Hello and good afternoon, ladies and gentlemen. Welcome to today's virtual non-deal roadshow. My name is Noella Alexander-Young, virtual event moderator here at Renmark Financial Communications. On behalf of our team, we want to thank everyone in New York and surrounding areas for joining us today for the presentation of Royal Gold, trading on the Nasdaq under the ticker symbol RGLD. Presenting today is Alistair Baker, Senior Vice President of Investor Relations and Business Development. The presentation will last approximately 25 minutes and will be followed by a Q&A session for which you can participate by using the chat box in the top right-hand corner of your screen. With that being said, I will now hand over to Alistair.
Well, thanks very much, Noella, and thanks, everybody, for your attention today. It's great to be here and give you an update on Royal Gold. We've been very busy over the past year or so, and it's been a while since I've spoken to you in New York, so very happy to give you an update. As always, I will be making forward-looking statements during this presentation. There are risks and uncertainties that could cause actual results to differ materially from these statements. All of these risks and uncertainties are discussed in our most recent form 10-K filing with the SEC. So during today's presentation, I'm going to give you the investment thesis for Royal Gold, and we are, in a very short sentence, we're a high margin business that generates consistent cash flows from precious metals. We're not a mining company.
This presentation covers the various key attributes of Royal Gold as we see them. So the first is our focus on precious metals and gold in particular. The second is our high margin business with a consistent commitment, longstanding commitment of returning capital to shareholders in the form of a dividend. Our diversified portfolio, which is the most diversified amongst peers in terms of assets, operators, and jurisdictions. Limited operating risks in our business model, as well as steady margins without direct exposure to inflation. Being the right size in a small sector where we can compete for the largest transactions and the smallest transactions can be meaningful to us. Then finally, the optionality embedded within our portfolio where we don't have to pay for organic growth from mine expansions or extensions.
But before we get into that, I just want to give you an overview or highlight a little bit our 2025 activity. 2025 was a transformative year for us at Royal Gold. We completed two corporate transactions, Sandstorm and Horizon, that added significant growth and diversification to our portfolio. But we weren't just active on the corporate front. We added two significant gold streams to our portfolio. Kansanshi, a tier one operating asset in Zambia. We have a gold stream there that provides immediate cash flow. And Warintza , an emerging excuse me, an emerging tier one asset in Ecuador. We have exposure to a very attractive gold and copper development project. But it wasn't just acquisitions in 2025 where we saw very positive news. We saw some very significant optionality surface from within the portfolio at Mount Milligan and Fourmile.
Since we closed those transactions, we've had two very strong quarters of positive results. The first quarter of this year, we had record revenue, cash flow, and earnings. In the second quarter this year, we followed it up with, excuse me, record operating cash flow in the second quarter. We've repaid $1 billion of debt since this time last year, since closing the Sandstorm and Horizon transactions, and we've repurchased and canceled about $30 million of shares. We've also raised our dividend for the 25th consecutive year, and we increased our portfolio reserve life by about 25% to 18 years. In summary, we added scale, diversification, and growth to the portfolio, but we did not change our strategy. I want you to keep that in mind as I get towards the end of the presentation and talking about valuation.
When it comes to Sandstorm and Horizon, we've seen some very positive developments over the past several months that we've been owners of these assets. We've seen significant revenue and operating cash flow come from these portfolios of these two corporate transactions. But we've also done a lot of work to try and simplify some of the parts of the transactions that weren't very popular with the market. The very first thing we did when we closed these transactions was we collapsed the intercompany arrangements between Sandstorm and Horizon. Simplified the story in a pretty meaningful way. We've also divested about $200 million worth of non-core equity positions that were held by those companies. We've restructured some of the more complex arrangements, Bear Creek, Relief Canyon being two of those. We've reduced our direct equity ownership of the Hod Maden project from about 30% - 15%.
We've also seen some very positive developments from within the operating side of the portfolio. We've seen at MARA in Argentina, we've seen the approval of the RIGI application, and Glencore's actually started mining of the Alumbrera pit six months ahead of schedule. At Platreef, we've received our first delivery under the stream agreement, and that asset continues to ramp up. Hod Maden, the development is about 25% complete. At Fruta Del Norte, we've seen some very strong exploration results. We've also seen some very attractive or interesting news at Omai and Volante as those projects continue to advance. On top of that, we're seeing good revenue from Antamina, Caserones, and Chapada to name three.
It's been a very positive experience for us over the past several months with the Sandstorm and Horizon transactions within our portfolio, and we're very pleased with the developments in a short period of time. What does this all mean? We provided our five-year guidance outlook for the first time in March of this year at Investor Day, and we have a pretty strong growth runway ahead of us. Compared to last year, we're expecting the midpoint of guidance to be about 30% higher than where we were last year. Then if you look ahead five years, we expect the midpoint of guidance to be about 17% ahead of where we are this year. Very nice growth. We're seeing growth beyond that from some pretty material assets like MARA and Fourmile.
The good thing about our growth profile is that it is diversified and it is not dependent upon one single asset to get us there. Now, in this next section, I am just going to touch on gold and our focus on gold. We have been around for over 40 years with a very gold-heavy focus. The company started in the mid-1980s. This year is our 45th anniversary on the Nasdaq, and our strategy has been pretty consistent over that time. We are focused on gold revenue from good assets in good jurisdictions run by good operators. Our revenue has grown consistently and the metal mix has not changed. We try to provide our shareholders with gold exposure in a conservatively managed vehicle. This next slide shows you why we think we are a good alternative for those who are looking for conservative exposure to gold.
On the left-hand side, you can see our beta of 1.6, very strong leverage to the gold price. On the right-hand side, you can see our share price performance over time since the beginning of the GDX index in 2006. Since that time, we have actually outperformed the gold price, we have outperformed the GDX index itself, and we have also outperformed the S&P 500. So we have been a very good long-term investment in a very volatile commodity. I am going to spend a few minutes here just talking about our business model, and we have a very high operating margin in our business. The model is unique. It is, as I said, high margin, pardon me, but it is also very scalable. Our trailing 12-month EBITDA margin is about 83%, so that is like a software company.
Our cash G&A, the cost we have to incur to run this business, is about 3% of our revenue. Our costs are low and they are fixed, and cost inflation should not be something that causes significant risk to our margins.
Our business model is also very efficient. We have a pretty low headcount for the scale of our business. We have 39 employees working for Royal Gold today, and our market cap is about $20 billion. So, on a per-employee basis, we compare well to any company in any sector. Return of capital is something that is a key strategic objective for us at Royal Gold, and it is an attribute that makes us unique amongst all the other ways you can invest in gold. We have paid a growing and sustainable dividend since 2000, and we have increased the dividend every year since 2001, despite volatility in the gold price.
We have increased the dividend for 25 consecutive years and now paid out well over $1 billion in dividends to our shareholders. We are the only company in the GDX that has paid an increasing dividend every year since the index was formed in 2006. We are the only precious metals company in the S&P High Yield Dividend Aristocrats Index. So that should show you how we are committed to our dividend and returning capital to shareholders. I am going to talk in this next section about our portfolio, and this really underpins the performance of our business. We have a global portfolio that is weighted towards lower risk and mining-friendly jurisdictions. Our portfolio spans the various stages of mining project development. We have over 360 assets in the portfolio, 80 of which produce revenue today.
About 30 are in development, so that means that they should start producing revenue in the near term. Beyond that, we have over 250 that are earlier stage exploration or evaluation. Organic growth comes to us from within the portfolio as assets move through that pipeline from development and exploration stage into revenue producing and operations. Having a diversified portfolio is very important. It reduces single asset and counterparty risks. Our portfolio is very gold focused, but we do have some important silver and copper. Our gold revenue percentage is actually the highest of our large cap peers. When you think about geographically, our portfolio is also very well diversified. We do have a North American focus, but we do have a spread in other mining-friendly jurisdictions.
On a net asset value basis, we have the most diversified portfolio in our sector, in the royalty streaming sector. Nine of our top 10 assets are producing revenue today, and we have expansion and extension projects underway at about five of those assets. Our operators are best in class. They're, generally speaking, large, well-capitalized, and experienced. We've recently added First Quantum, Glencore, and Rio Tinto to our counterparty list. So, very strong operators. Portfolio diversification is very important because it reduces our exposure to single asset or operator or jurisdictional risks. That's a very important feature when it comes to a generalist investor who doesn't want to spend the time understanding the assets underpinning the portfolio because we've got such a diversity of those assets.
Our business model provides for limited operating risk, and one of the advantages of investing in the royalty model is it provides the best of both worlds. Our model provides gold exposure with reduced risk. This slide shows you the different ways you can invest in gold and how we are positioned. We provide exposure to gold and optionality and a dividend while reducing downside risk through holding a diversified portfolio that doesn't have direct exposure to operating and capital cost increases. You can invest in gold in many different ways. You can buy physical gold if you want to be conservative, but if you buy an ounce today, it's always going to be an ounce. You won't get upside, you won't get a dividend.
You can be more aggressive and you can buy equity in an operating company or an exploration company, but with that, you'll also get operating and capital cost risk exposure. Inflation can impact margins as those costs increase. There's a perception from some in the marketplace that our business model doesn't provide good leverage to gold. But I think if you look at our financial results, that shows otherwise. Our margins actually expand quite nicely with rising gold prices. This slide shows producers and Royal Gold have very different cost structures. Our costs are low and fixed, so margins should expand as metal prices increase. Whereas operator costs are subject to inflation, so margins may not expand as quickly, and in some cases, they may actually compress as operating costs rise faster than metals prices.
You can see in this next slide what our cost structure looks like relative to the average producer. Producers are exposed to inflation in input costs. Anything that costs them or any cost that they have to incur to run their operations, so labor, energy, consumables, anything like that, those costs often rise with commodity price increases. You look at our G&A costs on the other hand, though, and they're mostly steady. Things like salaries, services, and office rents. They don't move in short-term bursts. They typically don't change that much from one period to the next. Anything that impacts costs impacts margins. We haven't seen it yet, but I think the operating sector of the mining business is going to start seeing higher operating costs. Oil and gas prices, and diesel especially, those are big parts, big input costs for mining companies.
We will see at some point there will be some inflation in those costs which may actually compress margins. We're not directly exposed to that. I'm going to talk about where we sit in our sector right now, and we are large enough to compete, yet small enough to show growth. Our sector is built on relatively small transactions. If you look back over the history of our sector, most transactions are smaller than about $300 million. The average transaction size is just over $100 million. But we sit in a very interesting position, excuse me, because we're big enough to compete for the largest transactions. We have significant cash flow and access to capital, and the $1 billion Kansanshi stream last year is evidence of that. Yet we're also small enough to show growth. A small transaction to us can actually add meaningful value.
The $200 million Warintza transaction last year is also evidence of that. We're not aiming to be the biggest in our sector, but we do want to be the best, and we think the Goldilocks position that we sit in provides us a great platform to execute our strategy of growth in gold. There's embedded growth and optionality from within our portfolio. But before I start talking about that, I do want to talk about capital allocation, because our growth and successful growth really does depend on successfully allocating capital. Our strategy remains simple and consistent. The first thing that we always try and do is reinvest in our business using non-dilutive financing. The second is we try to maintain a strong balance sheet and access to liquidity. The third is we want to continue returning capital to shareholders.
Now, we have to be flexible when it comes to allocating capital because market conditions are changing every day. But our framework provides for us to target double-digit returns when we invest in new transactions, and that provides per share growth. We also want to repay debt quickly because we want to rebuild our liquidity, so we've always got cash on hand and the ability to execute on new transactions as they come available. Then the third is we want to continue growing our dividend. Returning capital to shareholders, as I said before, is a key strategic attribute. Now we've introduced a couple of new tools to our capital allocation toolbox. In the second quarter, we put in place a $600 million uncommitted accordion facility on our revolving credit facility.
That should allow us up to $2 billion of liquidity if we were to fully execute that accordion. The second thing we did was we instituted a buyback program. The board gave us authorization to buy back up to $500 million worth of shares. We put that in place not so much as a return of capital tool, but more to address a valuation disconnect and apply our capital to where we saw the best opportunity, which earlier in the second quarter of this year was certainly our shares. How have we done over the past 25 years? This slide sums that up. Since 2000, we have seen significant revenue and cash flow growth, but there are three aspects of this growth that are really important to understand. The first is our G&A costs have not risen anywhere near our revenue and cash flow growth.
Our revenue growth far exceeds the increase in G&A costs, and that shows that our business is scalable. We do not need to add people when we add assets to the portfolio. The second is our revenue growth is not dependent only on metal prices. The gold price has been a very positive tailwind for us over the past couple of decades, but we have also been able to add volume during that period. We have seen organic growth come to us from within the portfolio as well. It is not just metal prices that has been helping us. Then finally, we have been able to grow mostly from using internal resources without causing shareholder dilution. We did issue $19 million shares last year for the Sandstorm transaction. That was the first time we had issued equity since 2012.
Even with the new shares that we added last year, we have the lowest share count on the GDX index. Like I said earlier, we are one of the founding companies of that index over 20 years ago. We want to avoid shareholder dilution, and providing per share growth to our shareholders is something that we are always looking to do. I am going to talk a little bit here about returns on transactions that we do. We aim for double-digit returns, but we have to be patient for it to become clear to the market what returns are actually going to be. When we look at any new investment opportunity, we are always looking at exploration and production upside, and that is where we get that additional return. It takes time, though, sometimes for that to show up in the assets where we invest.
We do extensive due diligence of new opportunities. We take a bottoms-up technical fundamental approach to any asset acquisition, and analysts on the sell side often do not have the benefit of that work. When you see an analyst publish a research note on a transaction that we have completed, it often looks like the transaction returns are pretty low, and it may take a bit of time, in some cases years, for the upsides to become clear to the market. This slide illustrates this point. As time has passed, expected returns have increased with production expansions, mine life extensions, and that is all driven by resource and reserve growth without us having to fund or contribute anything further to that expansion. This next slide shows the same story in a slightly different way.
As time passes, we recover our investment from cash flow, and any value added to the assets where we invest by the operators increases the future value of our interests. That is, again, measured by The Street in terms of the looking forward the net asset value of the assets we have in the portfolio. This growth or an increase in value comes from two sources. It is really a multiplier effect. Any extension to mine life provides a double benefit. Obviously, an extended mine life provides more production, more revenue, but an extended mine life means that you are able to capture volatility in the gold price over a longer period of time. Operators are always looking to expand mine lives. They have sunk capital to develop assets. They want to try and squeeze as much value out of those assets as possible.
We benefit because we do not have to pay for any of this. Last year, for example, in 2025, operators spent or they drilled about 2 million meters of exploration drilling of the assets in our portfolio. That is significantly expensive, but we did not have to pay for that. But we do get the benefit based on the structure of our investments. That optionality, the ability for us to extract additional value from the assets is one of the most important features of our business model. We do have a pretty robust development pipeline. This slide shows some of the key catalysts we see today from new assets that provide organic growth potential. It is a pretty significant organic growth pipeline, and we see catalysts basically almost every year for the next decade within the portfolio.
If you want to start on the left-hand side, Back River started production late last year and is ramping up now. We have got our newest contributor was Platreef. They started milling ore late last year. We got our first stream delivery in August, just a couple of months ago. Robertson at the Cortez Complex is expected to start producing in 2027. Then we have got Hod Maden, Great Bear, Warintza towards the end of this decade. Then beyond the beginning of the next decade, we have MARA and Fourmile expected to start contributing. This slide does not show growth at producing assets today. Last year, we had an increase in about million in mine life to 2045. That adds significant value to our portfolio.
We also saw, and we are still seeing it today, MMG, the operator of Khoemacau, is putting in an expansion to increase production at Khoemacau that should increase our silver contribution by about 35%. This is one of the best organic growth pipelines in the industry today. As we think about what that means in valuation, I would say that we are performing very well. Our business has got strong cash flow, good organic growth. We are executing on our priorities. But a snapshot of relative multiples today compared to our peers show that we are trading at an NAV discount to our large cap peers. We are actually trading at the bottom of the price to cash flow multiples compared to our large and smaller cap peers. What does this mean?
It means that if you were to invest the same amount of money in Royal Gold versus our peers, you actually get more in terms of gold and GEO exposure per dollar invested in Royal Gold than you do from our peers. On top of this, we also have a long duration portfolio with embedded growth that provides upside beyond that current revenue. So an interesting situation when you think about it from a valuation perspective. We hope this is a temporary feature. This slide shows where we've traded over the last 10 years relative to our peer group. There is a bit of a valuation disconnect in place today. We hope this is a short-term issue, and we hope it's because the market is just not absorbing yet.
They haven't had a chance to absorb the scale and growth potential of the portfolio, and instead is probably more focused on some of the integration risks from 2025 acquisitions without recognizing solid financial results. We've only had two quarters of results to speak to, so it's a pretty short period of time. We will release our third quarter of results in three weeks. In the first two quarters of this year, we had $770 million of EBITDA, we've paid down $1 billion of debt, and we've seen some pretty significant advances in the portfolio. So our focus right now is to make sure the market understands how well we're executing to address this valuation disconnect. With that, I've come to the end of the formal part of the presentation.
I'll wrap it up by saying we have done a lot to strengthen Royal Gold's position and position it for a strong gold price environment. We've added scale, diversification, and growth to the portfolio. We have a strong balance sheet, significant cash flow, and we think our patient approach and our commitment to a long-term strategy that works should be rewarded by the market in the hopefully near term. With that, Noella, I'll turn it back to you to start the Q&A session.
Thank you very much, Alistair, for the great presentation. We'll now begin the Q&A. Your first question is: How has the ownership restructuring at Hod Maden changed the project's risk profile, expected returns, and timeline to production?
Well, the ownership change hasn't really changed anything with respect to the project. Lidya, the new operator, is working on the same development plan that was developed by SSR, before when SSR had an ownership position in the project. They are doing a review of the capital cost and execution plan, but that's standard practice, I think, when anybody takes over a new asset. But they haven't said anything around timeline or production levels or anything like that that are different. I think from our perspective, what it's done is we have now got lower exposure to the asset directly, which is what we wanted.
When we announced the transaction with Sandstorm last year, the one thing that we did not like, and we made it very clear in our commentary, was that the 30% direct interest in a development project, or any project for that matter, that's not core to us. That's not the kind of structure that we like. We very much like the Hod Maden asset. We think it's a great asset, but the ownership structure doesn't suit our business model. So we've gone from a 30% direct equity interest to 15%. We took back an equivalent value in royalty for that delta in 15%. And where we are today, it's a $900 million project. We have 15% exposure to it.
If you think about the cash flows from Royal Gold's portfolio, really any exposure to that project and any increase in cost that may occur, that's pretty de minimis within the scale of our business. This was something that strategically we wanted to get to. We want to get to zero, actually, a direct equity ownership, but these things take a bit of time. We've taken a very meaningful first step to get to 15% from 30. It really does mitigate risks to us and our shareholders, risks in terms of capital costing increases or any development risks. But we would like to get to zero eventually, and hopefully that will happen in the medium term.
Thank you for clarifying that. Next viewer is asking: At Khoemacau, how much improvement in silver deliveries do you expect from operational recovery? Can higher volumes meaningfully cushion the effect of lower silver prices?
Well, the recovery of silver is actually pretty decent at Khoemacau. I think where we are expecting to see the bigger jump in silver deliveries is going to come from the expansion. As I mentioned in the presentation, we are expecting about a 35% increase in silver deliveries to us once the expansion starts and gets up to full production levels, which will likely be in the 2028 and 2029 time period. The silver price, yes, the silver price has come down. When we announced this transaction in 2019, the silver price and the valuation that we did the transaction was about $16, $17 an ounce. So, we are multiples higher than that. We would like to obviously see the silver price continue to stay high, because that obviously provides additional return to us.
But relative to where we were when we did this transaction, we calculated our returns based on a much, much lower silver price than where we are today. I think it is a combination of maintaining the silver price where it is today, but the higher production levels from the expansion will be what drives the higher return there at Khoemacau.
Thank you for that response. Your next question: What is your cost of debt? What are the terms of the $400 million debt, and how will rising interest rates affect the rate you pay back to that debt?
The $400 million was the balance outstanding on June 30th. We have paid down, when we did our second quarter conference call, we announced that we had made an additional $75 million payment. We are going to make another $100 million shortly after that. So we are working very hard to get the debt level down to zero, and we expect by sometime this quarter we should be there. That was the timeline that we gave the last time we reported to the marketplace.
Our revolving credit facility, I think, costs on the order of 6% today, maybe a little less than that. But it is relatively small dollars when you think about how quickly we are able to repay this debt. So it is not something we see as being a real drag on our performance. It is a revolving credit facility, so it is a bit like a credit card.
If we see an asset that we like and we don't have cash on the balance sheet, we'll use our revolving credit facility to provide funding to acquire that asset, then we'll just repay the balance very quickly based on cash flows. Our trailing 12-month EBITDA is about $1.3 billion. You could see very quickly that even if we drew the revolving credit facility to the maximum $1.4 billion, is about just over 1x our EBITDA on a trailing 12-month basis. It's not something that really burdens the company, and obviously, we're trying to get the balance down as quickly as possible to rebuild our liquidity, and the cost of the revolving credit facility is relatively low compared to the returns that we ultimately try and achieve when we buy a multi-decade asset.
Thank you for clarifying that, Alistair. Next viewer is asking, as major mining companies face rising capital costs, could delays to expansion projects reduce the expected growth in Royal Gold stream and royalty deliveries?
Any delays to development projects, yes, that can cause risks. Absolutely. I think as I made the point during the presentation, our growth, if you look forward and you look at our growth and where we're expected to come from, it's not from one asset, it's from a multitude of assets. If we do see one asset or maybe two assets slip, then it's not going to impact materially. It shouldn't impact materially the long-term growth potential. If you do see things slip, obviously you don't want to see it happen, but it's not the end of the world because those assets are still there. It just means we're not going to get them as quickly as we were planning on it before. We don't see that being a significant risk. It's a risk in any scenario when you've got development assets.
You can always see timelines slip, but we don't see it as a significant risk because it is a very diversified development pipeline. That should mitigate any impact from one single asset slipping, and hopefully we won't see all of them slip at the same time.
Thank you for clarifying. Your next question, does retaining a 15% equity interest in Hod Maden create any capital requirements that investors should consider as development advances?
Yeah. We have about 15% direct equity interest based on a $900 million project capital spend is about $165 million. That's our exposure. We've already funded $70 million of that, so we have about $65 million remaining. In the context of our cash flow, it's not a huge amount.
Thank you, Alistair. Next, has the company found it more difficult to find single asset royalty or streaming deals that will move the needle given the larger portfolio?
No. I think if you look back at what we've been able to do over the past several years, you'd see that the size of our existing portfolio doesn't really limit us from looking at new opportunities and adding the Kansanshi transaction last year, it's now one of our top five assets. Those are opportunities that come up every so often. We're not limited because we have a large portfolio. I think if we're a much larger company in terms of market cap, yes, that would be more of a consideration because you need to do much larger transactions to show an impact on a company that's much, much larger. That's why we think we're in a good spot. We're about a $20 billion market cap company today.
We can do transactions that are typically in the $300 million-$500 million range, and we should see those adding significantly to our financial results. I think we're in a good spot. If we were much larger, it would be a much bigger challenge.
Thank you for commenting. Next, what valuation criteria determines when you buy shares versus directing capital or debt or acquisition?
I'm not quite sure I understand where the question is coming from. We're always very focused on royalties or streams, and that is what we want to own. We don't typically go out looking for equity or debt investments. What we will do in some circumstances if an operator needs more capital and they're limited for whatever reason, how much stream or royalty they can offer, we will look to make up any delta using equity or debt. We've done that before. We've done that in the past. We don't like to do it because owning equity and owning debt is not really, we're not going to get full value in the marketplace. If we own a royalty or a stream, we should get full value, and that's why our shareholders own us, is to get royalty stream exposure.
It's not to get exposure to a portfolio of equity and debt investments. If we can, we'll always very much focus on our core business, which is royalties or streams. Sometimes we will take a little bit of equity or a little bit of debt because that may be the need of the counterparty. It's helpful in getting that larger investment, which is obviously the royalty or the stream.
Thank you for that insight, Alistair. Your next question, are there any producing assets in the portfolio with the potential to become significantly larger contributors in the future?
Any existing assets in the portfolio? Yes, there are. Khoemacau is a great example. That's a producing asset today. There's an expansion underway. An additional 35% silver production should come to our account. We have a number of assets in the portfolio that are. There's always optimization happening at mines, so maybe there's a way for an operator to increase their production by putting more material through the mill. Zapantin is a great example of that. There's excess mill capacity there. If they're able to mine more and put that through the mill, that should be higher gold production. So there's a lot within the portfolio where that organic growth, it may not be asset by asset hugely significant, but you pull it together and, yes, we do see some significant organic growth from that kind of opportunity.
The one that I would point to, the most obvious example is Khoemacau.
Thank you for that response, Alistair. Your next question from the viewer is, "Gold, silver, and copper make up the majority of your portfolio. Have you thought about making investments into the rare earth space?
We see these opportunities all the time. The mining sector needs capital, and rare earths and battery metals and things like that need capital as well. We are not comfortable with metals that we do not understand. Things with rare earths and other battery metals, those are very specialized businesses. You really need to understand the marketing of those. Often, they are not exchange-traded, so there is no liquidity, there is no price that you can look to. You have to negotiate long-term offtake agreements with strategic offtakers. That is not something we have a lot of expertise in. We have expertise in exchange-traded metals: gold, silver, copper, zinc, lead. We have some experience in that. But we are not looking to change our focus. We are very much precious metals-focused.
If we see a metal come in that looks like it is something we understand, it is a very high-returning or good quality opportunity, we will look at that, but we are not out seeking it. We prefer to focus on gold and silver and other precious metals.
Thank you for clarifying that. Next, your question is, "What do you think is an appropriate premium when looking at your valuation compared to producers?
Well, I think the premiums change depending on what is happening in the marketplace and where we are in the metal price cycle. But I think it always makes sense for royalty companies to trade at a premium to producers because, as I said in the presentation, costs are lower and they are fixed, or relatively fixed, so margins should expand. We are not exposed to inflation. The second is Royal Gold gets additional value from money that is spent by the operators to expand or extend mine lives. And so that should end up giving us a higher trading premium in the marketplace. Our cash flows are a lot more predictable. All you need to do to understand our cash flows is look at the top-line production levels from assets and apply the royalty or the stream rate to those top-line numbers.
You don't have to do the same analysis you do with a mining company where you look at potential inflation and operating costs. You look at what is it going to cost for sustaining capital or expansion capital. Those risks are not inherent in our business. That explains or should explain why we trade, and our peers, why we trade at higher multiples than operating companies. That's something that I think that is pretty easy to understand when you think about the quality of the cash flows, the predictability of the cash flows. The higher quality, more predictable cash flows should get a premium, and that should explain why we trade at a higher premium than the operators.
Thank you for illustrating that. Next question: "What percent of your exploration royalties do you think will eventually produce?
That's a very hard question to answer. It really does depend on each of the opportunities. I would say we have 250 earlier-stage assets in the portfolio. I think it would be unfair for me to say all of them are going to result in revenue in the future. That's probably not a good statement to make. But I can't handicap what would be some of the other assets that may become producers in our portfolio. We've seen examples of assets in the portfolio that have been dormant for a long time. We've actually acquired assets as part of portfolio transactions that have got zero value in our view, zero book value, because we never thought those things would be producers. Bellevue Gold is a great example of that. We acquired Bellevue as part of a portfolio transaction in 2010. It sat dormant for a long time.
We have zero book value on it. But Bellevue was acquired by a management team who had a different vision for the asset. They did a lot of exploration work, did a lot of work rethinking the deposit, and they put it back into production. Now it's a fairly consistently 150,000-170,000 ounce a year producer, and we have a 2% royalty on that. That, 15 years ago, to us, was worthless. Today, it's worth a lot. It's really hard for us to look at the portfolio today and make a prediction. What could happen in 15 years? It depends on a lot of things, including motivated management team that's able to find financing. Metal price environment, obviously, is very important as well. It's very hard to provide a simple answer to that question.
Well, I appreciate your response nonetheless, Alistair. Coming up on your last few questions here. The next one is, "Which jurisdictions do you see offering the most attractive opportunities for Royal Gold to expand its portfolio through strategic acquisitions in the near term?
Where we invest is obviously driven by where there are mining opportunities. We have done very well in North America and South America. I think there still is a lot of prospectivity in those jurisdictions. One of the places where we would really like to see some activity, focus, and generate some new opportunities is Australia. We have a number of revenue producers in Australia, unfortunately, they are relatively small compared to the rest of the portfolio.
But Australia is a very prospective jurisdiction for us, as well as North and South America. There are occasionally opportunities that we will see in other different jurisdictions as well, but we tend to be focused on those places that are more stable. We are not going to go to certain jurisdictions that you do not have security of tenure or you have physical risks or other things that governments just do not treat resource companies fairly.
We are going to stay away from places like that. So it probably means you will see us continue to reinvest or invest in places that are pretty stable mining-friendly jurisdictions like in Canada, the U.S., certain parts of South America and Australia.
Thank you for clarifying. Your next question, how does your general framework for dividends change during metal price downturns?
The way we set our dividend is we want our dividend to continue to grow, so we will look at raising the dividends every year. We go through the exercise late in the year, and we look at what we are paying today. We look at the portfolio, what we think it's going to generate in terms of cash flow, and we'll make an adjustment to the dividends from there. But we also look not just one year ahead, we'll look several years ahead, because if we raise the dividend this year to a new level, when we come to the end of next year, we raise it again, and we can raise it again on top of that. That's the way we think about the dividend. It's not a mechanical approach. We don't think about the gold price dropping, we should pull back our dividend.
We look at the portfolio and obviously we'll do some sensitivity analysis on prices, and we get a sense of, okay, what is the portfolio going to produce based on different price assumptions, and what are we comfortable with as a dividend in those scenarios? It's a rigorous but also a very subjective analysis of the dividend.
Thank you for your insight, Alistair. Your last question, in your opinion, what key milestones could drive the next meaningful re-rating of Royal Gold's valuation?
The biggest milestone, I think, is really just getting the market to focus on the cash flow that we generate. Maybe that will be with our next quarterly results, and then we've got three quarters for the market to look at. Maybe it's going to take four quarters. I don't know. But the fact that we've paid down $1 billion of debt in a year, I think should be a very positive sign to the market. Plus the fact that we raised our dividend again, we bought back $30 million worth of shares. All the seeds or all the components are there for the market to look at if you want to think about a re-rate and the valuation. Now, there are other things as well that could occur that would be catalysts.
I mean, if you saw positive news from any of the development projects that I have talked about, if you saw anything advancing faster than expected, obviously that is going to help. When you see Platreef starting to deliver on steady state, I think that will be a catalyst. When you see new production at Robertson, that will be a catalyst. There are a lot of asset-specific catalysts within the portfolio that should provide additional comfort to the market that there is growth. But I think the biggest thing right now is just for the market to look at our financial results and the cash flow and rationalize that with the price that we are trading at in the marketplace. And I think that may happen relatively soon.
Excellent. Thank you very much, Alistair, for all of your insight today, and thank you to everyone who submitted questions. If you did not get a chance to submit your question, you can reach out to the appropriate account manager here at Renmark. That concludes our presentation for today. But before we go, I will turn back the floor to Alistair for final remarks.
Well, thanks very much, Noella. Thanks, Renmark, and thanks everybody for your questions. If I misunderstood any questions or if you would like to go into anything in more detail, please contact Renmark. I would be happy to engage with you one-on-one. Until the next time, take care and we will talk to you soon. Thanks.
Thank you, Alistair. And once again, this was Royal Gold trading on the Nasdaq under the ticker symbol RGLD. Thank you to everyone in New York and surrounding areas for joining us today. The playback for this virtual non-deal roadshow will be available on our website within 24 - 48 hours after this presentation on our website under the VNDR Library tab and on our YouTube channel. Please stay tuned for other presentations in your area and see you next time.