Royal Gold 2026 Third Quarter Conference Call - ROYAL GOLD INC

Financial Performance:

• Q3 2026 revenue reached $465 million (up 84% YoY), driven by 109,000 GEO sales volume and higher metal prices (Gold +23%, Silver +59%, Copper +44%).
• Operating cash flow hit a record $344 million (up 98% YoY), with adjusted EBITDA margin increasing to 84%.
• Net income was $227 million ($2.68/share); adjusted net income set a record at $238 million ($2.80/share).
• Gold accounted for 73% of revenue, with Silver (14%) and Copper (remaining %) contributing the rest.
• Depletion, depreciation, and amortization (DD&A) rose to $82 million ($752/GEO) due to higher carrying values of recent acquisitions.
• G&A expenses increased to $13.2 million, primarily due to stock compensation and operational costs.
• Effective tax rate was 20.2%, within the guided range of 17-22%.

Guidance and Future Outlook:

• Full-year guidance for other metals raised; silver and copper sales expected at or above the top end of ranges; gold sales on track for the midpoint of the original range.
• 2026 copper production guidance for Kansanshi narrowed to 175,000–185,000 tons; Mt Milligan and Andacoyo remain on track.
• Outlook remains positive for 2027 Cortez production as the Crossroads deposit ramp-up continues.
• Long-term organic growth drivers include Greenstone (exploration), Red Chris (70-year potential block cave), and Platte Reef (Phase II expansion).
• Management expects to maintain strong cash flow generation to fund future business development in an active market.

Business Segments and Product Lines:

• Stream revenue increased 92% to $318 million, with significant gains from Andacoyo, Mount Milligan, Puebla Viejo, Xavanchina, and Comical.
• Royalty revenue rose 70% to $146 million, driven by Cortez Legacy Zone, Penasquito, and new interests at Antamina, Fruta del Norte, and others.
• New contributions identified from Greenstone, Bonacro, Chapada, and Platte Reef.
• Key Asset Developments:
  • Mt Milligan: Golden copper production on track; Sentera confirming full-year guidance.
  • Andacoyo: Operations recovered from weather events; copper production expected at the low end of 45,000–55,000 tons.
  • Kansanshi: First Quantum narrowed 2026 guidance; gold deliveries under stream estimated at 29,000–31,000 ounces.
  • Cortez: Legacy Zone ramp-up driving higher royalties; blended royalty rate reached 4.45% in Q3.
  • Greenstone: Major exploration program launched to extend mine life.
  • Platte Reef: Phase I at 70% of design; Phase II construction on schedule for late 2027.
  • Great Bear: Kinross to buy back 25% of royalty for $43M, reducing Royal Gold's interest to 1.5% NSR.
  • Mara: Glencore received RIGI investment approval for Alhambra restart, de-risking the Mara project.
  • Hodgkinson (Lydia/Madden): Project 30% complete.

Market and Competitive Landscape:

• Market sentiment toward streaming improved following large transactions, opening doors in previously resistant jurisdictions like Australia.
• Royal Gold remains the most gold-focused business in the sector, with over 75% of revenue derived from Western Hemisphere countries.
• Management notes that the separation of assets (e.g., potential Barrick North America IPO) could allow for more focused management of specific projects, indirectly benefiting Royal Gold's interests.
• Copper exposure remains strategic but secondary to gold; current 10% exposure is acceptable but not a core target.

Risks and Challenges:

• Operational Risks: Antamina suspension due to a fatality (Oct 27) for investigation; weather events impacted Andacoyo; production variability at various sites.
• Geopolitical Risks: Management emphasizes caution regarding political changes in long-term jurisdictions (e.g., Argentina), despite current favorable conditions.
• Market Risks: Volatility in metal prices impacts revenue; fair value losses on equity securities (e.g., Entez Resources) affected Q3 results.
• Execution Risks: Delays in permitting or construction for future projects like Platte Reef Phase II.

Management Commentary and Tone:

• Tone is highly confident and optimistic, emphasizing record cash flow, a debt-free status, and a diversified portfolio.
• CEO Bill Heisenbuttel highlighted the "unprecedented" cash generation and the "absolute success" of the Sandstorm Horizon transaction.
• CFO Paul Libner and President of Operations Martin Raffield provided detailed, positive updates on asset performance and portfolio diversification.
• Management reaffirmed commitment to a 25-year streak of dividend increases and disciplined capital allocation.
• Capital allocation priority remains finding new business opportunities, followed by dividends and share buybacks.

Analyst Questions and Answers:

• Cosmos Chu (CIBC): Asked about Sandstorm portfolio performance and Mara permit timing.
  • Response: Sandstorm portfolio outperformed expectations with faster-than-anticipated progress on Platte Reef, Mara, and Had Madden; Mara RIGI approval and Alhambra restart are ahead of schedule.
• Derek Ma (TD Cohen): Inquired about Cortez 2027 outlook and Mount Milligan delivery timing.
  • Response: Cortez expected to perform well in 2027 due to Legacy Zone focus; Mt Milligan Q4 deliveries (based on Q2 production) are expected to be strong but subject to shipping/payment timing nuances.
• Daniel Major (UBS): Asked about potential royalty buybacks and transaction pipeline in Australia, Argentina, and Bingham Canyon.
  • Response: No other near-term buybacks anticipated; lower metal prices facilitate deal negotiations; Australia and Argentina are active interest areas; no comments on specific Bingham Canyon rumors.
• Sam Oveson (Scotiabank): Queried capital allocation priorities post-debt payoff and Great Bear repurchase timing.
  • Response: Priority #1 is new business; liquidity buffer may be built due to interest rates; Great Bear $43M buyback and related inflows expected in Q4.

Other Key Points:

• Debt Freedom: Completed repayment of the $150 million revolver balance in October; company is now entirely debt-free with a $1.4 billion undrawn revolver (expandable to $2B).
• Capital Returns: Repurchased $49 million in shares; paid $40 million in dividends (annualized rate $1.90/share, up 6% YoY); $1.2B debt repaid and $200M shareholder returns since Sandstorm deal close.
• Liquidity: Total available liquidity at $1.5 billion as of September end; additional $46 million received from Sentera deferred gold consideration post-quarter.
• Dividend Aristocrat: Only precious metals company in the S&P High Yield Dividend Aristocrats Index.
• Strategic Position: Portfolio is diversified enough that only two assets contribute >10% of revenue, reducing event risk.