Royal Gold, Inc. · NASDAQ:RGLD
Royal Gold — Investor Day (June 2016)
72 slides from Royal Gold's investor day presentation, Jun 3, 2016
Slide 1: Royal Gold Analyst and Investor Day
Royal Gold Analyst and Investor Day June 3, 2016
Slide 2: Cautionary Statement
Cautionary Statement This presentation contains certain forward‐looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that could cause actual results to differ m
Slide 3: Our Team, Agenda
Our Team, Agenda Strategy Transactions Capitalization Tony Jensen, President & CEO Bill Heissenbuttel, VP Corporate Stefan Wenger, CFO & Treasurer Development Evaluation Protection Measurement Mark Isto, Vice President Operations Bruce Kirchhoff, VP General Karli Anderson, VP Investor Relations June
Slide 4: Our Team
Our Team Royal Gold (Canada) RGLD Gold AG Royal Gold, Inc. Alistair Baker, Director, Business Jason Hynes, Director of Business Randy Shefman, Development Development and Global Sales Associate General Counsel June 3, 2016 4
Slide 5: Board of Directors
Board of Directors Left to right: Jamie Sokalsky, Independent Director; Kevin McArthur, Independent Director; Gordon Bogden, Independent Director; Craig Haase, Independent Director; William Hayes, Independent Director and Chairman of the Board; and Ronald J. Vance, Independent Director. Not pictured
Slide 6: Royal Gold Evolution
Royal Gold Evolution RGLD Revenue (TTM) RGLD Price 400 120 Mount Milligan (2010) 350 Andacollo (2009) 100 Trailing 12 month revenue 300 RGLD Share Price 80 250 Peñasquito (2006) 200 60 Royal Resources (1981) 150 Troy (2004) Pipeline/Cortez (1993) 40 100 20 50 Pueblo Viejo (2015) 0 0 6/11/81 6/11/82
Slide 7: Royal Gold Vision & Strategy
Royal Gold Vision & Strategy Gold Focused Reinvest Free Invest at the Pay a Be the Most Cash Flow in Troughs and Growing and Valuable, Not Long Lived be Patient at Sustainable Necessarily Properties the Top Dividend the Largest We create long term value by providing leverage and optionality to gold
Slide 8: Portfolio by Metal
Portfolio of Assets Portfolio by Metal 85% of Revenue from Gold in the First 9 Months of Fiscal 2016 Gold Silver Other 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 9 mths 2016 June 3, 2016 8
Slide 9: Distribution of Geography
Portfolio of Assets Distribution of Geography 80% of Revenue from Canada, Chile, US & Mexico in First 9 Months of Fiscal 2016 US Canada Chile Dominican Republic Mexico Africa Australia Other 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Slide 10: Cornerstone Properties
Portfolio of Assets Cornerstone Properties Cornerstone Properties generate cash flow that lead to more diversification $350,000,000 FY15: Mount Milligan $300,000,000 FY12: was 22% of net Andacollo was revenue 24% of revenue $250,000,000 Gross Revenue $USD Pueblo Viejo FY10: Golden Star $200,000,000
Slide 11: Current Value Drivers
Portfolio of Assets Current Value Drivers 80% of our portfolio asset value is in mines with reserve life >15 years,1 including: Pueblo Viejo, 20 years Mount Milligan, 21 years Andacollo, 20 years June 3, 2016 11
Slide 12: Life of Mines
Portfolio of Assets Life of Mines 80% of our portfolio asset value is in mines with reserve life >15 years,1 including: Years in production since we've owned it Years of remaining mine life 25 20 15 Years 10 5 0 Mt. Andacollo Voisey's Pueblo Cortez Canadian Rainy River Peñasquito Leeville Robinson G
Slide 13: Opportunistic Capital Deployment
Capital Allocation Opportunistic Capital Deployment We raised money near the post-financial crisis high in the gold price, then deployed capital near the trough $1,900 RGLD Equity Raise at $1773 gold $1,800 Mt. Milligan II $1,700 Spot Gold Price in US Dollars $1,600 $1,500 Andacollo Stream $1,400 Pu
Slide 14: Returning Capital to Shareholders
Capital Allocation Returning Capital to Shareholders 15 straight years of dividend increases Dividend increased in calendar 2016 to $0.92 per share 29% payout ratio of operating cash flow in FY20151 21% compound annual growth rate (CAGR) since 2001 Equates to 1.6% annual yield (May 31, 2016) $1.00 1
Slide 15: Disciplined Use of Equity
Capital Allocation Disciplined Use of Equity We have demonstrated positive stewardship of shareholder capital Our share count is a fraction of our peers, and nearly unchanged since Oct 2012 Millions of Common Shares Outstanding Operating Cash Flow Per Share1,2 SLW FNV RGLD SLW FNV RGLD 500 $3.50 450
Slide 16: Investment Returns and Thesis
Long Term Value Creation Investment Returns and Thesis Assets representing 80% of revenue in the quarter ended March 30, 20161 $1,000 25 Estimated Years of Remaining Reserves $800 20 $600 15 Millions $400 10 $200 5 $- 0 * Initial investment Cumulative net revenue through March 30, 2016 Estimated rem
Slide 17: Gold Reserve Optionality and Growth
Long Term Value Creation Gold Reserve Optionality and Growth Organic growth represents reserve optionality ~20% growth in attributable gold reserves after acquisition Equity Reserve Growth Acquired Reserves $Au (EOY) 10 $2,000 9 $1,800 8 $1,600 Attributable Gold Ounces (millions) 7 $1,400 6 $1,200 G
Slide 18: Gold Reserve Waterfall
Long Term Value Creation Gold Reserve Waterfall Organic growth represents reserve optionality Organic growth largely offsets consumption 7.00 6.00 5.00 Attributable Gold Ounces (millions) 4.00 3.00 2.00 1.00 0.00 2005 Reserves Acquisitions Depletion Growth 2015 Reserves June 3, 2016 18
Slide 19: Return on Investment Expectations
Long Term Value Creation Return on Investment Expectations Consolidated investments have paid back ~60% of investment to date Indicative simple return of ~3X investment $8,000 $6,000 $4,000 In Millions of $USD $7.3B $2,000 $0 Last 12 months $3.5B -$2,000 $2.0B -$4,000 Total capital invested to date
Slide 20: Historical Performance
Long Term Value Creation Historical Performance RGLD total return outperformed S&P 500 Total Return & Gold Price since 2000 RGLD Total Return Gold Price in US Dollars % Change S&P 500 Total Return Level % Change 3500 3000 2500 Percentage Total Return 2000 1500 1000 500 0 -500 Source: YCharts June 3,
Slide 21: Historical Valuation
Long Term Value Creation Historical Valuation Trading at a substantial discount to last 5-year average price/cash flow1 40x 35x 30x Last 5 year average 25x 24x Cash Flow 20x 15x 10x 5x 0x Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Aug-11 Nov-11 Aug-12 Nov-12 Aug-13 Nov-13 Aug-14 Nov-14 Aug-15 Nov-15 May-11
Slide 22: Mount Milligan Investment
Long Term Value Creation Mount Milligan Investment Lien Rankings1 Equipment Financing ($59M) Royal Gold – Au in concentrate Senior Secured Bonds ($314M currently) Royal Gold – Stream Unsecured Bonds ($517M) $1,200 $1,200 $1,000 Street Principal $1,000 In Millions of $USD Consensus Secured NAV of Not
Slide 23: Mount Milligan Attributes
Long Term Value Creation Mount Milligan Attributes Mount Milligan – Thompson Creek, Canada Peñasquito First quartile of worldwide production costs 21 year mine life Located in British Columbia, Canada Appeals to gold or copper production Royal Gold’s interest is secured June 3, 2016 23
Slide 24: Royal Gold's Competitive Advantages
Royal Gold’s Competitive Advantages Creativity in deal structure Disciplined capital allocation Operating expertise Governance and oversight Incentives that foster discipline and align with shareholders June 3, 2016 24
Slide 25: Bill Heissenbuttel, Vice President Corporate Development
Bill Heissenbuttel Vice President Corporate Development Creativity Disciplined capital allocation Operating expertise Governance and oversight Alignment with shareholders June 3, 2016 25
Slide 26: Our Investment Criteria
Creativity Our Investment Criteria Main criteria for investment: Resource optionality Asset Quality Country Metal price optionality Counterparty Complement our existing portfolio Exposure to meaningful multi-cycle cash flow allows reinvestment in the business and supports shareholder ret
Slide 27: Case Study #1 – Pueblo Viejo
Creativity Case Study #1 – Pueblo Viejo Why we like Pueblo Viejo: Tier 1 asset by any measure (>1 Moz/year on 100% basis, <$700/oz AISC)1 Long-life asset with significant potential for resource conversion Quality operator Unique considerations: JV ownership structure Pre-existing project f
Slide 28: Case Study #1 – Pueblo Viejo
Creativity Case Study #1 – Pueblo Viejo Timeline Identified as an attractive opportunity in 2013 and discussions on and off Two-phase competitive process started April, 2015; transaction announced August 5, 2015 Exhaustive due diligence process Multi-disciplinary team formed: • Technical: meta
Slide 29: Case Study #1 – Pueblo Viejo
Creativity Case Study #1 – Pueblo Viejo Unique structure developed to address ownership and distributions: Collection account a key feature: Account is funded 2 quarters in advance Delivery obligations to Royal Gold are senior to distributions to Barrick All dividends/distributions to Barrick
Slide 30: Case Study #1 – Pueblo Viejo
Creativity Case Study #1 – Pueblo Viejo Other features included to reduce risk: Fixed 70% silver recovery component Increased ongoing payment Designed for optimum coverage ratio of ~2:1 Spot price payment rises from 30% to 60% to accommodate potentially increased operating costs associated with lo
Slide 31: Case Study #2 – Rainy River
Creativity Case Study #2 – Rainy River Why we like Rainy River: High-quality project in a mining-friendly jurisdiction Long-life asset with significant exploration potential Low costs of operation expected Unique considerations: Development project Existing indebtedness at the corporate le
Slide 32: Case Study #2 – Rainy River
Creativity Case Study #2 – Rainy River Timeline Identified as an attractive opportunity in 2013 Two-phase competitive process started April, 2015; transaction announced July 20, 2015 Exhaustive due diligence process Multi-disciplinary team formed: • Technical: processing, reserves/resources, e
Slide 33: Case Study #2 – Rainy River
Creativity Case Study #2 – Rainy River Stream terms addressed New Gold’s objectives: Advance payment in tranches, with second payment due upon reaching 60% development threshold Stream step-down to provide continued exposure to resource upside Terms protecting Royal Gold’s interest include: Ev
Slide 34: Case Study #3 – Tetlin
Creativity Case Study #3 – Tetlin JV structure between Contago Ore, Inc. (CORE) and Royal Gold under which Royal Gold can earn a 40% interest by spending $30 million by the end of 2018 Following completion of the 40% earn-in, Royal Gold has a drag-along right on one-third of CORE’s remaining 60% in
Slide 35: What Doesn't Work
What Doesn’t Work We are very open and creative to make opportunities work, but not all do: Short-life, high-cost assets Capped streams Streams or royalties with full buy-backs Unfunded development projects/caps Certain jurisdictions Applying our investment criteria consistently is key to
Slide 36: Competition
Competition Number of companies in our sector little changed over the last few years 16 Royal Gold Franco Nevada Silver Wheaton 14 AuRico Metals Abitibi Royalties Virginia Mines 12 Average is 11 companies Callinan Royalties XDM Royalty Premier Royalty Number of Companies 10 Tanzanian Royalty Explora
Slide 37: Competitive Advantage
Competitive Advantage Creativity Listening to the counterparty Customizing a solution to their issues Drawing from credit oriented project finance experience June 3, 2016 37
Slide 38: Stefan Wenger, Chief Financial Officer
Stefan Wenger Chief Financial Officer Creativity Disciplined capital allocation Operating expertise Governance and oversight Alignment with shareholders June 3, 2016 38
Slide 39: Conservative Balance Sheet
Disciplined Capital Allocation Conservative Balance Sheet Date Item ($USD millions) March 31, 2016 Undrawn Revolver $350.0m March 31, 2016 Working Capital $151.0m March 31, 2016 Total Available Liquidity $501.0m Strong and Growing Fiscal 3Q Operating Cash Flow Increased $66.1m Operating Cash Flow 27
Slide 40: Credit Facility Evolution
Disciplined Capital Allocation Credit Facility Evolution Strong banking partners Historical Use of Credit Facility HSBC, Scotia, CIBC, BAML and GS $700 Current drawn interest rate of $600 LIBOR +2.25% Declines to LIBOR +1.75% at a net $500 leverage ratio below 2X $400 Millions Total capacity of
Slide 41: FY 2017 Sources and Uses
Disciplined Capital Allocation FY 2017 Sources and Uses Strong Operating Cash flow Estimated FY2017 Sources and Uses driving steadily declining $1,000 leverage and increased liquidity Adjusted TTM Operating Cash flow of $220.6 million Operating Cash Flow Golden Star, $45 Expected FY 2017 net debt/EB
Slide 42: FY 2017 Sources and Uses
Disciplined Capital Allocation FY 2017 Sources and Uses Good access to additional Estimated FY2017 Sources and Uses capital for accretive $1,000 acquisitions if necessary: Financing approach focused on minimizing cost of capital and supporting per share Operating Golden Star, $45 Cash Flow metrics
Slide 43: Portfolio Quality
Disciplined Capital Allocation Portfolio Quality Many of our properties are amongst the lowest cost in the industry, with a weighted average gross margin of 55%1 inclusive of stream payments 90% 80% 70% 60% Average gross margin 55% 50% 40% 30% 20% 10% 0% June 3, 2016 43
Slide 44: Business Segments
Disciplined Capital Allocation Business Segments Royalty Streaming Funds new Segment streaming Segment transactions Passive Metals Golden Star, $135 Income Trading US Switzerland Funds royalty ~40% of ~60% of investments, revenue revenue corporate expenses, dividends and debt service June 3, 2016 44
Slide 45: Sales Process and Inventory
Disciplined Capital Allocation Sales Process and Inventory The principal objectives of the sales policy are to: Achieve an average sales price that approximates the average spot price during each reporting period Maintain physical inventory in allocated form No speculation Once allocated, ea
Slide 46: Scalability
Disciplined Capital Allocation Scalability Our low expenses reflect the scalability of our business and help safeguard our low cost of capital for the long term RGLD SG&A Expense (Annual)($m) RGLD Revenue (Annual)($m) 350 300 250 200 150 100 50 0 June 3, 2016 46
Slide 47: Efficiency
Disciplined Capital Allocation Efficiency Higher cash flow per employee than Apple or Exxon AAPL CFO Per Employee (Annual) RGLD CFO Per Employee (Annual) XOM CFO Per Employee (Annual) $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 June 3, 2016 47
Slide 48: Mark Isto, Vice President Operations
Mark Isto Vice President Operations Creativity Disciplined capital allocation Operating expertise Governance and oversight Alignment with shareholders June 3, 2016 48
Slide 49: Rigorous Due Diligence
Capital Allocation Rigorous Due Diligence In a typical year: 100 Inquiries ~20-25 Desktop Evaluations 10-15 Advanced Evaluations (data room) 5-10 Due Diligence Efforts 4-8 Proposals 0-5 Completed Transactions June 3, 2016 49
Slide 50: Our Evaluation Process
Operating Expertise Our Evaluation Process Due Diligence efforts cover technical, legal and commercial aspects of the proposed transaction Our technical assessment focuses on: Overall operational viability and project deliverability Gross income aspects of project (geology/resource estimation/me
Slide 51: Our Evaluation Process
Operating Expertise Our Evaluation Process Stream Opportunity Phase 1 Review (limited data, financial model development, Dismiss strategic fit discussion) Commercial Scope Due Diligence Legal (define key value drivers, issues, define team members) Output Define Value Drivers Financial model and Risk
Slide 52: Our Evaluation Process
Operating Expertise Our Evaluation Process Project Performance Risk – we capture expected project performance in the definition and assessment of Value Drivers Systematic approach Drives team member accountability Clearly communicates findings between team and management Vendor Parameter Finan
Slide 53: Our Evaluation Process
Operating Expertise Our Evaluation Process Completeness - are studies for projects complete and developed to the standard defined – PFS or FS Systematically measure the project maturity, assess risks and determine financial model adjustments to mitigate risk. Comments on Work Completed Input Paramet
Slide 54: Our Monitoring Process
Operating Expertise Our Monitoring Process Protecting Royal Gold’s interests Stream/Royalty through: Operational monitoring Investment Period Monitoring Metal delivery and royalty (technical site visits, monthly, reports) payment verification Site visits Stream/Royalty Risk assessment Monito
Slide 55: 2015 Reserves & Resources
Reserve Update 2015 Reserves & Resources Reserves Attributable Total Portfolio Gold Resources Metal Units Reserves Reserves Royalty Equity 70 Yr on Yr Yr on Yr M&I 60 Change Change 50 22% Inferred Gold million ounces 85.9 17% 5.8 14% Million ozs 40 Silver million ounces 780 2% 44 193% 30 GEO Basis (
Slide 56: 2015 Material Reserve Additions
Reserve Update 2015 Material Reserve Additions1 June 3, 2016 56
Slide 57: Attributable Reserves
Reserve Update Attributable Reserves (Calendar years ended December 31)1 8 7 0.9 0.9 1.0 1.8 1.1 0.6 6 0.5 0.5 1.9 0.9 0.3 GE Ounces (millions) 0.2 5 0.7 0.5 4 3 5.7 5.8 5.8 5.3 5.1 4.3 4.5 2 0.6 0.7 0.9 0.3 0.4 1 0.3 0.3 0.0 1.3 0.8 1.0 0.7 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 G
Slide 58: GEO Attributable Reserve Distribution
Reserve Update GEO Attributable Reserve Distribution1 2015 GEO Reserve by Property 2015 Year End GEO Reserves USA Mt Milligan 2% 3%0% 1% Canada Andacollo 16% 7% Pascua Lama 24% Mexico Penasquito Dominican Central 6% 31% Republic America Pueblo Viejo South America 4% 38% Voiseys Bay 11% 19% Australia
Slide 59: Competitive Advantage
Competitive Advantage Our source of competitive advantage: operating experience/technical orientation has led to us to invest in some of the industry’s best quality, longest-lived assets June 3, 2016 59
Slide 60: Bruce Kirchhoff, Vice President, General Counsel
Bruce Kirchhoff Vice President, General Counsel Creativity Disciplined capital allocation Operating expertise Governance and oversight Alignment with shareholders June 3, 2016 60
Slide 61: Best Practices
Governance and Oversight Best Practices Separate Chief Executive Officer and Chairman of the Board Seven of eight directors are independent, including all members of the Audit and Finance Committee and the Compensation, Nominating and Governance Committee Significant Board refreshment since 2013 Sig
Slide 62: Protecting Our Interests–Voisey's Bay
Protecting Our Interests–Voisey’s Bay We inherited the case when we acquired International Royalty Corporation in 2010 Two claims were alleged when the case was filed in 2009; six more were added in late 2014 The Voisey’s Bay royalty is a 3% Net Smelter Return (2.7% to our account) Royalty agreeme
Slide 63: Karli Anderson, Vice President Investor Relations
Karli Anderson Vice President Investor Relations Creativity Disciplined capital allocation Operating expertise Governance and oversight Alignment with shareholders June 3, 2016 63
Slide 64: Approach and Success Factors
Alignment with Shareholders Approach and Success Factors Our approach to shareholder engagement Year-round engagement Feedback loop: shareholders to management and board Continuous improvement approach Alignment of shareholder interests and executive compensation Our measures of success: T
Slide 65: FY16 Performance Measures
Alignment with Shareholders FY16 Performance Measures Measures designed to correspond to long term value creation Short Term Financial / Operational Objectives: • Operating cash flow multiple relative to GDX constituents • Net GEO production Strategic Objectives: • Acquisition & capital allocation •
Slide 66: Royal Gold Strategy & Attributes
Royal Gold Strategy & Attributes Gold Focused Reinvest Free Invest at the Pay a Be the Most Cash Flow in Troughs and Growing and Valuable, Not Long Lived be Patient at Sustainable Necessarily Properties the Top Dividend the Largest Royal Gold Attributes Creativity in deal structure Disciplined c
Slide 67: Five Year Volume Pro-forma
Five Year Volume Pro-forma Continued near-term growth expected, driven by Pueblo Viejo and Rainy River1 320,000 300,000 280,000 Net GEOs1 260,000 240,000 220,000 200,000 FY2016 FY2017 FY 2018 FY 2019 FY 2020 June 3, 2016 67
Slide 68: Compelling Valuation
Compelling Valuation Royal Gold trading at a substantial discount to historical cash flow per share1 RGLD Price to CFO Per Share (TTM) FNV Price to CFO Per Share (TTM) SLW Price to CFO Per Share (TTM) RGLD average P/CF (LTM) FNV average P/CF (LTM) SLW average P/CF (LTM) 60.0x 50.0x 40.0x 30.0x Value
Slide 69: Compelling Investment
Compelling Investment NASDAQ:RGLD Simple and efficient business model Straight forward strategy Portfolio of high quality, long lived assets Growth embedded in current portfolio Attractive returns, leveraged to price and reserve optionality Disciplined capital allocation and processes Experienced an
Slide 70: Endnotes
QUALITY GROWTH OPPORTUNITY Endnotes ROYALGOLD,INC
Slide 71: Endnotes
Endnotes Many of the matters in these endnotes and the accompanying slides constitute forward looking statements and are subject to numerous risks, which could cause actual results to differ. See complete Cautionary Statement on page 2. PAGE 12 PORTFOLIO OF ASSETS – CURRENT VALUE DRIVERS and PAGE 12
Slide 72: Royal Gold contact details
1660 Wynkoop Street, #1000 Denver, CO 80202-1132 303.573.1660 info@royalgold.com www.royalgold.com