Q2 2025 Royal Gold Inc Earnings Call

Hello all and thank you for joining us on today's Royal gold 2025 second quarter conference. Call my name is Drew and I'll be the operator today.

During today's call. After the prepared remarks, there will be a Q&A session. If you would like to ask a question on today's call, please press star. Followed by 1 on your telephone keypad and to withdraw your question, its star followed by 2.

With that, it's my pleasure to hand over to Alistair Baker, Senior Vice President of Investor Relations and Business Development, to begin. Please go ahead when you're ready.

Thank you, operator. Good morning and welcome to our discussion of Royal Gold's second quarter of 2025 results. This event is being webcast live. A replay of this call will be available on our website.

Speaking on the call today or bill heisenbottle, president and CEO. Paul libner Senior, vice president, and CFO. And Martin Rafael senior, Vice President of Operations. Other members of the management team are also available for questions.

During today's call, we will make forward with a statements, including statements about our projections and expectations for the Future. These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements. These risks and uncertainties are discussed in yesterday's, press release, and are filing for the SEC.

We will also refer to certain non-gaap Financial measures including adjusted net income, adjusted net, income per share, adjusted, Evita and cash GNA. Reconciliations of these measures to the most directly comparable. Gaap measures are available in yesterday's press release which can be found on our website.

We'll start with an overview of the quarter and recent events.

Mark will give some commentary on the portfolio and Paul will provide a financial update after the formal remarks. We'll open the lines for a Q&A session.

I'll allow for the call over to Bill.

Good morning, and thank you for joining the call. I'll begin on slide 5.

The second quarter was another excellent quarter for royal golf with new records for Revenue earnings and cash flow.

Earnings for the quarter, were 132 million or 2.1 cents per share.

we recognized a couple of discrete tax items that Paul will describe in more detail and after adjusting for these items,

Earnings were a strong 119 million for a dollar 81 per share.

Gold remained the largest contributor to revenue for the quarter at about 78% of total and the strong gold price combined with our low and stable cash GNA increased. Our adjusted Eva margin to 84% for the quarter.

We were debt-free at the end of the quarter. We paid our quarterly dividend of $0.45 per share.

We also ate the full offset with the equivalent stream deposit during the quarter, despite the recent silver recovery. Shortfalls.

We made our investment approval in 2015 and we expect to see further Revenue into the mid 204.

As our continues to work on an extension, to the Mind life.

On the Strategic front, we have taken steps to position Royal gold as a premier Growth Company with the Sandstorm Gold and Horizon copper acquisitions.

How are producing heavy portfolio? That's for the development. Heavy Sandstorm and Horizon portfolios.

we also think there will be additional benefits, including

Sector-leading asset diversification, with no asset accounting for more than about 12% of NAV.

Simplification of the sandstorm and a rise in relationships, along with the elimination of a complex inner company structure.

Additional appeal to investors have a larger and more Diversified company with the potential for increased investment from passive funds.

Therefore, from the combined portfolios, this allows us to continue our record of increasing the dividend.

Quickly retaining borrowings and continuing to compete for the best opportunities in our sector.

It is important to note that these transactions do not shift our strategic focus.

We remain focused on growth and precious metals, maintaining a strong balance sheet and liquidity and increasing our dividends.

Or we've been working on these transactions. We have also continued to add assets to the portfolio but made our criteria for upside and persistent metals. We have completed three recent transactions.

Earlier this week, we acquired a gold stream on the world-class Consentium mine operated by First Quantum in Zambia.

The economic effective date is August 5th and we expect gold deliveries of approximately 12,500 Oz this year.

This is the mine with a 20-year production history and the potential to operate for a further 20 plus years. And it will be a Cornerstone Assets in our portfolio.

This asset acquisition further, enhances our portfolio diversification. And as I mentioned, no single asset will contribute more than 12% of net asset value on a pro forma basis with the sandstorm and Horizon transactions.

In May, we acquired a stream and royalty interest on the warrant of a project in Ecuador.

this is a large-scale copper gold Molly project that has world class potential when it starts production in the early 2030s

And finally, we acquired a royalty on the lawyer's ranch development project in British Columbia.

This transaction adds to our royalty exposure, in an emerging gold camp and is an example of how we can identify early stage but high potential opportunities.

Finally, I would like to welcome Marcus to our Board of Directors.

Marx institutional knowledge with royal Gould and Broad technical background and experience are a welcome addition to the board and I look forward to benefiting from his guidance for many years to come, I'll now turn the call over to Martin.

Thanks Bill turning to slide 6. I'll give some comments on second quarter Revenue.

Overall revenue was a record $210 million, with a volume of 63,900 G, EOS.

Royalty Revenue was up by about 50% from the prior quarter to 77 million.

We saw another strong quarter from Panecito in Mancho, with additional strong contributions from Bellevue and Wolf.

Revenue from our stream segment was $133 million, up by about 8% from last year, with increased sales from Mount Milligan, Pueblo Viejo, and Kamakau, partially offset by lower sales from Xavantina, Wasa, and Rainy River.

I'll turn to slide 7 and give some comments from notable developments within new portfolio.

And mount Milligan Sentra, reported yesterday that they had encountered lower than expected goal. Grades, from areas, they were mining in the second quarter.

if started an infill and grade control program, to address this issue and reduce their 2025 gold production guidance to 145 to 165,000 Oz,

There is no change to the previous copper production guidance of 50 to 60 million pounds.

We expect production of both metals to be weighted towards the second half of the year.

Also reported that the previous ability study for the mine life extension project remains on track for completion in the third quarter.

We expect this will be a positive Catalyst for Royal gold and look forward to seeing the results.

At andoya Tech reported that the Sagal successfully restarted in late, June and production is now resumed to full rates after a mechanical issue. Caused the maintenance shutdown of the SAG Mill in early June.

Tech also reported that 2025 copper production guidance is unchanged from the previous range of 45,000 to 55,000 tons.

Tech does not provide gold production guidance but we expect the gold deliveries in the fourth quarter of this year will be lower due to the month-long shutdown.

Tech also reported that both unions at andhero had ratified, 3 year labor contracts in June and July.

Equivalent VA. We achieved the full offset of the stream advanced payment.

We acquired our interest in mid-2015 and we are looking forward to further contributions through the mid-2040s as Barack advances. The mine life extension project.

We also had some updates for the handful of our smaller assets: Back River, B2 Gold, and the first goal announced for June 30th. They expect to ramp up to commercial production in the third quarter.

At Cote, I am gold reporting in June that. The processing plant operator name plate capacity on average for over 30 consecutive days.

At Mara Roa, hot dog, reported that mining activity is continuing but operation of the processing plant was temporarily suspended in June after heavier than usual. Rainfall, as well as contracted performance issues.

At Rainy River, new gold reported record monthly production in June. Production is expected to continue to increase in the third quarter, and the 2025 guidance range of 265,000 to 295,000 ounces is unchanged.

11. Sheena revised gold production guidance down to 50,000 to 60,000 ounces for 2025 due to temporary impacts from the transition to mechanized mining.

You expect this transition to drive higher production, with a step change in mining rates in the second half of 2025.

Additionally, stream deliveries from Xavantina reached the 49,000 oz threshold in July, and our cash payments per ounce increased from 25% to 40% of the spot price.

And finally, at Cactus, Arizona, Sonoran announced it will buy back 0.5% of our 2.5% NSR royalty for $7 million.

The buyback was expected and was factored into our initial valuation. When Neural, who was acquired in late 2024, ...

I'll now turn the call over to Paul.

Thanks, Martin. I will turn to slide 8 and give an overview of the financial results for the quarter.

For this discussion, I'll be comparing the quarter and June 30, 2025, to the prior year quarter.

Revenue for the quarter was up strongly by 20% to 210 million dollars, which was another record for the company.

Metal prices were a primary driver for the revenue increase, with gold up 40%, silver up 17%, and copper down slightly by 2% over the prior year.

Gold remains our dominant revenue driver, making up 78% of our total revenue for the quarter, followed by silver at 11% and copper at 7%. Royal Gold has the highest gold revenue percentage when compared to our major peers in the royalty and streaming sector.

Bearing to slide 9, I'll provide a bit more detail on certain financial items for the quarter.

GNA expense was 10.3 million and was in line with the prior year.

Excluding non-cash, stock compensation expense. Our cash GNA was less than 4% for the quarter.

Our ddna expense decreased to 31 million from 36 million in the prior year.

The lower overall depletion expense was primarily due to lower depletion rates in our stream segments, as well as lower gold sales from xavantina during the quarter.

These decreases were partially offset by higher production at Boise's Bay and mancho compared to the prior year.

On a unit basis, this expense was $487 for Geo for the quarter, compared to $480 per Geo in the prior year.

Tax extension, for the quarter was 10 and a half million dollars compared to 19 million in the prior year.

The lower income tax expense in the current period included two discrete tax benefits.

First, a nine million dollar benefit related to a withholding tax refund on a foreign royalty and second a form million dollar benefit for the release of evaluation allowance.

Excluding all discrete tax, benefits, the effective tax rate for the quarter was 17.9%.

That income for the quarter increased significantly over the prior year to a record of 132.3 million or $2.11 per share.

The increase in net income was primarily due to higher revenue and lower tax expense.

After adjusting for the discrete tax benefits, I just mentioned adjust the net income was a record 118.8 million, or a $181 per share.

Our operating cash flow this quarter was also a record at $153 million, up significantly from $114 million in the prior period.

The increase is primarily due to higher net. Cash proceeds received from our stream and royalty, interest lower income tax expense and lower interest expense on our debt. When compared to the prior year period.

Finally, we are maintaining our 2025 guidance ranges for metal sales, bdna and tax rate.

10 and provide a brief summary of our financial position as of June 3025.

We remain debt-free at the end of the quarter and our total liquidity grew to just over 1.25 billion.

Which includes the fully undrawn and available, 1 billion revolving credit facility and nearly 270 million of working capital.

A recent business development, successes have prompted us to make a use of our available liquidity to finance recent acquisitions.

As we detailed on Tuesday, with the consent transaction, we amended our revolver in late June and extended the maturity by 2 years to 2030.

And increased the coordinate feature from 250 million to 400 million dollars.

We recently exercised, the accordion feature and now have a total committed revolver capacity of 1.4 billion.

We view our credit facility as a key strategic financing tool. And I would like to again thank each banking partner within our syndication for their continued and growing support.

Also, as we detail on Tuesday's consent transaction call, we drew 825 million on the revolver and use the 125 million of our available cash to fund the acquisition.

The current all-in borrowing rate on the recent drop is approximately 5.5%.

Upon this trial and the exercise of the recording feature, we now have $575 million available under our credit facility.

As part of Warren's acquisition in May, a hundred million dollars of funding remains outstanding.

We expect to fund the remaining commitment in $250 million tranches, with the first tranche expected in the third quarter of 2025 and the second in May of 2026.

And with respect to the sandstorm and Verizon transactions, we expect a further draw on the credit facility upon closing, which should occur in Q4.

Finally, we anticipate receiving the first delivery of deferred gold consideration from the mount Milligan cost, support agreement and the latter part of third quarter or early in the fourth quarter,

As a reminder, as partial consideration for this agreement, Finta will deliver 50,000 gold balances in the future.

The first deliveries will be in tranches of 11,000 111 ounces. Each and would like to production thresholds reached at equinox bolts greenstone mine.

The first of those thresholds should occur during the third quarter. And we expect to receive this delivery within 60 days of the threshold being reached.

To remind you of the accounting, when we receive the deferred gold ounces, the Mount Milligan deferred support liability on our balance sheet will increase by the fair market value of the gold on the date the deferred gold is received.

We expect to sell the defer go down within a few days or a week after they are received.

If the price we sell the gold is higher or lower than the fair market value, then when we receive the gold, the mark-to-market difference will go through our earnings.

Understanding that there are some accounting-related complexities for the deferred bulldozers, we will receive and sell. I will provide another explanation of the accounting treatment at our next quarterly call.

You should also remember that these deferred gold ounces are not included in our 2025 sales guidance, and the sales will not be reflected in our calculation of GEOS.

That concludes my comments on our financial performance for the quarter. And I'll now turn the call back to bill for closing comments.

Thanks Paul.

I want to finish with a brief update on the Sandstorm and Horizon transactions.

Simply announcement on July 7th, we have had constructive engagement with many investors and shareholders. And we believe there is widespread support for the transactions.

Investors appreciate the logic of combining complementary portfolios to create a larger portfolio with growth, diversification, and scale.

And we believe that Royal gold will have the size to attract more generalist investors who like to reduce single Asset Risk.

We're feeling confident in our ability to close. On the timeline we put forward, we have received approval under the Canadian Competition Act.

And reviews under the Investment Canada Act and South Africa Competition Act are underway.

We expect to file, the preliminary proxy with the SEC shortly, and we remain confident. That the required approvals will be obtained in order to close in the fourth quarter.

Operator, that concludes our prepared remarks. I'll now open the line for questions.

Thank you. We'll now start today's Q&A session. If you would like to ask a question today, please press star followed by 1 on your telephone keypad. To withdraw your question, it's Darth Vader.

Our first question today comes from Far Hard to Reach. From Jeffrey's, your line's now open. Please go ahead with your question.

Hi, thanks for taking my question. Could you maybe talk through the deleveraging goal and the pro forma after these transactions are complete? I think the revolver will be somewhere around $1.2 billion.

Um, maybe just talk through how you're thinking about deleveraging going forward. Thanks.

The question, I, I think if you followed our history, you've seen us, uh, uh, take advances under the revolving credit and then pay that off over time. That would, that would still be, uh, the, the plan. Um, I think Paul mentioned that if we didn't do anything on the business development front, that would that we would expect it to take a couple years, um, but we have to balance that with other investment opportunities that that might come up. So the the plan, as it always is to is to take excess cash flow uh each quarter and pay down the revolver. And you know, at some point we might get it back to zero.

Okay, thank you.

Our next question comes from Lawson Winder from Bank of America. Your lines are open.

Thank you very much. And, uh, hello gentlemen. Thank you for today's update. I could I ask about mill again in there. Um, reduction in their 2025, uh, gold production.

Um,

you know, it's a role gold is reiterated their, um, their volume production guidance information, or or volume, uh, sales that is remaining frequent 2025, um, despite that and so, um, that that's also um, you know, in light of Andy Koya, underperforming and then Zev and Tina also um, underperforming year to date.

Could you maybe walk us through what some of the assets are in the portfolio that are offsetting? Um, what are you seeing in weakness in those sort of key assets, allowing you to remain comfortable with the 2025 guidance range?

Yeah, Lawson. Thanks for the the question. I I think what I might do is is turn it over to Martin and let him walk you through how we come up with our our guidance ranges and maybe that will help answer the question. So um, over to you Martin.

Yeah, thanks Lawson. So so we don't disclose our guidance based on individual operations. So I'm not really able to give much specific comment in in terms of your question about which, which ones are going to be offsetting this, um, what I will say is that at the start of each year, we do carry out a rigorous risk adjusted budgeting and guidance preparation process

We don't take the guidance ranges supplied by The Operators, and just use those and come up with our guidance. Um, we received monthly budget data from the stream Partners we forecast each asset based on historical performance and based on our specific knowledge of that operation. Uh, we build in timing adjustments, between production, deliveries and sales. And in the in the case of concentrate producing operations, like Milligan and decoy, those can be up to 5 to 6 months when you include. Um, Port transport, ocean ship.

Shipping and smelting, etc. And that, that's a pretty enact process, especially in the ocean shipping side because, um, you'll often see in our press releases that we referenced earlier or late deliveries compared to our expectations during the quarter. So, um, some variability in there for the royalty assets. We generally have lower information rights, and on those, we tend to rely on historic performance and public disclosures for our risk adjustment process. So,

As I said at the beginning, we don't just take the numbers provided by the operations. We, we put a lot of risk adjustment into those. Those come out with the numbers and and given that we are, we are comfortable with maintaining our 25 2025 guidance range at this stage in the year even, even even though those have been offset somewhat by Milligan underperformance in aventina, guidance reduction.

Okay, no, that's great. But um, that's very clear explanation. Um, can I ask about the consanti as well? Um, I'm sure you're very, uh, pleased to have gotten that asset. I mean, it's a fabulous asset. Um, so congratulations on on, uh, achieving this deal. What I wanted to ask about though, with respect to this deal is exposure to Africa and um you know you know, Zambia is relative to other African jurisdictions has has um you know, proven to be um 1 of the better quality jurisdictions in Africa. But without question there's a lot of political volatility in the country.

And you do have coma and Botswana and there's been a recent political change there with a new president. Um, where you are today, like assuming assuming consensus is in the portfolio. Are you at a point now where your your, um, maxed out on African, um, exposure or, you know, are you still comfortable adding additional exposure in Africa?

Thoughts and ideas. That's how much a continent uh, approach that we would take. Uh, we're very comfortable in the in the 3 countries where we have interests. Um, so it's more of a, a country by country and I certainly wouldn't want to sit here today and and rule out further investments in a country where we have found that. Um, our investments have done well, um, you know, I think Botswana and in particular, uh, stands out a little bit. I wouldn't I wouldn't want to take Africa off the

Uh, off the table, uh, because we have other investments. We're, if we're comfortable with a country, we would consider additional investments. And, you know, I have to tell you, this political uncertainty all over the world—and even in countries that, you know, we tend to think of as stable. So, uh, and that's one of the reasons we really like the Sandstorm and Horizon transactions. The diversification in the portfolio I think is really helpful, uh, for us.

Yeah, well said on Google political risks, and if I could just ask 1 more question on Capital, allocation? Um,

The shares without question have have honored performs in 2 announced the uh the sandstorm transaction. Um, I I think there are some folks wondering whether or not, um, there's any consideration for role gold to implement the buyback as a result and and and fully acknowledge that you've been uh reluctant to do that historically. But just in light of the current situation. Is there any consideration to that?

At this point, I don't think so. I I, you know, I think what we're going to do with with excess cash flow, at this point is pay down. Uh, the debt that we are going to take on uh, with the with these transactions, um, to the extent, we can find business development opportunities. We'll, we'll look at those as well, but but debt repayment, I think, is going to be a key Focus before we ever get to consideration of a buyback.

Thank you very much.

Thanks a lot.

As a reminder, if you would like to ask a question, its star, followed by 1 on your telephone keypad and to withdraw your question, star, followed by 2.

On his question comes from Josh Wilson from RBC. Your line is now open. Please go ahead.

Thanks very much, just a couple of quick ones um on the sandstorm transaction. Is there any more information? You can provide on the timing of the circular filing. And uh and when the shareholder votes are scheduled

Uh Josh I really can't. I think I'm sort of focused on on our side of things and and I I don't honestly have the time table straight in my head but we're we're going to shortly file. The preliminary proxy with the SEC and I think what once we know whether we're going to get comments, whether we have to respond to comments, uh, the timing of it, then we'll play out once we have that. So there there's, there's nothing we see that that makes us think the fourth quarter.

Isn't a good Target but I, I don't think I can provide much more in the way of a detailed timetable at this point.

Okay, thanks. And then, um, uh, you know, with this transaction are there, are there going to be any additional disclosures, uh, or documentation? I guess, specifically, uh, 4 to 3 on a ones. I know historically. Sometimes these transactions, uh, would require some, some disclosures on on, uh, key assets either for the Target companies, or, or yourselves.

Uh, just actually let me, uh, Martin, do you have a view on what we might see in terms of 43-101 or similar technical reports?

Um, Josh, are you asking whether we would be putting out 4310 ones, or are you talking about operator 4310 ones that we expect?

Uh, uh it would be your filing of the uh uh 43101 is for your underlying stream related operations, or fan store or Horizon uh, filing any of these documents if you're if you're aware of that.

Yeah, we're we're not um, we're not planning on filing any documents for the for the or any 43101 documents for these properties at the moment.

No. Okay. Um, and then last question, just on uh related to some of the accounting that was commented on with the maintenance um, ounces in the third or fourth quarter

Could you remind us what the I guess what the what the booked value was of those answers?

Hi, Josh, this is Paul. Thank you for your question.

Go ahead, Paul.

Oh, sorry. Bill.

uh,

Can, can you hear me, okay?

Yep, loud and clear. Hello.

Okay, sorry.

Um, if you're calling the transaction, uh, back in, uh, 2024, we did receive some cash and also that free cash flow interest and then also the Deferred gold ounces. Uh, the only thing that was booked, uh, at the time of the transaction was was, uh, as part of this deferred support liability that we have on the balance sheet was that cash the 25 million, so we have no basis in those Oz yet. So, once we receive those ounces, uh, again, that deferred liability will go up by the fair market, value of those Oz received and then we'll subsequently sell those ounces, uh, in the Market within a few days afterwards, um, of receipt.

And then that deferred liability will go up by that, uh, the fair market value of those ounces received.

Okay, so just to clarify your comments on the, uh, you know, the the accounting impact is, is the difference of when you book that, um, uh, income in the third quarter, versus the sale price in the fourth quarter, or not related to what it stands for the book today. Okay, correct, yeah, more more of a mark to Mark, I just wanted to make you aware of it, but more importantly, just as I said, also in those prepared remarks is that again, those Oz will not be part of our, you know, or they're not part of our 2025 sales guidance and and they're not going to be reflected in our, in our Geo calculations.

Got. Okay. That's very helpful. Thank you.

Thanks Josh.

With that, we have no further questions at this time. So I'll hand it back over to William Heissenbuttel for some closing comments.

Well, thank you for taking the time to join us today. We we certainly appreciate your your interest. Uh we look forward to updating you on our progress. During our next quarterly, call take care.

That concludes today's call. You may now disconnect your line.