Royal Gold Inc (RGLD) 2022 Q2 法說會逐字稿

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.

(Operator Instructions)

I now have the pleasure of handing the conference over to our host, Alistair Baker, Vice President of Investor Relations and Business Development 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 Heissenbuttel, President and CEO; Paul Libner, CFO and Treasurer; Mark Isto, Executive Vice President and COO of Royal Gold Corporation; and Dan Breeze, Vice President, Corporate Development of RG AG; Randy Shefman, 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 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 our filings with the SEC. We will also refer to certain non-GAAP financial measures, including adjusted net income, adjusted net income per share, adjusted EBITDA 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.

Bill will start the call with an overview of the quarter and the recently announced transactions. And Dan and Mark will follow with some detail on those transactions. 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. That will give us a bit more time to discuss the recently announced Great Bear and Cortez Royalty transactions. .

Turning to the results for the quarter. I'll begin on Slide 4. Q2 was a good quarter from an operating perspective and lower production at certain properties was expected when we issued our calendar 2022 guidance. Our 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 second quarter a year ago. This is noteworthy given the recent rise in costs as reported by some of the operating 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 remain 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 remain firm, and we pay $0.35 per share in the quarter.

During the quarter, we also hired Allison Forrest into the newly created role of VP of Investment Stewardship. Allison has a long professional resume and ESG sustainability and responsible investment and was 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 RCF, she is well placed to be Royal Gold's point person for all of our ESG efforts. I hope you get to engage with her soon.

I'd now like to make some comments on our most recent transactions. We announced 2 transactions after the end of the quarter and both fit our strategy and investment criteria, which we call the 3Ps: people, place and project. It is challenging in our industry to find 2 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 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 5, 10 or 15 years from now, I believe our shareholders will benefit from the prospectivity of these high-quality royalty interests.

I'll now hand the call over to Dan.

Thanks, Bill. Turning to Slide 5. On July 11, we announced the agreement to acquire Great Bear Royalties Corporation, which owns a 2% NSR 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, a well-capitalized and experienced senior producer. It is one of the most interesting and prospective gold projects to be discovered globally in the past few years. .

Kinross is expected the project to produce over 500,000 ounces of gold per year and is targeting a multi-decade life from a mining complex consisting of open pit and underground mines. As Bill mentioned, this is a transaction that fits well with our long-term strategy.

On Slide 6, you can see a map that shows the extent of the property and proximities for the town of Red Lake. The royalty covers the entire 91-square kilometer property package and has life of mine without stepdowns or caps. We took a unique approach to this transaction by entering into an agreement with Kinross during our due diligence process to review their detailed data and have access to their technical staff to derisk the transaction significantly as it allowed us to independently validate the Kinross assumptions and understand how they think about the project, which is unusual and typical third-party royalty acquisitions.

The Kinross project update on June 28 provided an overview of technical work completed by Kinross since the acquisition of Great Bear as well as their plans for future development of the project. As compensation for providing this access, at closing, we will provide Kinross the option to acquire 25% of the royalty at our acquisition cost, 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's no equity dilution and our shareholders will benefit directly as the project moves forward. It is also worth noting that the Board and officers of Great Bear Royalties have signed the support agreements, and we have 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 are very pleased with this transaction as it layers in long-term growth, scale and optionality into the Royal Gold portfolio.

I'll now turn to Slide 7 and talk about the Cortez Royalty transaction that we announced on Tuesday. Like the Great Bear acquisition, this transaction fits our strategy and investment criteria. When it comes to the 3Ps, Cortez clearly checks all of the boxes. It is a world-class gold complex in a mining-friendly jurisdiction operated by 2 of the leading global gold producers. Royal Gold has 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 it's one of the most prospective gold mining areas anywhere.

Slide 8 shows details of the royalty and the coverage area. The royalty is a sliding scale gross royalty with an effective rate of 1.2%, above a gold price of $900 per ounce. It is a life of mine royalty, but no stepdowns or caps and covers areas within the Cortez JV area of interest on the Cortez/Battle Mountain trend. The royalty covers areas within the Cortez complex operational area, including the operating Crossroads, Pipeline and Cortez Hills mines as well as the Goldrush and Fourmile development projects and other prospective exploration targets.

We acquired the royalty from Rio Tinto, which created the royalty when they sold their 40% joint venture interest in Cortez to Barrick in 2008. The royalty covers the area that was part of the Cortez joint venture at that time. Reductions are limited to only the royalties that existed at that time, which include our existing Crossroads, Pipeline and Goldrush royalties.

To calculate the royalty, the existing royalty obligations are deducted from the Cortez complex gross revenue with the results multiplied by the 1.2% royalty rate. The royalty is payable after cumulative production from Cortez of 15 million gold equivalent ounces on January 1, 2008 onwards. According to Barrick disclosure, cumulative production was approximately 14.8 million ounces through June 30, 2022. We expect the 15 million ounce threshold we reached in the third or fourth quarter. Royalty 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 have experienced from our exposure to only Crossroads and Pipeline. We funded 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 of Cortez without equity dilution.

I'll now 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 9 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 NGM's extensive infrastructure that allows processing of multiple ore types found in Cortez, NGM has amassed decades of ore body knowledge that can be applied to defining new exploration targets. The Cortez land package has proven to be prolific in its ability to host large carbon style gold deposits. While modern mining processing began in 1969, the first Tier 1 deposit pipeline was not discovered until 1991, which was followed by the discovery of 2 additional Tier 1 deposits, Cortez Hills in 2002 and Goldrush, Fourmile deposits in 2009.

As described by Barrick, NGM 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 Goldrush discovery continued the district-wide trend of a new greenfield discovery approximately every 10 years since the initial mining of gold acres in Cortez.

As NGM identified in their last Investor Day, there's excellent exploration opportunity at the 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 include expansion of the Goldrush, Fourmile complex and underground extensions at Cortez Hills. Brownfield and greenfield exploration targets include the continuation of the Fourmile trend on the north side of the Mill Canyon Stock, the East Goldrush target beneath younger basalt cover, the Horse Canyon Footwall zone to the east of Goldrush as well as targets between Pipeline and Robertson and to the south of Crossroads. NGM estimates current mineral resources at approximately 25 million ounces, and we expect this to grow over time as exploration targets are advanced.

Turning to Slide 10. I'll cover a few other portfolio events over the quarter. Portfolio performance was steady this quarter and overall volume was 78,300 gold equivalent ounces or GEOs. Overall volume was in line with our expectations. And while there was a decrease year-on-year, keep in mind that 2021 saw a strong performance from several key assets. For the full year of 2022, we remain on track for achieving our production guidance of 315,000 to 340,000 GEOs, 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, Peñasquito and Voisey's Bay, but 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, Andacollo were partially offset by new revenue from Khoemacau and NX Gold.

At Khoemacau, KCM 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 7,300 tonnes per day in June, and KCM continues to expect to reach the full run rate of 10,000 tonnes per day by the fourth quarter of this year. Unfortunately, in May, KCM reported an accident resulting in the fatality of 2 employees of the mining contractor. Investigations into the accident are ongoing.

At Pueblo Viejo, silver deliveries were approximately 307,000 ounces in the quarter and an additional 45,000 ounces of silver were deferred, resulting in a total of 484,000 deferred ounces. We don't expect material deliveries of deferred silver this year, and we expect silver recoveries to 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 and don't expect it to have any lasting impact on silver revenue.

At Red Chris, Newcrest reported continued exploration success at the East Ridge target and has outlined potential to contain 2.8 million to 4.3 million ounces of gold and 0.9 million 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 Hills in Australia, Red 5 announced the first gold pour on June 5 with mining and processing activities continuing to ramp up. Recall that we have a 1.5% NSR royalty on this asset, and we expect to recognize first revenue in the third quarter. The project has a published mineral resource of 4.1 million ounces containing 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 30, 2022, 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, metal prices were mixed with gold up about 3%, and silver and copper prices up 15% and 2%, respectively. .

Gold remains the dominant revenue source, 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 includes 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, or 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 continue to be less than 5% of our revenue. A typical quarter of cash G&A costs for Royal Gold is $6.5 million 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 $562 per GEO compared to $519 per GEO in the prior year. The increase in the unit rate was mainly due to lower gold sales from Andacollo and Pueblo Viejo partially offset by additional depletion from Khoemacau 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 realizability of certain deferred tax assets held by our Swiss subsidiary. The change in these 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 $1.08 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 $0.81 per share. The main contributor to the lower earnings 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 315,000 to 340,000 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 per GEO from this royalty, we are continuing to finalize the accounting for the new Cortez royalty. However, our initial estimates suggest that approximately 35% to 40% of the $525 million purchase price will be assigned to production stage with no interest based on the current 14.2 million ounce reserve. The remaining value will be assigned to explorations stage, which is not currently subject to depletion and will be reclassed to production stage as additional material is classified as reserves.

For the value assigned to production stage, we initially estimated a DD&A rate of approximately $1,350 to $1,450 per royalty ounce attributable to this specific royalty. 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 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 [drawn] 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 and what the recent transactions mean 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. One consistent theme through these acquisitions is our ability to use the excellent skills of our geology team to identify properties with high exploration potential.

In total, we've committed just over $1 billion for the mix of assets that will collectively provide meaningful gold revenue, high production upside and exploration prospectivity over long mine lives. These assets are located in low-risk and mining-friendly jurisdictions and are operated by some of the best companies in the business. Another core strategic objective 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 and 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.

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

(Operator Instructions) Our first question comes from Cosmos Chiu with CIBC.

Maybe my first question is on provisional pricing. As you mentioned, about 11% or 12% of your revenue is coming from copper. Other ones are also being generated by the producers as concentrates and with a decrease in some of the 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 Royal Gold gets paid? I guess, it's all dependent on the timing of the producers, selling the concentrate and when they pay Royal Gold. But is there anything that we should be aware of at Mount Milligan and Khoemacau or any of those other assets?

Yes, Cosmos, thanks very much for the question. I think the best person positioned to give you a response would be, Paul. Paul, are you okay taking that one?

Sure. I certainly can appreciate the question to probably, in light of maybe some of the news that you're seeing from some of our producing peers, with the provisional and final adjustments that they're having the impacts on as far as the receivables that they carry as well as any mark-to-market maybe through earnings there. But to answer your question, we are subject to provisional and final pricing adjustments at a few of our royalties that produce concentrates with base metals.

But overall, I would say our exposure is limited. And the largest exposure within our portfolio, probably, our 3% NSR royalty at Robinson. But I will say that the Robinson royalty, though, is only 1.5% 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 final pricing adjustments is limited. You mentioned Khoemacau 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 receive the metal units themselves.

Great. Maybe moving a little bit and, Paul since I have you here, on the latest Cortez royalty, the latest acquisition. As you mentioned, you gave us a very good, detailed DD and depreciation rates. Are there any differences in terms of the depreciation rates for accounting versus tax purposes? And I think in your press release 2 days ago, you mentioned 21% corporate taxes in the U.S. Could you maybe walk through that how you calculate taxes there as well?

So yes, it would be subject to 21% rate. And the only other tax, Cosmos, that really applies is the Nevada net proceeds tax, which is also something that we have at every other royalty in the Nevada area. Given that basis there, yes, the book and the tax depletion should be relatively in line or the same.

Okay. So I guess you'll be paying some taxes upfront then because it seems like the depreciable part of the acquisition cost is, right now, only 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 NSR royalty.

That is correct, yes. There will be a timing difference as we certainly depreciate 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 on Pueblo Viejo. I noticed that as you talked about in quite a bit of detail, the silver recovery is still not up to the 70% still being accumulated. I appreciate the sort of discussions around it. But could you maybe -- I think in the past, you try to fix it, but I guess it hasn't been fixed and then it's accumulating, so 2 parts of my question. Number one, what are they doing right now to try to fix it? And number two, when would you expect silver recoveries to normalize? And then at that point in time, what happens with all 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, is maybe address what they've done in the past, what they're doing currently and our expectation. I think our expectation has been, for a while, that it's just going to bounce around until we get the expansion completed. But I think it makes more sense for Mark to walk you through with a little more background.

Yes, Bill is right. What we see is that the -- that there's a number of bottlenecks and we visited the site back in May, and we got to see an explanation 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 there are a number of issues in the CIL circuit and slurry cooling that have a detrimental effect 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 the CIL circuit is one of the fundamental issues. So that's why we say that really until the expansion project is up and running and really commissioned and vetted 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?

Well, what will happen is as silver becomes available from higher recoveries then it would be delivered as available from Barrick or from their portion of the silver produced. So it would be a function really of each quarter and how much they're producing and how much in excess they've produced above what they've contractually have to deliver to us. So it's -- it would certainly take a number of quarters for us to receive the deferred silver at this point. But we aren't estimating that until we see how the silver circuit is going to produce in the long term.

And Mark, if I understand it correctly, if I say that they don't have to get back to 70% to give us deferred ounces. The recovery rate has to go, I think, above 52.5%, and we would start to see that thing reduce. Is that fair?

Yes. Yes, you're absolutely right. 52.5% is kind of the point at which deferred silver starts kicking in versus a repayment of deferred silver, yes.

Great. And maybe one last question. Bill, I appreciate that you mentioned you are reporting earlier this year ahead of some operators. But one operator that has reported earlier today was IAMGOLD. I'm sure you've looked at the renewed or updated sort of numbers around Côté. They need more money. It seems like CapEx has gone up. There's a funding gap. Any comments you want to make understanding that you've already made a fairly, not sizable, not huge, but you have made an investment in Côté. 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. I'd just point out that we own a royalty not a stream. So it is not as though we're having a deep dialogue, frequent reporting, where our contract limits what we're contractually entitled to. So it's one of those situations where we kind of learn about it when you learn about it. My read of the release was CapEx went up a little bit, but the funding gap remains. They listed a host of sources that they're looking at to fill it. I'm not that concerned. I think the 2 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 a royalty. So it's not like we're sitting on top of a lot of information.

(Operator Instructions) Our next question comes from Jackie Przybylowski with BMO Capital Markets.

And I want to apologize in advance for asking you guys this, but we don't cover Centerra Gold at BMO so I'm maybe a little bit removed from the story. I believe there was a technical report that was expected on Mount Milligan in the 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 if you have one on the progress there? And if you have any expectations that would be material to Mount Milligan?

I'm not sure where Bill went. But Jackie, this is Mark Isto. I can give you a bit of the guidance. We still expect that -- and are guided that their next week's earnings release would be the next point in time that we would find out any details from the technical report. But you're right, it certainly is due and that's what they guided towards, but we don't have any additional news past that point.

Okay. No, that's fair. I appreciate it. I know it's not a fair question for you guys. And if -- I don't know if Bill's not on the line, maybe it's a tough question as well. But with your growth pipeline, I realize you've got quite a bit of liquidity at quarter end, but you do have the contributions or subsequent at Cortez and at Great Bear assuming that transaction closes. How is Royal Gold thinking about growth from here and the liquidity that you have available to fund that growth? And if there was a big opportunity, what would your options to fund that be, I guess, would you look to extend your revolver or something like that?

I'm not sure if Bill is back. I think Dan would be most appropriate to answer. Are you available Dan?

Sure, Mark. Jackie, thanks for the question. And I think Paul can chip in here as well. But I think just in terms of growth on the back of the transactions that we just announced here, we're very much focused on growth still, and there's plenty of liquidity, Jackie. We've been talking with this number or this range for a number of quarters now, $100 million to $300 million in terms of the size of opportunities that we see, and that's still very much the case. Cortez was obviously a bit bigger than that. But in general, that's still the range and we can still fund that very comfortably. But I'll hand it over to Paul, if Paul wants to make some more specific comments on the balance sheet.

Yes, Jackie. So I think your question just on -- as you do know, obviously, we have a $1 billion credit facility available to us, with that full $1 billion that was available to us as of June 30. And obviously, subsequent, we did draw $500 million on that revolver to help fund the Cortez royalty acquisition. And as I have 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 acquisition.

And 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, I do 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 to also address your comment on expanding the revolver. I think we have viewed and felt that, certainly with our cash resources and availability and the continued growth of cash flows that, that $1 billion revolver credit facility, it would be sufficient and supportive of some of Dan's earlier comments.

Okay. Appreciate that. 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 you're running kind of below your guidance range. But I think you clarified that your guidance range is 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? Is it a bit of a higher tax rate? Is there any tax planning 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?

Yes. Jackie, this is Paul. I mean 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 are about 20%. And that's been kind of the usual kind of run rate, if you will, probably for the last 1 or 2 fiscal years, again, depending on we may have had some of those discrete events. And certainly, our Swiss subsidiary is subject to the global intangible low tax income, which currently that's a 13.125% tax rate, which will likely move to 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 back to that, today, the rate that we currently see today is kind of really what we can do.

Our next question comes from Tanya Jakusconek with Scotiabank.

Just wanted to circle back to just see the transaction environment that you're seeing. You mentioned again the $100 million to $300 million range. Most of the ones that -- the transactions that you've been doing, except for the Cortez, which is larger in size, have been mainly royalties. And so as I look at your portfolio and I look at your track record also of increasing your exposure in camps that you're already in, there's 2 camps. There's the Côté Gold that we saw this morning, and obviously, Red Chris that you have exposure to as well, both of those junior partners require financing. So my question here is, could we see you increase your exposure at either Red Chris and/or Côté Gold? Would it be something that you would be open to doing, given you're there already?

Yes, Tanya, it's Bill. I apologize to Jackie my phone dropped and I appreciate the team picking up the slack as I got back into the call. We really don't make specific comments on specific business development opportunities. I would say we're always open for a discussion. But our interest level is really going to be dependent going back to the 3Ps: the people, the 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?

Or I mean is a royalty exposure possible as well? Could it be converted as a royalty rather than a stream?

Yes. The problem with -- the reason you have streams being so prominent is that they are more tax-friendly for the operators. And if they settle royalty to it, it's often taxable upfront.

Yes. No, no, fair enough. How about just asking because I was quite surprised about the size of this royalty. I thought most of the royalty portfolios out there were under $100 million. So this one here, sort of this size was quite surprising for me. Can I ask out there, not being specific, but are we -- are there royalties of this size still out there? Or can we expect royalties, portfolios to be in that $100 million to $300 million or less?

Yes. I would -- from my perspective, I would say what we found here with Cortez, and we knew about this. We've known about it since it was formed. So we've been 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 -- most of the portfolio has been picked over quite a bit. So it would surprise me to see many more of what we just did at Cortez.

Okay. And would it be fair to assume that most of what you're seeing out there are helping fund development projects right now rather than 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. No, I really appreciate it, and thank you so much for the depreciation guidance on the Cortez Royalty. Congrats on that one.

Thanks for the questions.

Our next question comes from Matthew Murphy with Barclays.

Just wondering if you could help me at all on the way this Cortez Royalty interacts with your existing royalty. So the way I look at it is your current royalty, I mean, sliding scale, call it a 3% to 4% impact in terms of percent of Cortez complex revenue obviously varies depending on where they're mining and what the gold price is. But is that kind of the right order of magnitude? So that 1.2% new royalty, you can effectively reduce that 3% to 4% to understand the full impact for Royal Gold?

I think I know where you're 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've calculated is for the next 10 years, we think the deduction will be 3%, beyond 10 years, it will probably be 1.4% or so. And once you've taken those nominal deductions, then you're going to apply the 1.2%.

Okay. Great. That's helpful. And then, I mean, just thinking about the price you paid on Cortez, are you sort of embedded in your assumptions? Is it just satisfaction with that level of return? Or are you counting on production growth, resource growth? What are your -- what's your investment thesis on the acquisition?

Yes. The investment thesis is very much driven by resource growth. And you know us, you know we've had a history at Cortez. Through my time, we've seen Cortez Hills get identified, Goldrush be discovered, Fourmile. We don't think the property is done, and we've been very close to it for decades. So it's absolutely true that our geologists looked at it and said, we think there is potential. They scientifically identified that potential, and that was built into the model, which is why you probably look at it and go, that's a big premium to pay, but it is based on our view of the future, the operation. And it'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.

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 want to thank you for taking the time to join us. We certainly 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.