What is Royal Gold’s growth strategy?
Royal Gold seeks to expand its business through four key initiatives:
- the acquisition of existing royalties;
- providing capital for the exploration, development and construction of precious metals mines in exchange for royalties;
- monetizing precious metals by-product streams from base metals operations in development or operation, and
- providing acquisition finance, in partnership with established operating companies, in return for a royalty on the acquired properties.
What is royalty finance?
Royalty finance is a cost-of-capital efficient alternative to traditional debt project finance and equity. Returns are based on life of mine cash flows, with no required reserve tail or final maturity date. With returns based on production, Royal Gold shares in the operating risk of the project, thereby eliminating the possibility of financial distress often caused by principal payments, maturity dates and hedging delivery requirements.
While royalties do share in a percentage of price and production upside, it is limited to a specific project. This differentiates it from the issuance of equity, which represents the granting of upside on a company’s entire portfolio of properties.
Royal Gold can structure transactions on a traditional royalty basis or a combination of upfront and per ounce payments as are done under the streaming models. Precious metals produced from polymetallic/base metal ore bodies are eligible for finance.
What are the benefits of royalty finance?
The benefits of royalty finance include (1) returns are calculated over the life of the mine, thereby enhancing internal rates of return to the operator, (2) payments are a function of price and production, providing needed financial flexibility in the event of production disruptions or declining commodity prices, (3) no required hedging, front end fees, financial covenants or account structures are part of the royalty financing transaction, (4) straightforward and easy to comprehend legal documentation, and (5) a short execution timetable.
Besides project development, for what other purposes can royalty finance be used?
Royalty finance can be used to assist in the funding of reclamation obligations, mergers and acquisitions, the restructuring of hedge positions or balance sheets, and exploration.
Can Royal Gold invest as part of a comprehensive project financing package?
Yes. Royal Gold’s product can participate as one layer in an overall financing that includes debt and equity. With payments calculated on a life of mine basis, a royalty can actually reduce debt requirements and associated required hedging, while also limiting the dilution to existing shareholders of a larger equity issue.
Does Royal Gold’s management team have any unique strengths relative to other sources of capital to the industry?
As is the case when considering a long-term relationship, the ethical standards and professionalism of a management team is critical. Royal Gold is highly regarded in the industry for these qualities. Our team has considerable operating expertise in a variety of commodity markets and in many international locations. Almost all mining operations experience unexpected issues during exploration, development and operation and it is important for mining operators to be able to talk through these issues with an experienced and qualified partner, such as Royal Gold.
What size of transactions would Royal Gold consider?
Royal Gold will consider a wide range of opportunities and does not have fixed criteria for levels of investment. The following table summarizes the size of typical transactions.
| Category |
Royalty
Finance
|
Monetization |
Exploration Alliance |
| Minimum Size |
$ 10 million |
$ 5 million |
$ 0.5 million |
| Maximum Size |
Unlimited |
Unlimited |
$ 5.0 million |
| Stage of Development |
Pre-feasibility to operations |
Pre-feasibility to operations |
Exploration to operations |
| Royalty Rate |
Determined through a net present value calculation at various discount rates that reflect varying risk levels. |
| Security |
Limited to an interest in real property or the equivalent, depending on the jurisdiction |
| Hedging Requirement |
None |
| Execution Timetable |
Less than 90 days |
| Information Covenants |
To include life of mine plans, operating budgets, operation and development reports, and limited access provisions for review purposes. |
| Financial Covenants |
None |
| Operator Qualifications |
(a) Ethical and experienced operating management;
(b) Well capitalized; and
(c) Committed to highest environmental and social standards of exploration, development or operation. |
| Due Diligence Requirements |
(a) Thorough and complete technical reports;
(b) Environmental and social management plan;
(c) Realistic timetable for project completion with achievable milestone targets;
(d) Political risk analysis and implementation of political risk insurance polities when appropriate;
(e) Independent engineer review; and
(f) Legal review. |
To talk with Royal Gold’s Business Development Team regarding business development opportunities, use the contact information below. All other inquiries should be directed to info@royalgold.com :
Bill Heissenbuttel
Vice President of Corporate Development
303-575-6507
bheissenbuttel@royalgold.com
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