at the initial return and said, "Seems a little low for the risk." And all we've seen are new resources, new reserves, higher production. That to me is an example of us doing the right investment.
You've also done some longer dated assets. I mean, I would say Nevada adds a lot and Great Bear in Canada. So how do you feel about the total sort of duration of the asset portfolio right now?
It kind of takes us back to Milligan, doesn't it? If Milligan is multi-decades and I can say, okay, the top asset, multi-decades, Pueblo Viejo, decades, Cortez, decades, Khoemacau is 20 years, Côté is 20 years. I don't feel like we have to answer the question about duration. As I just mentioned, Wassa and Xavantina, you may say, well, it's only a six-year mine life, it's only a seven-year mine life, but these are assets that have demonstrated the upside. And so I can't point to them and say it's a 20-year reserve life, but don't be surprised if they are operating in 15- 20 years.
And then can we talk a little bit about how you see the dividend and any other returns of capital progressing? I said I would ask the question about does the buildup of cash on the balance sheet start making you nervous?
No, it never makes me nervous. We just finished paying off the debt that we incurred in 2022 to do two Cortez acquisitions and the Great Bear acquisition. So we started, what did we start, 2023? Yeah, 2023 with $575 million of debt by August of 2024. That was down to zero. So the best use of our capital is finding new investments. If we can do a transaction, say at NAV, maybe a little above NAV, and we trade at a higher premium, that should create value. Obviously, depending on the quality of the investment, but the math should work. So I think that's the best place to put the money.
If we get to a point where we're generating excess cash, we're not comfortable increasing the annual dividend as we have for so many years by a very significant amount, yeah, we might get into a conversation with our board about special dividends or stock buybacks. Over the years, I've had that question come up and we've always found a good investment to make. So it's never gotten to the point where we were really criticized as having a lazy balance sheet.
Maybe this is a good opportunity for you to identify anywhere in your particular portfolio where you think the market is maybe undervaluing the potential value creation.
I think it's Milligan, to be honest with you. And all we can do is let that play out. Let's see what the study says. I think people also struggle a little bit with Cortez because when Barrick talks about Cortez, and it makes sense, it's one project. So they talk about one project. We have four different royalty rates right now, two of which are the most important, but one's 9.4% and one's 1.6%. So it's very important for us to be able to help people understand where those ounces are coming from. We did a quick math exercise and two years ago, 2023, the average of those royalty rates was around 5% and last year was 4% on lower production.
And so when we get the information from Barrick, we also have to check with them to make sure we can talk about it because we don't want to get out in front of them in terms of production. So it's something that we continue to work on. And how do we help people understand something that the operator looks at as one unit and we look at it and say, this is a bunch of segments that are very important in and of themselves? I think the final one is Pueblo Viejo. I think investors have just said, look, show me that this expansion is going to operate the way Barrick has said it will. So I think maybe there's a little bit of being undervalued with respect to that project. And there we're talking about our three biggest assets.
The other thing I'm interested in is the progression of cutoff grades and changing of reserve pricing. Do you have a view on cutoff grades in your assets?
You have to understand our perspective. Go ahead and lower the cutoff grades. I mean, because we're not exposed to the costs. So it's almost an unfair question. The operators, if there are any operators that say, no, don't say that.
But I'm detecting a little bit of movement on that. It's been holding the line for a long time.
It is, but I think Barrick was at 1,400 for reserves. And at some point, you're trying to plan these pits in terms of an open pit and you're using that particular price long term. I don't know. We had the price run up in 2011, 2012, people lowered the cutoff grade, the price went down, nobody made any money. I think the industry's learned from that. But do we think gold's going to go from 2,900 back to 1,900? I don't think so. But again, we just come at it from a very different perspective. Increase production, go ahead, because it benefits us.
So maybe we can close with just some thoughts on your newly paying assets. You've got Côté, Manh Choh, Mara Rosa. How are you viewing the ramp-up of those assets?
So far, so good. I've been very happy with Manh Choh. I mean, this is the satellite deposit to Fort Knox that we were actually in a joint venture on when it was Peak Gold and then did a deal with Kinross. When did we do that? 2020, I think. And I can tell you if we had continued down the JV road and sold it later, we would not be seeing the royalty revenue already. So getting it in Kinross's hands was quite good. And it's produced a lot of, quite a bit of revenue. So no issues there at all. Côté, again, sort of early stage, but so far, so good. I think the news is good. And I don't really have a view on Mara Rosa.
Anything that you're excited about in the portfolio coming on this year, I guess Back River would be a big one?
Back River, yeah. Back River. And again, it's in great hands with B2. It's in Canada. It's a quality project. It's the three P's we've been talking about for years. That's great. Just understand the royalty rate sort of ramps up over time. I think we started at like 0.5% this year. And it'll eventually get to 3.3% in a couple of years. So that's one, again, that will incrementally add to the growth pipeline. But again, I think there's a longer reserve life or resource life than we see right now.
That's great. Well, we'll be looking forward to seeing that contribute to the bottom line.
Thank you.
Thanks a lot, Bill.