is Royal Gold, which is one of the first gold royalty companies, and in fact it's been in business for over 40 years. As many of you know we continue to believe that a great way to get exposure to precious metals is through the royalty streaming companies, as they give you exposure to precious metals, but they mitigate some of the risks of the alternative investments. Today from the company we're very pleased to have Bill Heissenbuttel, who is President and CEO. I'm gonna turn it over to Bill to give a quick presentation on how the royalty model works why it's such a good business, and then we'll have a fireside chat. Bill?
Great. Good afternoon, everybody. Thanks for your interest in Royal Gold and thanks to Raymond James and Brian for the invitation today. I will be making forward-looking statements. They're subject to risks and uncertainties. Actual results may differ materially. These risks are discussed in our 10-K filings with the SEC. For those of you who don't know our company, we are a royalty and streaming company. We're focused on precious metals, gold in particular. What this means is we are not an operator. We do not explore, we do not develop, we do not operate mining projects but we are instead a passive investor with an interest in metal production or revenue. We've been in the royalty and streaming business for over 30 years.
We have a portfolio of 360 mineral properties, of which 80 produce revenue for us. We're gold-focused. 78% of last year's revenue came from gold, and over 50% of our revenue came from projects in Canada, the U.S. and Australia. Some of you may wonder why the royalty and streaming space is really the best way to invest in gold. On a risk basis, physical gold is the lowest risk out there. It's gold that's already been mined. It's already been processed. It's in physical sellable form. Beyond that, you really have our sector, and we generate revenue based on mine revenue.
Unlike investing in operating companies, we don't have direct exposure to operating costs, capital costs, royalties and taxes, labor costs, fuel costs, and they all impact metal producers. That's why we also think we have a higher participation in the upside. We don't have to spend any capital to benefit from mine life extensions. We benefit from the upside in a very large portfolio of properties. Farther out on the scale, you've got junior mining companies. They may have a mine or two, maybe one in development. Then you have exploration companies, which are really at the high end of the risk profile. Given the nature of our business, it's a very high margin business.
We had an adjusted EBITDA margin of 82% in 2025. It's a very efficient business. We have a market cap of $24 billion we only have 39 employees. We like to think of our business model, it's a more comprehensive way to invest in gold. That physical gold ounce, it is always going to be one ounce, you're not gonna receive dividends or interest on that investment. We have the potential for one ounce to become two ounces or three ounces as mines extend their lives and they find new reserves and resources, we pay a dividend. We like to say that this is a sector to consider when you're ready for that baby step beyond physical gold.
Now I've tried to sell you on the sector let's talk about Royal Gold. We have the most diversified portfolio in our sector in terms of consensus AV estimates, that diversification really limits the risk associated with a single asset, the mining industry is full of examples of event risk, whether that's due to technical issues, political issues, environmental, social. The biggest mining companies in the world don't have anywhere near 80 revenue producers they have to allocate capital to develop the assets that they have in their portfolio. Royal Gold is the only precious metals company that has paid an increasing annual dividend for 25 straight years.
We're the only precious metal company in the S&P High Yield Dividend Aristocrats Index. That's really both a reflection our high margin business, our success over decades in finding new investments, and it's also a reflection of the discipline associated with our capital allocation and returning capital to shareholders. That concludes my intro remarks. I'm looking forward to the conversation.
Thanks, Bill. Maybe we'll start to flesh out the business model first a little bit more because when you look at it's quite an amazing model where you can continue to get, as you said, margins over 80% over year after year -over -year. One of the things people push back with now is with gold prices going higher, is it harder to continue to do deals like in the past, or does this business model only work at the bottom of the cycle?
I think the industry works no matter what, where the price is. We always think there are new investments, it's typically balance sheet restructuring, it's project development or it's M&A. If the price is high, you're probably gonna have more project development opportunities. It may actually generate interest in the sector in terms of M&A. If the price goes down, now you may have balance sheet restructuring opportunities, where a company took on too much debt when the price was higher, it's come back down, and they need a liquidity event. It is a model for all cycles.
Maybe just, you mentioned development projects, maybe talk a little bit about what you're seeing as opportunities out there in the market right now?
I mean, right now I would say we have a few thing. We have gold development projects. Obviously, these projects are coming forward at the current price. Equity markets are open, which is good. We're not trying to finance the entire capital investment, so equity markets being open is very important to us. We also have families that own royalties that are looking at the price saying, "You know what? This is a really good time to get out. You know, I can secure generations of revenue for my family." We see that.
The thing we're really excited about, i think are the copper projects that I hope you'll see over the next five to 10 years to the extent a copper project, zinc project, they have precious metal byproducts that can really create some very large investment opportunities for us.
maybe just so we follow up on that, maybe it's worth discussing like arbitrage you can achieve by taking those precious metals out of potentially copper or zinc projects going forward.
Yeah, I mean, if you think about a base metal company, I mean what do they trade at? 6x EBITDA, well, 10x EBITDA, whatever that is. We trade at a multiple of that. The precious metals that are a byproduct as long as you're not streaming away metal that they need for their all-in sustaining costs, the value we apply to it is much higher than what the base metal company sees or experiences. We just actually had a transaction in our sector where BHP streamed the silver out of its Antamina investment, and what they said was the value they got was actually equal to the entire joint venture interest that they had in this project that's gonna go on for decades.
It's just the metals are worth more in our portfolio than they are in a base metal portfolio.
I guess another topic before we get specifically, I mean, people say, the other thing you mentioned about here is it's a great business. There's 39 of you, and you generate lots of revenue. You did it last year, but why hasn't there been more consolidation in the industry? If you take the view that you maybe need one more person to buy somebody else or whatever the number is, doesn't it make sense to see more consolidation than we do?
It makes sense. The issue you have in our sector is the bigger companies, they trade at higher valuation multiples. The mid-tier companies that are really would be the targets trade at lower multiples. Oftentimes when you talk to those mid-tier companies, what they will always say is, "Yes, I trade at this multiple now, but I'm one or two catalysts away from trading at that higher multiple. And then at that higher multiple, I want you to pay a takeover premium." That's where it doesn't make sense. What we did last year we had a situation where the CEO of the company just said, "Look, I think our shareholders are better off in a larger company.
I'm willing to negotiate over my current valuation multiple." In the end, we were able to do an accretive transaction for both sets of shareholders.
I guess the other thing that's happened now. I mentioned you've been around. You were one of the pioneers in the industry, but there's lots of other people starting to get into this industry, which I guess nothing like somebody copying your business to say it's a good business. What do you see out there? How are you competitive in the market right now? Because obviously there's more capital around chasing the same deals.
I mean, you compete really two issues: value and structure. Value being, are you gonna pay the most for that particular asset? I would say we rarely win that end of the transaction. There's always somebody who's willing to pay more. Where we try to differentiate ourselves is the structuring. I often tell our business development team, "Don't sit on the opposite side of the table negotiating with the company. Imagine yourself on that side of the table. How do we structure this investment so that it works best for them?" The example I always give is you know a mining company has a project, but they also have a bond issue that's gonna mature in three, four years.
Why not take the stream investment and have a lower stream payout over that period of time, allow them to have the liquidity to pay off the bond, and then take the stream obligation up? It's that there are no boxes that we have to tick when it comes to structuring these. I we say everything's a blank canvas and just use your imagination to structure good investments.
Maybe if we explore that a little bit more I mean one of the things you've seen some people do is put step-downs or caps or collars. How do you think about that? Because I think when you start the process, the object's to try and pay for what you see and get everything else for free if I can put it that way.
Yeah, I mean, the industry really has changed. Just to be clear, we really try not to do caps. I don't think we've ever done a cap. These are life of mine contracts. We want exposure to that mine over the full extent of its life. Now, step-downs are commonplace in our industry, and by that I mean your stream rate is, say it's at 10% until you get through the, what is known as the reserve, and then maybe it drops to 5%. The thought process there was, we want the operator to have an interest in continuing to extend the mine life. If you say to them, "You're gonna get half of this economic interest in gold or silver back," does that provide more incentive to explore and maybe expand?
That's really the reason behind the step-downs is try to better align us with the operators, 'cause these are life of mine contracts.
Just maybe not to get into too much of the details, but I think one of the things that comes up is you're taking these gold and silver, say, from the producer. Why don't they mine in another area? If you have a big royalty on a certain area and they don't How do you think about that when you try and structure stuff so that you are motivated again to do the same thing that's best for everybody?
Yeah, it's probably it's one of the bigger challenges, I you know again, an example is sort of an underground mine where you may have a zone that is precious metals rich. We look at it and say, "Well, we want you to mine that as soon as possible." Maybe the operator says, "Well, the economics to me after the stream are I should mine in a different area." That's where you have to build in covenants that basically say you're not gonna disproportionately hurt our interest. You're going to mine this mine as though you own a 100% interest in all of the metal. I think you know so far that those covenants have worked.
We haven't had an issue where people were changing the mine plan because they didn't like the economics to us.
Unfortunately, in this sector too, you can't move your assets. We've seen some challenges where some companies have lost some assets for maybe governments changed a rule or something. Maybe we're entering that sphere now too. How do you think about jurisdictional risk when you structure your portfolio? What can you maybe do to, you can't totally get rid of it, but minimize it?
No. I mean, when we're making investments in Turkey or Zambia or Ghana, I mean, the reality is we are taking political risk. You can't just look at the current administration you know the president, the Congress, whatever it is and you say, "Oh, they're mining-friendly. Now's the time to make the investment." Our investments take decades to develop. I guarantee you're going to have five or six regime changes within a country, and some of these people are not gonna like mining. What we try to do is identify countries where mining is important. It's important to the economy, it's important to employment, important to export earnings, and the more you can find that, the better off, you're gonna be.
I think it was commenting you know Peru is on its 7th president in six years, i mean, in 10 years. I don't know what it is, it doesn't matter. Peru is a mining country you know the local politics are probably more important than what's going on in Lima at that time. The one event risk that we did have was in Panama it wasn't in our portfolio. It was a competitor's portfolio. If you look around and say, "Well, how did the Panamanian government allow this to happen?" Well there's no mining industry. There's no industry to destroy if you get in the way of one particular mining operation. That's really what we look for there. There's safety in numbers, we're looking for the numbers.
Maybe when you start to try and do one of these deals, like, what sort of targeted IRRs do you start with? I imagine you adjust for regions and everything else. Maybe just to give people a general feel because there's lots of numbers thrown in the market about what the rate of returns are on deals.
Yeah, it's funny. The only time anybody talks about returns on deals is on day one, which is exactly the wrong time to look at our investment because you may see a 10-year reserve life in our investment. You may calculate and say, "Well, that's a 3% return. That's a 4% return. That doesn't make any sense." Well, the reason we did it is because our geologist looked at the upside and said, "This isn't a 10-year mine life. This thing is gonna go for 20 years or 25 years." We have a demonstrated history of investing in assets that get better with time. We always say good mines get better. We talk about ultimate returns, and ultimate returns are often north of 10%, which you know in our business is very acceptable.
It's a little bit hard. There isn't an initial hurdle rate. There isn't an initial IRR that we have to have. It's all about the upside.
Maybe if I asked you, one of the questions we get from investors is, in a bullish gold market, we should just buy producers and not royalty companies because they don't have as much optionality. If I ask you that, what would your rebuttal be to that?
If, if that's the way you want to invest in gold, go find the highest cost producer because that's where the greatest leverage is going to be. I just say understand that if the gold price turns around, leverage works the other way as well. And our leverage is different, and it's longer term, and maybe it's a little harder to identify. When the gold price goes up, what do operators do? They tend to increase the price they use to calculate reserves and resources. Now that 15-year mine life, because of those assumption changes, is now 20 years or 25 years. We have an interest in all of that. So it's a much more subtle leverage to the gold price. I mean, we have a portfolio of exploration properties. These companies are now...
Some of them are able to raise equity, they're putting it in the ground. We don't have any value on our balance sheet for those investments, they are being advanced without us spending any money. That's leverage to gold price. It's just not the obvious one that's in EPS or cash flow per share.
I guess the other thing that comes up is, they tend to trade at higher multiples than producers. Why do you think that is?
Sorry, we.
The royalty companies do and trade.
Oh, yeah. Well, it's a very different business model. I mean, when I was talking you know you look at what's going on in the world right now. Do you think operating companies are a little worried about what the price of diesel is gonna be very shortly? We don't have that exposure. We don't have exposure to labor costs. I'm sure there are governments out there that are thinking of increasing royalty rates and taxes given where the metal prices are. We're not impacted by any of that. I'd say, yeah, we do trade at a premium, probably a premium that many generalists are not as comfortable with, but I think it's just a lower risk, high margin business that deserves a premium.
The other thing I would say, I mean, we've been in this business for decades, it's always been this way. It's not as though you're buying into some blip in valuations. This sector has always traded at very high multiples.
Maybe moving directly to some of your assets and stuff. I'll maybe just start, last year you did 2 big transactions, one of the things you've been very. You haven't done a lot of is issue shares. You did for a transaction last year. I mean, I think before this, you hadn't issued a single share since 2012, which in this sector is rare. Can you maybe talk about why that was done, why you used shares, why you did Kansanshi with debt?
First of all, the senior management team at Sandstorm wanted shares. They wanted to participate. The transaction was accretive, we didn't mind issuing those shares. More importantly, when we announced Sandstorm, we knew the Kansanshi process was ongoing. There was a bidding process. We knew First Quantum, the operator, needed cash to address debt service obligations. If we had allocated a lot of cash to the Sandstorm transaction, we would not have had the cash available to do Kansanshi, we really wanted to do both of them. I think it would have helped the market understand why we did shares if we had announced Kansanshi first. That's not the way things work in our sector.
It was really a function of this is what the target wants, but more importantly, we had to preserve liquidity for a transaction that then got announced less than a month later.
I guess where we sit today now, you do have some debt on your balance sheet. Maybe you can talk about capital allocation. Again, the same issue, you wanna keep capacity available in case you... 'cause you never know when these deals are gonna come up. How you're looking at allocating capital now over the next year or so?
Yeah, I mean, look, we're still open for business. We're looking for new investments. That's where I think we can add value. If we can buy an asset at a PNAV price that is below where we trade, that is going to enhance the value. As you say, it's a really lumpy business, there are years when we don't make an investment. With the debt on the balance sheet, to the extent we have that cash, we will repay the revolving credit. Currently, there's about $725 million outstanding, we think you know at the current metal prices, that would be paid off in about a year. That doesn't mean we're not looking for new investments, but that'll be the...
that's sort of the second step for capital allocation. Then the dividend that I referred to is really the third leg to the stool. We're very proud of the 25 consecutive years. I will say you know when we increase it in a year, we're not looking at it saying, "Well, we can afford to pay this next year." We look at it and say, "If we increase it to this level, can we continue to increase it in years three, four, five, 10?" So there is a...
You might look at our dividend increases and say, "Well, given where the metal price is, you could have done more." I say, "Well, we're trying to retain this record, and if you pay out a huge amount one year and you have to pull it back, that would not be a good outcome.
Right
... for us.
Basically at the end of the day. The other thing that people will bring up is you trade maybe at a little bit of a I mean, generally, the larger companies get much better liquidity and they get a premium in the market, but you may be trading at a discount, I would argue, at the moment versus your two big competitors. Why do you think that is at the moment?
Well, a couple things. They are much bigger, so I'm sure there's a liquidity factor in there. We were so busy last year. I mean, we did almost $5 billion of investments. I can tell you that previously the highest investment year was about $1 billion, and that was in 2015. These years don't come around very much. And I just think there was so much going on in the portfolio, I think people had a hard time, and still have a hard time, getting their arms around what this company looks like on a consolidated basis. We only had 1 quarter of Kunsanshi. We only had 1 quarter of Sandstorm's assets. We'll get a full year this year. We have a couple other projects that I expect will come in this year.
I think that's part of the, part of the discount. I think there is always with investors a show me element. You don't always get paid for what's coming. They wanna see it. That's what I hope happens this year is we put four quarters together with very boring, no noise, and we can demonstrate what the company can do.
Maybe to address the other thing, when you did the Sandstorm transaction, we might just say some of the, some of it was a little more complicated than a standard royalty model. Can you talk about what you've done to clean that up and what you may have to do going forward and, and really put in perspective how big that really is in the overall portfolio now?
I mean, Sandstorm was a complicated company. They had created this affiliate, Horizon Copper, to house a joint venture because they didn't want the joint venture on their balance sheet. We could have just bought Sandstorm and kept Horizon independent, but there were so many intercompany transactions, streams, loans that was taking a lot of time, we just, "Let's just collapse the whole thing. Let's get rid of all of that intercompany, all the intercompany relationship." What we were really left with, Sandstorm did make equity and debt investments in a number of companies, and we said that's not core to our business. Let's try to get rid of them. We've done a pretty good job. We sold the Versamat shares.
It's a, another royalty company we that Sandstorm had owned about 25% of. We sold that in a block, and then we restructured another debt and equity investment in a smaller mining company by supporting a merger. We're really down to 2. We have a 24% interest in Entrée Resources, which has a joint venture in Mongolia, on the outer edges of Oyu Tolgoi. We think there's the possibility of there being a value event. They're working with the government of Mongolia on a couple of things, so we'll be a little bit patient, but it's the same concept. We don't wanna hold it. Let's try to sell it. We know people are interested. The other one is the Hod Maden joint venture.
This is the joint venture that Sandstorm tried to get off of its balance sheet. We are gonna try to convert a joint venture interest, which has capital costs and operating cost exposure, into something that looks more traditional, more familiar in our portfolio. Those discussions are early stage, but it's really a priority for us this year.
Maybe I'll stop. Are there any questions, in the audience?
Just one second. Thanks.
Sure.
Given where the gold price currently is, can you talk about contracts that you have with mines which will come into operation if the price stays at these levels? In other words, how much sort of embedded production do you have if gold stays at the current price versus your current volume of production?
I mean, I think the growth projects that we would talk about would be in production at $4,000 an ounce or $3,000 an ounce. I mean, one of them is Platreef in South Africa. That's a PGM mine, it really is not driven by the gold price. MARA in Argentina is basically a copper project that is owned by Glencore. That's not dependent on the gold price. If there are projects that move forward because the price is where it is, that's gravy. It's not even anything we're talking about in terms of growth. I'm sure there are projects that are right on the edge and make sense here, you can't.
This mining industry, you don't just flip a switch and a mine can come on. There's you know exploration, study, permitting. It takes years. Even if you wanted to today bring a gold mine in at $5,000 an ounce, you really can't do it. It's going to take three, four, five+ years.
Have you seen ones at, say, $3,000 earlier on last year that might now be progressing?
They might be, but they're probably not very large in our portfolio.
You don't have any out of the money contracts in terms of.
No, I don't think so. I look at the evaluation and exploration as where we may see things blossom that we're not even talking about right now. The chance that they are of significant value to our company, it's a little unlikely.
Maybe it's worth you know one of the other things that was done years ago was the Cortez stuff. It might be worth just talking about. There's a lot of chatter now about this new discovery, Four Mile. I think not everybody realizes you even have a royalty on it. That's... To your question, that's an example where you probably bought something and you thought you'd find something.
We were very confident that there was upside at Cortez. Cortez is you know the backbone of Royal Gold. It was Through the nineties, it was 95% of our revenue. We've had decades of exposure to it. 3 years ago, we actually expanded our footprint to include the whole complex. We did not have all of Cortez. Those transactions in 2020 actually brought us exposure to Gold Rush, to Cortez Hills, and to Four Mile. I think we expected something like Four Mile, but not the grade, not the scale, and not in the time, since the acquisition. I thought this would play out over 5-10 years, and here we sit 3 years later, with one of the best discoveries in the industry recently.
Does that help?
Yeah.
Yeah. Are there any other questions? We just got about a minute and a half left. Maybe just talk a little bit about concentration risk too, 'cause one of the things that used to be talked about was you know it's a chicken and egg thing. The best assets, you wanna have a lot of them, but if you have too much of them and something goes wrong, that's not so good either. Can you maybe talk about what the portfolio looks like now on a concentration risk basis? 'Cause it's changed substantially after all your work last year.
Yeah, the rule number one in mining, something's gonna go wrong.
Yeah.
I promise you that. If you were to go back 10 years, Mount Milligan, our biggest asset, probably would've been 35% of our revenue and 30% of our net asset value. There were certain events that happened. One year, they ran out of water to run the mill, and they had to shut down, and our share price just really felt the impact of that. It's really been a strategic goal of ours to diversify the portfolio. Yeah, if something bad happens at Milligan, you're gonna see it, but it's not to the extent that it did then. If you look around our sector, every one of the major companies has some sort of concentration risk. You know, whether that's Salobo at Wheaton. You've got Cobre at Franco-Malartic at Oyu.
I mean, everyone has it. That's why I made the point up there of having the most diversified portfolio. No asset other than Milligan represents more than 10% of our NAV, and that also helps with political risk. You say, "Oh, you're in Turkey, I'm nervous about Turkey." It's 4% of our NAV. Diversification, to me, is critical to having a quality portfolio.
Well, that's a perfect segue into ending it. Thank you very much, Bill, for going through and going through the model and look forward to seeing the multiple catch up to everybody else.
Thank you very much.
Thanks very much. For anybody who's interested, there'll be a breakout in Cordoba Six.