Q2 2022 Royal Gold Inc Earnings Call
Ladies and gentlemen, thank you for your patience today's call will begin momentarily again. Thank you for your patience today's call will begin momentarily.
[music].
Okay.
Good morning. Thank you for attending today's Royal Gold's 2022 second quarter results Conference call. My name is Amber and I will be your moderator for today's call.
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question. Please press star one on your telephone keypad at anytime I now have the pleasure of handing the conference over to our host Alistair Baker, Vice President of Investor Relations and business developments with.
Royal Gold.
Alistair Please proceed.
Thank you operator, good morning, and welcome to our discussion of Royal Gold's second quarter 2022 results. This event is being webcast live and you will be able to access a replay of this call on our website.
Speaking on the call today are bill heightened bubble, president and CEO , Paul Lindner, CFO and Treasurer, Mark <unk> Executive Vice President and CEO of Royal Gold Corporation.
And Dan Breeze, Vice President corporate development of RG AG.
Randy Schatzman General Counsel is also available for questions.
During today's call, we will make forward looking statements, including statements about our projections and expectations for the future.
These statements are subject to restaurant uncertainties that could cause actual results to differ materially from these statements.
These risks and uncertainties are discussed in yesterday's press release, our filings with the SEC.
We will also refer to certain non-GAAP financial measures.
Adjusted net income and adjusted net income per share.
Adjusted EBITA margin and cash G&A.
Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are available in yesterday's press release, which can be found on our website.
John will start the call with an overview of the quarter and the recently announced transactions and data Mark will follow with some details on those transactions and Mark will provide an operating update for the quarter, Paul will provide a financial update and bill will wrap up the call with some closing comments. We'll then open the lines for a Q&A session.
I'll now turn the call over to Bill.
Good morning, and thank you for joining the call.
We are reporting earlier than most of our counterparties. So our operating comments will be relatively short, but that will give us a bit more time to discuss the recently announced right there in cortez royalty transactions.
Turning to the results for the quarter I'll begin on slide four.
Q2 was a good quarter from an operating perspective and lower production at certain properties was expected when we issued our calendar 2022 guidance.
Financial results were solid with a healthy $146 million of revenue strong operating cash flow of $120 million and earnings of $71 million.
Adjusted income was $54 million.
Our margins remain healthy and our adjusted EBITDA margin was 78% in line with where we were for the same quarter a year ago. This is noteworthy given the recent rise in costs as recorded by some of the.
Companies and really highlights the advantages of our low and relatively fixed cost base.
We increased our cash balance over the quarter and at quarter end, we remained debt free with cash on hand of $281 million.
We have subsequently drawn on the revolver to fund the recent Cortez transaction and Paul will provide some additional detail on our liquidity in his remarks.
Our commitment to the dividend remained firm and we paid 35 cents per share in the quarter.
During the quarter, we also hired Alison for us into the newly created role of VP of investment stewardship.
Alison has a long professional resume and ESG sustainability and responsible investment.
Most recently with the resource capital funds private equity group, where she established its ESG function.
Given the similarities between our business and that of Rcs. She is well placed to be Royal Gold's point person for all of our ESG efforts I hope you get to the gateway there soon.
I'd now like to make some comments on our most recent transactions.
We announced two transactions after the end of the quarter and both fit our strategy and investment criteria, which we called the three PS people place and project.
It is challenging in our industry to find two opportunities that combine excellent project attributes experienced operators and low risk jurisdictions.
As Dan will explain in more detail. These are royalty interest on gold assets that we expect will provide benefits to our shareholders over a multi decade mine lives.
Our history shows that while we are always disciplined in applying our criteria for investment. We're also not afraid to be aggressive when we see world class opportunities and I believe that both of these will be significant contributors to royal gold over the long term.
Whether it is 510 or 15 years from now I believe our shareholders will benefit from the prospectively of the high quality royalty interests I'll now.
I'll hand, the call over to Dave.
Thanks, Bill turning to slide five on July 11th we announced the agreement to acquire Great Bear royalties Corporation, which owns a 2% MSR royalty on the emerging great Bear project. The project is located in Ontario, Canada, a mining friendly and low risk jurisdiction and operated by Kinross, and well capitalized and experienced senior producer.
It is one of the most interesting prospective gold projects to be discovery globally in the past few years Kinross is expecting the project to produce over 500000 ounces of gold per year and is targeting a multi decade life from a mining complex consistent of open pit and underground mines.
Bill mentioned this is a transaction that fits well with our long term strategy.
On slide six you can see a map that shows the extent of the property in proximity to the challenge of Red Lake royalty covers the entire 91 square kilometer property package and its life of mine without step downs or perhaps we took a unique approach to this transaction by entry into an agreement with Kinross jewelry, our due diligence process to review that.
<unk> data and have access to their technical staff. This de risks the transaction significantly as it allowed us to independently validate the kinross assumptions and understand how they think about the project which is unusual.
Third party royalty acquisitions that Kinross project update on June 28 provided an overview of the technical work completed by Kinross since the acquisition of Great bear as well as our plans for future development of the project is.
As compensation for providing this access at closing we will provide kinross the auction to acquire 25% of the royalty at our acquisition costs adjusted for inflation until the earlier of a construction decision or the 10 year anniversary of closing we expect to fund the acquisition using cash on hand, So there is no equity dilution and our shareholders will benefit directly.
<unk> as the project moves forward.
It is also worth noting the board and officers of greater royalties it signed support agreements.
The typical deal protections and a break fee.
Subject to satisfaction of certain regulatory conditions, we expect the transaction to close late in the third quarter.
We're very pleased with this transaction as it layers in long term growth scale and optionality into the Royal Gold's portfolio.
I'll now turn to slide seven and talk about the Cortez royalty transaction that we announced on Tuesday.
The <unk> acquisition this transaction fits our strategy and investment criteria. When it comes to the three PS Cortez clearly checks all the boxes as a world class gold complex in a mining friendly jurisdiction operated by two of the leading global gold producers.
We'll go there is a long history at Cortez, we were one of the founding partners in the original Cortez joint venture and our existing crossroads and pipeline royalties have been significant contributors to our revenue for many years, we know the Cortez area very well.
With its history of production growth and consistent reserve replacement. We think is one of the most prospective gold mining areas anywhere.
Slide eight shows details of the royalty and the coverage area.
Royalty is a sliding scale gross royalty with an effective rate of one 2% above a gold price of $900 per ounce.
It is a life of mine royalty with no step downs or caps and coverage areas within the Cortez JV area of interest on the Cortez Allo Mountain trend.
The royalty coverage areas within the Cortez complex operational area, including the operating Crossroads pipeline and Cortez Hills mines as well as the gold rush in format development projects and other prospective exploration targets, we acquired the royalty from Rio Tinto, which created the royalty when they sold a 40% joint venture interest in Cortez to Barrick in two.
2008, the royalty covers the area that was part of the Cortez joint venture at that time.
Productions are limited to only the royalties that existed at that time, which include our existing crossroads pipeline in gold rush royalties Cal.
You can calculate the royalty the existing royalty obligations are deducted from the Cortez complex gross revenue with the result multiplied by the one 2% royalty rates.
The royalty is payable after cumulative production from core change of 15 million gold equivalent ounces from January the <unk> 2008 onwards.
Turning to Barrett disclosure cumulative production was approximately $14 8 million ounces through June 32022.
Expect the 15 million ounce threshold, we reached in the third or fourth quarter.
Payments will be received quarterly and we expect to receive our first payment in the fourth quarter of 2022 or first quarter of 2023.
This royalty greatly enhances our exposure to this district and we expect it will smooth out some of the quarterly revenue volatility that we've experienced from our exposure to only crossroads and pipeline.
Ended the Cortez royalty purchase primarily using our revolving credit facility. So like the great bear royalties acquisition, our shareholders will benefit directly from the upside at Cortez without equity dilution.
Now I'll turn the call over to Mark for a description of the exploration potential at Cortez and other updates on our existing portfolio of properties.
Thanks, Dan I'll turn to slide nine to provide some commentary on the exploration upside which is key to understanding the potential of this royalty both barrick and newmont have been active in Nevada for decades, and the formation of Nevada Gold mines created the opportunity to unlock further value from the Cortez assets.
In addition to Mgm's extensive infrastructure that allows processing of multiple ore types found in Cortez MGM has amassed decades of ore body knowledge. It can be applied to defining new exploration targets.
The Cortez land package has proven to be prolific in its ability to close large carlin style gold deposits.
Modern mining processing began at $19 69.
First tier one deposit pipeline was not discovered until $19 91, which was followed by the discovery of two additional tier one deposits Cortez Hills in 2002 and gold rush formal deposits in 2009.
As described by Barrick MGM has developed a systematic geological framework based methodology to guide exploration built on the sound understanding of stratigraphic and structural controls to mineralization.
This framework evolves with ore body knowledge and the gold Rich discovery continued the district wide trend of a new Greenfield discovery approximately every 10 years since the initial mining coal acres and Cortez.
As MGM identified in their last Investor day, there is excellent exploration opportunity at Cortez complex for near mine extensions brownfield discoveries and new Greenfield discoveries. In addition to the conversion of existing resources to reserves.
Specific near mine exploration opportunities.
Expansion of the gold Rush Formyl complex and underground extensions at Cortez Hills.
Brownfield and Greenfield exploration targets include the continuation of the four mile trend on the north side of the mill Canyon stock the East Gold rush target beneath younger basalt cover the horse Canyon Footwall zone to the east of gold rush as well as targets between pipeline and Robertson and to the south of <unk>.
Crossroads.
And GM estimates current mineral resources at approximately 25 million ounces and we expect this to grow over time as exploration targets for advanced.
Turning to slide 10, I'll cover a few other portfolio of events over the quarter.
Portfolio performance was steady this quarter and overall volume was 78300 gold equivalent ounces or <unk>.
Overall volume was in line with our expectations and while there was a decrease year on year keep in mind that 2021 and saw strong performance from several key assets.
For the full year of 2022, we remain on track for achieving our production guidance of 315000 340000, Ceos, excluding any contribution from the new Cortez royalty later this year.
Our royalty segment contributed $42 million in revenue a decrease of 22% over the prior year quarter.
With lower contributions from Cortez pennants, Quito and voices Bay.
Generally in line with our expectations.
On the streaming segment side revenue of $105 million was lower by about 8% from the prior year quarter.
Lower contributions from Pueblo Viejo, and <unk> were partially offset by new revenue from co Macau and Nx gold.
<unk> reported steady progress on the ramp up of mine production over the quarter and in line with our expectations.
The mining rate reached an average of 7300 tonnes per day in June and <unk> continues to expect to reach the full run rate of 10000 tons per day by the fourth quarter of this year and.
Unfortunately in May AKC and reported an accident, resulting in the fatality of two employees of mining contractor investigations into the accident are ongoing.
At global will be April silver deliveries were approximately 307000 ounces in the quarter and an additional 45000 ounces of silver were deferred resulting in a total of 484000 deferred ounces.
We don't expect material deliveries of deferred silver this year and we expect silver recoveries should remain relatively variable until the expansion project is complete and bottlenecks associated with the silver circuit and silver recovery are fully addressed we continue to see this as a cash flow timing issue.
Don't expect it to have any lasting impact on silver revenue.
At Red Chris Newcrest reported continued exploration success at the east rich target and as outlines potential to contained $2 eight to $4 3 million ounces of gold and <unk> nine to $1 3 million tonnes of copper while remaining open to the east.
This news continues to affirm our thesis of exploration upside potential at Red Chris.
Finally at King of the Hill is in Australia, <unk> announced the first gold pour on June 5th with mining and processing activities continuing to ramp up.
Recall that we have a one 5% MSR royalty on this asset and we expect to recognize first revenue in the third quarter.
The project is a public mineral resource of $4 1 million ounces contained $2 4 million ounces classified as reserves.
This completes my comments and I will now turn the call over to Paul for a review of our financial results.
Thanks, Mark I'll now turn to slide 11, and give an overview of the financial results for the quarter.
For this discussion I will be comparing the quarter ended June 32022 to the prior year quarter.
Revenue was $146 million for the quarter, a 13% decrease most of the revenue decrease was due to lower volume in the quarter as Mark mentioned.
Compared to the prior year quarter, lower prices were mixed with gold up about 3% and silver and copper prices up 15% and 2% respectively.
Golar remains the dominant revenue stores, making up 71% of our total revenue followed by copper at 14% and silver at 11%.
G&A expense increased to $9 3 million from $7 2 million in the prior year quarter.
The increase was primarily attributable to higher employee related costs, which also include noncash stock compensation expense.
Our noncash stock compensation expense increased $1 million over the prior year quarter and was largely due to increases in our employee head count changes in the mix of equity awards granted to employees and the transition from a fiscal year end to a calendar year end.
Also contributing to our higher G&A expense during the quarter were higher ESG costs and this is due to royal Gold's continued commitment to broader ESG initiatives.
Although inflationary pressures have impacted some of our producing peers, our cash G&A costs have remained low and continued to be less than 5% of our revenue.
A typical quarter of cash G&A costs for Royal Gold is six five to $7 5 million, while our noncash stock compensation expense is generally around $2 million per quarter.
Our G&A expense was $44 million down from $48 million on a unit basis. This expense was $5 $62 per geo compared to $519 per <unk> in the prior year.
The increase in the unit rate was mainly due to lower gold sales from <unk> and Pueblo Viejo.
Partially offset by additional depletion from coma, and Nx gold, which were not contributing in the prior year period.
Looking at tax we had a discrete tax event, resulting from a change in the realize ability of certain deferred tax assets held by our Swiss subsidiary.
The change in the deferred tax assets resulted in a discrete income tax benefit of $19 million for the quarter.
If we back out the discrete tax benefit our effective tax rate was approximately 20% for the quarter.
Earnings for the quarter were down over the prior year to $71 1 million or $1 eight per share.
After adjusting for the discrete tax benefit I, just mentioned and a $2 $2 million expense related to the fair value changes in equity Securities. Our adjusted earnings were <unk> 81 per share the.
The main contributor to the lower earnings were due to lower revenue during the current quarter.
We reported operating cash flow of $120 million, which was another strong quarter and in line with the prior year period.
With respect to our 2022 full year guidance, we remain on track to deliver our guidance for sales of 315.
To 340000, Geos, our DD&A expense of $535 to $500 per geo and effective tax rate, excluding discrete items of 17% to 22%.
Note that this guidance does not include any contribution from the newly acquired Cortez royalty as we do not anticipate receiving initial payments until the fourth quarter of 2022 or the first quarter of 2023.
With respect to any impacts to our DD&A expense or DD&A gyro from this royalty we are continuing to finalize the accounting for the new Cortez royalty.
Our initial estimates suggest that approximately 35% to 40% of the $525 million purchase price will be assigned to production stage mineral interest based on the current $2014 2 million ounce reserve.
The remaining value will be assigned to exploration stage, which is not currently subject to depletion and will be request to production stage as additional material is classified as reserves for.
The value assigned to production stage, we initially estimated DD&A rate of approximately 1350 to $1450 per royalty ounces attributable to this specific royalty we.
We will provide a further update on revenue and DD&A from this royalty on our next quarterly conference call.
I will now turn to slide 12, and provide a summary of our financial position at the end of the quarter.
Our liquidity position has strengthened as we ended the quarter with no debt $280 million of cash working capital of $276 million and just under $1 3 billion of available liquidity.
As part of the Cortez royalty acquisition, we drew $500 million on the revolver on July 25 to fund the acquisition, leaving $500 million Undrawn and available.
Upon the acquisition of the Cortez royalty, we have approximately $260 million of available cash.
In keeping with our capital allocation strategy, we expect to repay the $500 million outstanding revolver balance as cash flow allows over the short to medium term.
With respect to further near term financial commitments, we expect to pay approximately $155 million for the acquisition of great bear royalties.
Which should occur in the third quarter subject to the receipt of necessary approvals.
We also have potential success based payments for Nx gold stream of up to $6 8 million through the end of 2024.
We expect to fund both of these commitments from our current and available cash resources.
That concludes my comments on our financial performance for the quarter and I will now turn the call back to Bill for closing comments.
Thanks, Paul I want to make a few comments about our growth strategy and focus on what the recent transactions, meaning for our overall portfolio.
One of our core strategic objectives is to further strengthen and diversify royal Gold's portfolio of precious metals royalties and streams by adding the best assets, we can find.
Since the middle of last year, we have been very active and I think we've done an excellent job in identifying and acquiring high quality assets.
Consistent pain through these acquisitions is our ability to using excellent skills of our geology team to identify properties with high exploration potential.
In total we've committed just over $1 billion towards a mix of assets that will collectively provide meaningful gold revenue high production upside and exploration prospectively over long mine lives.
These assets are located in low risk in mining friendly jurisdictions.
Operator by some of the best companies in the business.
Another core strategic objectives is to think in terms of per share metrics and the maximization of our shareholders' exposure and leverage for the precious metals, we add to the portfolio.
We have completed all of our recent transactions using available cash resources, including our revolving credit facility.
Without issuing any new equity so our shareholders should see the benefits of these acquisitions directly.
We think these assets will add significant value to royal gold over the long term and we remain well positioned with a diversified portfolio that provides healthy margins and cash flow as well as a strong balance sheet.
That concludes our prepared remarks I'll now open the line for questions.
Thank you we will now begin the Q&A session. Thank you would like to ask a question. Please press star followed by one on your telephone keypad.
The reason you would like to remove that question. Please press star followed by two again to ask a question Thats Star one.
As a reminder, if you were using a speaker phone. Please remember to pick up your handset before asking your question. We will pause here briefly ask questions are registered.
Our first question comes from.
Cosmos <unk> with <unk>.
The ITC Cosmos. Your line is now open.
Thanks, Phil.
Bill and team for the conference call.
Maybe my first question is on provisional pricing.
As you mentioned about 11%, 12% of your revenue is coming from copper.
Other ones are also being generated by the producers as concentrates.
With a decrease in some other base metal prices.
And is there anything that we should be aware of in terms of how provisional pricing of the operators can actually impact what world Gold gets paid I guess, it's all dependent on the timing of the producers selling the concentrate and one day pay Royal gold, but is there anything that we should be aware of at the moment.
Again coal Macau or any of those other assets.
Yes, cosmos, thanks very much for the question I think the best person position to give you a response would be Paul Paul you, Okay, taking that one.
Sure.
Hi, Paul.
Yes. Thanks for the question I certainly can appreciate the question too probably in light of maybe some of the.
News that youre seeing from some of our producing peers with the provisional and final adjustments that theyre having the.
The impacts on as far as the receivables that they carry as well as any mark to market maybe through through earnings there, but to answer. Your question. We are subject to provision and final pricing adjustments at a few of our royalties.
That produce content concentrates with base metals, but but overall I would say our exposure is limited and the largest exposure with.
Within our portfolio, probably are a 3% MSR royalty at Robinson.
But I will say that the Robinson royalty, though it was only one 5% to 2% of our total revenue each quarter and within that royalty copper makes up roughly 80% of that so again I would say our overall exposure to.
Two final pricing adjustments is limited.
You mentioned co Macau and Mount Milligan, but I just would point out that streams are not subject to pricing adjustments just because again, our deliveries are in kind and we received the metal units himself.
Great. Thanks.
Maybe moving a little bit in pause since I have you here.
On the latest Cortez royalty the latest acquisition as you mentioned you gave us very good detailed DD and <unk>.
Depreciation rates.
Are there any differences in terms of the.
The depreciation rates for accounting versus tax purposes.
And I think in your press released two days ago, you mentioned, 21% corporate taxes in the U S.
Could you maybe walk through that how you would calculate taxes there as well.
So yes, it would be subject to a 21%.
Right and the only other tax cosmos that really applies.
Royalty and the Nevada area.
Given that basis there yet.
The book and the tax depletion should be relatively in line with the same.
Okay. So I guess, you'll be paying some taxes upfront because it seems like the depreciable part of the acquisition costs is right now on a depreciated based on reserves. So I would imagine the depreciation will then be able to cover off all of the profits coming off of the new MSR.
Loyalty, that's correct, yeah, there will be a timing difference.
Certainly I appreciate the.
The reserve and the later parts of the exploration piece that again that I mentioned in my remarks.
Great.
Maybe jumping around a little bit Pueblo Viejo.
I noticed that as you've talked about in quite a bit of detail. The silver recovery is still not up to the 70% is still being accumulated.
I appreciate the.
Sort of discussions around it but could you maybe you know I think in the past they try to fix it but I guess it hasn't been fixed and then it's accumulating so two parts of my question number one.
What are they doing right now to try to fix it and number two why would you expect.
Silver recoveries to normalize and then at that point in time what happens.
With all of the silver that's been accumulated does it get released all at the same time or does it get released over time and if it gets released over time, what's the timing there.
Yes, Cosmos I think what I'd like Mark to do if I can just maybe address.
What they've done in the past what they are doing currently.
And our expectation I think our expectation has been for a while.
It's just going to bounce around until we get the expansion completed, but but I think it makes more sense for her mark to walk you through with a little more background.
Great Hi, Mark.
Yeah Hello.
Yeah, no. It was right on what we see is that the.
There's a number of bottlenecks and we visited the site back in May and we get to see and an explanation of what these bottlenecks are but the primary bottleneck appears to be.
Slurry cooling and they're just having to expand the circuit that they have which is part of the expansion project and they'll also increasing the CIL capacity.
So so there are a number of issues in the CIL circuit and since we're a cooling that have a detrimental effect on on silver recovery that has just made it very hard to predict what the results are going to be high temperatures result in very low silver recovery in.
In the CIL circuit is the fundamental one of the fundamental issues. So that's why we say that you know really until the of the expansion project is up and running and really commission embedded down that we would expect to see silver.
Continue to bounce around.
Great and then the second part of my question.
In terms of timing in terms of how that accumulation gets released later on down the road how does that work Mark.
Yes.
Well, what what'll happen is as silver becomes available from higher recoveries than it would be delivered.
As available from from Barrick silver from their portion of the silver.
Produce so it would it would be a function really of of each quarter and how much they are producing and how much in excess they've produced above what they've they've contractually have to deliver to us. So.
It would certainly.
Take a significant number of quarters for us to to receive.
The deferred silver at this point, but we are estimating that until we see how the silver circuit is going to produce and the long term.
Hello.
And Mark I understand I'm correct, if I, if I say, they don't have to get back to 70% to give us deferred ounces.
Recovery rate has to go I think about 52, and a half and we would start to see that thing.
Reduced is that fair yeah, Yeah, Youre, absolutely right 52, and a half is kind of the point at which deferred.
Silver starts kicking in.
Versus <unk>.
Repayment of deferred silver.
Great.
And maybe one last question Bill.
Bill I appreciate that you mentioned you are reporting earlier this year ahead of some operators.
But one operator that has reported earlier today it was I am goals.
I'm sure you've looked at the renewed or updated sort of.
Number is around <unk>.
They need more money it seems like Capex has gone up Theres a funding gap.
Any comments you want to make them understanding that you've already made.
A fairly sizable not huge but.
No you have made an investment in <unk>.
How would you look at it given the update earlier today and anything that you want to share with us.
Yes, I will.
Say it is relatively new so I have standard I think I understand the key parts of it.
Just pointing out that we own a royalty stream. So it is not as though we're having.
Deep dialogue.
Frequent reporting where where our contract limits.
What we're contractually entitled to so it's one of those situations, where we can learn about it when you learn about it.
My read of the release.
It was capex went up a little bit.
But the funding gap remains they listed a host of.
Sources that they are looking at to fill it.
Uh huh.
I'm not that concerned I think.
The two involved have the ability.
Or have enough flexibility to fill that gap, but we'll just we'll have to see.
How that goes over time, but just keep in mind. It is it is a royalty. So it's not like we're sitting on top of a lot of.
A lot of information.
Understood. Thanks, again, Bill and team and those are all the questions I have.
Thanks Cosmos.
Thank you.
Again as a reminder to submit for a question Thats Star one on your telephone keypad.
Our next question comes from.
Jackie pre bolinsky with BMO capital markets Jackie Your line is now open.
Thanks, very much and I want to apologize in advance for asking you guys, but.
We don't cover center at all that would be more so I'm, maybe a little bit.
We removed from this story.
Believe there was a technical report that was it.
Expected on Mount Milligan in.
First half of the year and I checked the other day and I haven't seen it yet can you give me some sort of update us if you have one on.
On the progress there.
Do you have any expectations for that would be material to.
Cannot milligan.
Well I'm not sure where were bill went but Jackie this is mark here. So I can give you a bit of.
The guidance.
We still.
Expected or guided to the next week's earnings release would be the next point in time that we would find out any details from the technical report.
But but you're right it is.
It certainly is due and that's what <unk> guided towards but we don't have any additional news or past that point.
Okay, No that's fair I appreciate it.
It's not a fair question for you guys.
And it's.
It's still not on the line, maybe it's a tough question as well but.
Your growth pipeline I realized you've got you know quite a bit of liquidity as at quarter end, but you do have the contrary.
Contributions there subsequent at Cortez and at Great there.
That transaction closes.
How's Royal Gold's thinking about growth from here and the liquidity that you have available to fund that growth and if there was it.
Big opportunity.
What would what would your options to fund that I guess would you.
We will look to extend your revolver or something like that.
I'm not too sure Bill is back I think Dan would be the most appropriate to answer are you available to him.
Sure Mark Hi, Jackie you haven't got it. Thanks for the question and I think Paul can jump in here as well, but I think just in terms of growth.
On the back of the transactions that we just announced here were very much focused on growth still and there's plenty of liquidity Jackie.
<unk> been talking with this number.
This range for a number of quarters now of 100 million to $300 million in terms of the size of opportunities that we see.
And Thats still very much the case.
Cortez was obviously a bit bigger.
And that but in general that's still the range and we can still find that very very comfortably.
I'll hand, it over to Paul.
Paul wants to make some more specific comments on the balance sheet.
Yeah, Jackie So I think your question just on how as you do know obviously, we have a $1 billion credit credit.
Credit facility available to us.
With that four 1 billion that was available to us as of June 30, and obviously subsequent we did we did draw a $500 million on that revolver.
To help fund the Cortez royalty acquisition and you know as Ive mentioned in the past I do view that revolving credit facility as a key strategic financing tool.
To help finance the growth of this company and that certainly was the case with that with that acquisition.
And in keeping with my also earlier remarks.
I do want to prioritize that balance sheet, and certainly service that outstanding debt as our cash flow allows.
I did say.
That I anticipate paying that off over the short to medium term.
And based on our current model and using current spot prices.
Estimate that we'll be able to pay that revolver down call within the next 12 to 18 months, probably closer to the 18 months in this instance.
So maybe also address your comment on expanding the revolver.
I think we are viewed and felt that certainly with our cash resources and availability and the continued growth of cash flows.
About $1 billion revolver credit facility.
It would be sufficient and supportive of some of Dan's earlier comments.
I appreciate that thank you and if I could sneak in one other question I was going to ask you you sort of addressed this already I guess I was going to ask you about your effective tax rate because it seems like like youre running kind of below your guidance range, but I think you clarified that you or your guidance regions, excluding those discrete items.
Is there any opportunity for royal gold to bring that tax rate down I guess compared with.
Maybe a couple of your peers that are more stream focused.
It's a bit of a higher tax rate.
Is there any tax planning or.
Or anything that can be done to kind of bring that down to a lower level or is that.
Kind of already pretty well optimized.
Yeah, Jackie this is Paul.
Certainly we're always looking to minimize.
Our effective tax rate, where we can and you are correct. Our initial guidance is 17% to 22% and I think if we backed out that discrete item I spoke to we were about 20% and that's been kind of the usual kind of run rate. If you will probably for the last.
You know one or two fiscal years again, depending on we may have had some of those discrete events and <unk>.
Certainly you know are our Swiss subsidiary is subject to the.
The global intangible low tax income, which currently that's a $13 125% tax rate.
Which will likely move to <unk>.
Just over 16% in 2025, but we're always looking at upon each acquisition and elsewhere on other tax planning events or strategies that.
Could help us.
In the long run.
But I think you get back to that today the rate that we currently see today is kind of.
No.
Really what we can do.
Got it okay I appreciate that thank you.
Is all for me.
Sure.
Thank you.
Our next question comes from.
Tanya <unk> with Deutsche Bank.
Your line is now open.
Great. Thank you everyone. Good afternoon, and thank you for taking my questions.
Wanted to circle back to.
Yes.
The transaction environment that Youre seeing.
You mentioned again, the $100 million to $300 million range.
Most of the ones that are the true.
The actions that you've been doing exactly that.
Yes.
Larger insights have been mainly royalties and so as I look at your portfolio and I look at your track record also.
Increasing your exposure in Kansas that you're already in.
There are two camps and the goal that we saw this morning, and obviously red Chris that you have exposure to as well both of those both of those.
Junior partners Macquarie.
Mcgwire financing. So my question here is could we see you increase your exposure at Red.
Red, Chris and Oracle to take off.
Would it be something that you would be open to doing.
Given you there.
Yes, Tanya it's bill I apologize to Jackie my phone dropped and I appreciate the team pick it up.
The slack slack as I got back into the back end of the call.
We really don't make specific comments on.
Businesses specific business development opportunities I would say we're always open.
Sure.
Discussion.
But our interest level is really going to be dependent going back to the three piece that people to place the project.
And when you start more exposure means getting into stream exposure, which brings on you really have to do a financial analysis on the credit profile of everybody involved so.
It would come down to a discussion of the team getting together and saying are we comfortable increasing our exposure to these assets at this time.
Uh huh.
I mean is that royalty exposure possible as well could it be converted that that royalty.
Yes, that's great.
Yeah the problem with.
The reason you have streams being so prominent.
Yes. They are they are more tax friendly for the operators and if they sell a lot at detour.
Often taxable upfront.
Yeah, No no fair enough.
How about just asking because I was quite surprised about the size of that.
Royalty I thought most of their royalty portfolios out there were under 100 million. So this one yeah. So at this size is quite surprising for me.
Okay can I ask out there and not being specific but.
Are there royalties at best buy is still out there or.
Can we expect royalties portfolios to be in that $100 million to $300 million or less.
Yeah I would.
From my perspective, I would say, what we found here with Cortez and we know about this we've known about it since it was formed so again following it for 14 years those types of opportunities I believe are going to be few and far between.
I think the majors that have accumulated the royalties have seen the value they've been able to generate by selling.
Those royalties I have to believe a lot of most of the portfolio has been picked over.
Quite a bit so it wouldn't surprise me to see many more of what we just did at Cortez.
Okay, and what would it be fair to assume that most of what youre seeing out there are.
They are helping fund development projects right now rather than a royalty portfolios.
Yes, that's when it comes to streams you can say it's available for project development deleveraging the balance sheet for M&A, but project development has really been the bulk.
Of.
The use of proceeds.
So I think your statement is accurate.
Okay. Okay, I really appreciate it and thank you so much for the depreciation guidance omni Cortez that royalty.
And congrats on that one that's awesome. Thanks for the question.
Thank you.
Our next question comes from Matthew.
Matthew Murphy with Barclays. Matthew Your line is now open.
Hi.
Just wondering if you could.
Help me at all on the.
The way this cortez royalty interacts with your existing royalty so.
The way I look at it as your current royalty I mean sliding scale, but call it 3% to 4%.
Packed.
In terms of like percent of Cortez complex revenue, obviously varies depending on where theyre mining and what the gold prices, but is that kind of the right order of magnitude so that one 2%.
The new.
New royalty you can effectively reduce that 3% to 4%.
To understand the.
Full impact for Robert.
I think I know where youre going.
And I think I agree with you, but let me just walk you through the easiest way to start is take total production multiplied by the gold price you come up with a dollar value you would then deduct from that dollar value.
The cash value of the royalties paid to us and there's one other.
Third party entity the way we calculate it is.
For the next 10 years, we think the deduction will be 3% beyond 10 years out probably be 1.4 or so.
And once you've taken those those nominal deduction, then youre going to apply the one point too.
Okay, great. Thank you that's helpful.
And then just thinking about the price you paid on Cortez.
<unk>.
Are you sort of embedded in.
Your assumptions is it just.
It is factoring with that level of return or are you counting on production growth.
Resource growth what are what are your what's your investment thesis on on the acquisition.
Yes, the investment thesis is very much driven by.
Resource growth.
And.
You know as you know we've had a history.
At Cortez.
Through my time.
Seem Cortez hills get identified gold recipe discovered four mile.
We don't think the property has done and we've been very close to it for decades.
So.
It's absolutely true.
Our geologist.
Looked at it and said we think there is potential they scientifically identified that potential.
And that was built into the model, which is which is why you probably look at it.
That's a big premium.
To pay but but it is based on our view of.
The future of the.
The operation and that's also that's a premium asset the Cortez royalty is absolutely one of the top assets in the industry and these assets are relatively rare.
And command a premium price.
Yeah, Okay. Thank you.
Sure. Thank you.
Thank you.
As this is all the time allotted for the Q&A session I will now pass the conference back over to Bill for any additional or closing remarks.
Well I just wanted to thank you for taking the time to join us.
We certainly appreciate it appreciate the interest we appreciate the questions.
And we look forward to updating you on our progress during our next quarterly call.
Thank you very much.
This now concludes today's Royal Gold's 2022 second quarter results call. Thank you for your participation you may now disconnect.