Royal Gold - Q1 2024

Transcript

Operator (participant)

Hello, and welcome to the Royal Gold 2024 first quarter conference. My name is Chad, and I'll be your moderator today. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. I'd now like to pass the conference over to your host, Alistair Baker, to begin. Alistair, please go ahead.

Alistair Baker (SVP of Investor Relations and Business Development)

Thank you, operator. Good morning, and welcome to our discussion of Royal Gold's first quarter 2024 results. This event is being webcast live and a replay of this call will be available on our website. Speaking on the call today are Bill Heissenbuttel, President and CEO, Martin Raffield, Senior Vice President of Operations, and Paul Libner, Senior Vice President and CFO. Randy Shefman, Senior Vice President and General Counsel, and Dan Breeze, Senior Vice President, Corporate Development of RG AG, are 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, and Adjusted EBITDA. 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. Bill will start with an overview of the quarter, Martin 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 now turn the call over to Bill.

Bill Heissenbuttel (President and CEO)

Good morning, and thank you for joining the call. I'll begin on slide four. We had a good start to the year with revenue of $149 million, operating cash flow of $138 million, and earnings of $47 million, or $0.72 per share. After adjustments, earnings were $0.91 per share. Revenue was 75% gold and 88% precious metals, as we continued to focus our business development efforts on these metals, and we generated 53% of revenue from the U.S., Canada, and Australia. Our adjusted EBITDA margin remained strong and steady at 79% for the quarter, and with the record high gold price providing a strong tailwind, we were able to significantly reduce our debt and increase available liquidity.

We repaid $100 million outstanding on a revolving credit facility and ended the quarter with almost $1 billion of total liquidity. As previously disclosed, during the quarter, we entered into an additional agreement with Centerra to provide long-term cost support to Mount Milligan in return for near-term cash and future gold consideration and a future free cash flow royalty. This allowed an immediate two-year extension to the mine life to 2035 and provides the incentive for Centerra to continue to invest in the long-term future and maximize the value of the large mineral endowment around the mine. Centerra is working on a PEA to evaluate opportunities to extend the mine life beyond 2035, and we look forward to the results when it is completed in the first half of 2025.

We also have a new operating partner at Khoemacau with the completion of the acquisition of Khoemacau by MMG in March. Recall that we provided a $25 million loan facility to the previous owner during the development of Khoemacau that accrued and capitalized interest at a rate of LIBOR + 11%. This facility was repayable upon a change of control, and we received total proceeds of $37 million, including principal and capitalized interest. With these proceeds, the upfront cash payment from Centerra on the Milligan transaction and continued strong cash flow, we have made additional revolver repayments of $75 million since the end of the quarter, bringing our outstanding revolver balance down to $75 million. We are well-positioned to repay the remainder of the balance during the third quarter, absent new investment opportunities.

Maintaining a strong balance sheet is one of our core strategic objectives, as it allows us to act quickly when attractive business development opportunities arise. We paid our quarterly dividend of $0.40 per share, a 7% increase over the previous quarter, marking the start of a 23rd straight year of paying an increased dividend. Finally, we issued our first asset handbook shortly after quarter end, and by the end of the week, we expect to publish our investment stewardship report, which is our reimagined publication that covers ESG risks and a separate climate report. All of these documents are currently or will be available on our website. These publications take an enormous effort from a staff that is limited in size, and I want to thank them for their efforts in preparing these reports. I hope you find them helpful in your review of our company.

I'll now turn the call over to Martin to provide some comments on the portfolio.

Martin Raffield (SVP of Operations)

Thanks, Bill. Turning to slide five, I'll give some comments on first quarter revenue. Overall revenue for the quarter was $149 million, with volume of 71,900 GEOs. Our royalty segment contributed $46 million, about 31% of the total revenue for the quarter. Royalty revenue was down about 16% from the prior year quarter, mostly due to a lower contribution from the Cortez Legacy Zone as expected, partially offset by higher contributions from the Cortez CC Zone than Peñasquito. Revenue from our stream segment was $103 million, down by about 11% from last year. Lower contributions from Mount Milligan and Pueblo Viejo were partially offset by higher revenue from Xavantina and Wassa. I'll turn to slide six and give some comments on notable developments at our principal properties.

At Mount Milligan, as Bill mentioned, the PEA is underway to evaluate opportunities to extend the mine life beyond 2035. This includes a review of tailings expansion options, exploration drilling on a number of targets near the existing pit, and a site optimization program that began late last year. Centerra believes that a large mineral endowment at Mount Milligan has the potential to provide significant extensions to the mine life. At Pueblo Viejo, Barrick reported last week that the plant expansion construction is complete, and that the ore stockpile feed conveyor reconstruction was completed in April. They are now working on increasing production from the crushing and milling circuits, and improving operational stability and recovery in the flotation circuits. An additional 123,000 oz of silver was deferred during the quarter due to low recoveries.

We expect the focus on the flotation circuit performance will improve silver recovery, but we also expect this work will take some time, and that the delivery of our deferred silver ounces will depend on the outcome. At Cortez, Barrick announced the official opening of the new Goldrush Mine. Barrick expects to ramp up production from 130,000 oz this year to reach commercial production in 2026. Barrick is targeting a 24-year mine life and average annual production of about 400,000 oz by 2028. Barrick also reported last week that production at Cortez was on plan for the first quarter, and they maintained their total Cortez production guidance of 620,000 oz-680,000 oz for 2024.

We expect about a third of this will come from the Crossroads area, where we have an effective gross royalty rate of approximately 9.4%, with a remainder coming from areas where our effective gross royalty rate is approximately 1.6%, including Goldrush. Last year, those percentages were more heavily weighted towards our Legacy Zone and the higher royalty rate. Turning to slide seven, at Andacollo, Teck has reported that drought conditions are continuing to cause water restrictions. Teck is assessing steps to mitigate these water restriction risks and expects a solution to be in place in 2025. Gold production guidance for 2024 is between 18,000 and 24,000 recovered ounces. At Peñasquito, operations have returned to normal after last year's labor strike.

Newmont reported that stripping of the Peñasco pit was delayed due to the strike, but it expects all production from Peñasco to increase later this year and into next year. As a result, gold production is expected to be weighted 60% to the second half of the year, with continued strong silver, lead, and zinc production from the Chile Colorado pit. At Khoemacau, the ownership transition to MMG is now complete. MMG is a publicly listed company, so we expect public disclosure of developments will be significantly improved. Khoemacau is expecting payable silver production of 1.2 million oz-1.4 million oz for 2024.

This is lower than the life of mine average silver production of 1.8 million oz-2 million oz per year, but it is in line with the mine plan, which has a top-down mining sequence with lower grades in the upper portion of the deposit. Finally, first gold was poured in the first quarter at Mara Rosa in Brazil and Côté Gold in Ontario, which are our newest producing properties. We also saw continued progress towards full production at King of the Hills and Bellevue Mines in Western Australia, and we expect to see first production from Manh Choh in Alaska early in the third quarter of the year. I'll now turn the call over to Paul for a review of our financial results.

Paul Libner (SVP and CFO)

Thanks, Martin. I'll now turn to slide eight and get an overview of the financial results for the quarter. For this discussion, I'll be comparing the quarter ending March 31, 2024, to the prior year quarter. Revenue was down 13% to $149 million for the quarter. We had a strong first quarter of 2023. In fact, it was the second highest quarterly revenue in the history of the company. As Martin mentioned in his remarks, lower contributions from Mount Milligan, Pueblo Viejo, and the Cortez Legacy Zone were the main drivers for the lower revenue in the current quarter. The lower contributions from these properties were partially offset by higher contributions from Wassa and Xavantina, as well as higher average gold and silver prices.

Gold and silver were up 10% and 4%, respectively, while copper was down 5% over the prior period. As Bill mentioned, gold continues to be the dominant revenue source, making up 75% of our total revenue for the quarter, followed by silver at 13% and copper at 9%. Royal Gold has the highest gold revenue percentage compared to our major peers in the royalty and streaming sector. Turning to slide nine, I'll provide a bit more detail on the specific line items for the quarter. G&A expense increased slightly to $11.4 million from $11 million in the prior year quarter. The slight increase was due to higher corporate costs and non-cash stock compensation expense. Although we did see a small increase over the prior year, our cash G&A costs remain low as an overall percentage of total revenue.

Our D&A expense decreased to $39 million from $46 million in the prior year. On a unit basis, this expense was $539 per GEO for the quarter, compared to $514 per GEO in the prior year. The higher D&A per unit was mostly due to lower GEOs sold in the current period. The lower overall depletion expense, however, was due to a decrease in our Mount Milligan gold depletion rate from $425 to $371 per ounce, as well as a decrease in copper and gold sales from Mount Milligan and lower production from the Cortez Legacy Zone. Interest expense decreased nearly 50% to $4.6 million for the quarter. The decrease was primarily due to lower average amounts outstanding on the Revolving Credit Facility.

The all-in interest rate for outstanding borrowings on our credit facility was 6.5% at the end of March. Tax expense for the quarter was $27 million, resulting in an effective tax rate of 36.4%. This compares to tax expense of $15.9 million and an effective tax rate of 19.9% in the prior year. The higher tax expense this quarter was due to a one-time discrete tax expense of $13 million, related to consideration received from the Mount Milligan cost support agreement. Excluding this discrete item, our effective tax rate for the quarter was approximately 19%, which is in line with the prior year period and our expectations for the full year. Net income for the quarter was down over the prior year to $47 million, or $0.72 per share.

The decrease in net income was due to lower revenue and the discrete tax item I just mentioned. After adjusting for the discrete tax item and a small change in the fair value of equity securities, net income for the quarter was $60 million, or $0.91 per share. Our operating cash flow was a record this quarter at $138 million, and up 27% over the prior year period. Operating cash flow for the current quarter included payments of $24.5 million as part of the Mount Milligan cost support agreement, and $12 million in capitalized interest received as part of the Khoemacau loan facility repayment. The strong cash flow does not even include the $25 million we received as repayment of principal on the Khoemacau loan, which is recorded under cash from investing activities.

I'd like to take a moment now to explain the accounting treatment of the Mount Milligan cost support agreement. When we entered into the agreement, we received a cash payment, the commitment by Centerra to deliver 50,000 oz of gold in the future, and a free cash flow interest. With respect to the value of the cash consideration and the free cash flow interest, these have been recorded as a $25 million deferred support liability on the balance sheet. This amount will be amortized on a units of production basis over the Mount Milligan mine life, beginning with the first cost support payment made, which we expect will be around 2030. With respect to the deferred gold consideration, when the gold is received, we will bring these ounces onto our balance sheet at fair market value.

When the ounces are subsequently sold or upon receipt of the gold prior to any sale, we expect the value will also be recorded within the deferred support liability and amortized on a units of production basis as we provide future cost support over the mine life at Mount Milligan. It is important to note that when we subsequently sell the deferred gold ounces, the proceeds will be recognized within other operating income and not recognized as royalty or stream revenue. Upon delivery of the deferred gold ounces, we anticipate selling the gold over a few days to a week following delivery. Finally, the proceeds from the sale of the deferred gold ounces will be recognized as operating cash flow. I will now turn to slide 10 and provide a summary of our financial position as of March 31st.

During the quarter, we repaid $100 million on our revolving credit facility and reduced the amount drawn to $150 million, bringing our total available liquidity to $966 million as of March 31st. Further, using the cash received as part of the Khoemacau loan repayment in late March, as well as our cash on hand, we made an additional revolver payment of $25 million on April 8 and another $50 million dollar payment yesterday, leaving us with $75 million outstanding and $925 million undrawn and available. Absent significant business development activity, and as cash flow allows, we expect to fully repay our remaining revolver balance by sometime early in the third quarter. We have no material financial commitments outstanding.

However, I will note that we made a small advance payment of $1.1 million to Ero Copper as part of the success-based payment for resource additions at Xavantina. There are potentially up to $3.3 million of further success-based payments to Arrow that remain through the end of 2024. That concludes my comments on our financial position for the quarter, and I will now turn the call back to Bill for closing comments.

Bill Heissenbuttel (President and CEO)

Thanks, Paul. Our first quarter was as expected, and I'm pleased to see our strong margins continue to produce solid cash flow so that we can reduce our outstanding revolver balance so quickly. Our balance sheet is in great shape, and we have excellent liquidity available to take advantage of business development opportunities that may present themselves. Before we wrap up, I want to highlight a change we made in our disclosure this quarter to improve transparency with respect to our performance compared to guidance. We've included a new table, table three, in our press release that shows our 2024 sales guidance and actual sales through the end of the quarter. This replaces a table that showed operator guidance and production for our principal properties, which is less helpful for a reader who is trying to track Royal Gold's performance.

You can see that we're tracking well so far with respect to sales guidance for the year, and we'll update this table every quarter as we move through the year. Operator, that concludes our prepared remarks. I'll now open the line for questions.

Operator (participant)

Thank you, Bill. If you'd like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. That's star one to ask a question. Our first question today comes from Cosmos Chiu from CIBC. Please go ahead.

Cosmos Chiu (Executive Director of Institutional Equity Research)

Hi. Thanks, Bill and team. Maybe my first question is on the, again, the discrete tax expense related to the Mount Milligan's cost support agreement, slash the GILTI tax. Paul, I think you confirmed that this is a one-time item, so we're not going to see a recurring item again later on in future quarters. My other question is, is there an actual cash impact to this expense? Maybe not today, but over time. Like, how should we look at this, $12.98 million?

Paul Libner (SVP and CFO)

... Hey, Cosmos. Yeah.

Cosmos Chiu (Executive Director of Institutional Equity Research)

Hi.

Paul Libner (SVP and CFO)

Thanks for the question, and good afternoon.

Cosmos Chiu (Executive Director of Institutional Equity Research)

Go ahead, Paul. Hi, Paul.

Paul Libner (SVP and CFO)

Yeah, so, Cosmos, this was a unique transaction, whereby the book and the tax accounting differed. So under the U.S. income inclusion rules for tax purposes, the value of that consideration that we received when we entered into the transaction, it was immediately taxable, and that's that $13 million that was taxed at the GILTI rate. That is a one-time, as you asked. So again, that value of that consideration that we received during the transaction, again, for tax purposes, was roughly $125 million.

So going forward, if when we receive the value or when we receive the gold in the future, the deferred ounces, if the value of that gold, you know, should increase significantly, then we would have some additional, you know, cash taxes that we tax that GILTI rate, in the future. But also, having said that, if that value of the gold should go down, then we would also have a tax benefit potentially.

Cosmos Chiu (Executive Director of Institutional Equity Research)

Great. And then, maybe my other question is on the Khoemacau, as you talked about, Bill, you know, there's a new operator in town now. Have you had a chance to meet the new operator, and what are your impressions so far?

Bill Heissenbuttel (President and CEO)

Yeah, Cosmos, we've had a chance to meet him a couple of times, both over the phone, but also in person. Yeah, you know, look, I'm impressed by the folks that we've met, but, you know, the relationship is sort of in the earlier stages and look, you know, looking forward to further developing that relationship. So I don't have any concerns, if that's your question about MMG and their plans for the project and how they plan on treating us.

Cosmos Chiu (Executive Director of Institutional Equity Research)

Mm-hmm. Great. Thanks once again, Bill and team. Those are all the questions I have.

Bill Heissenbuttel (President and CEO)

Thanks, Cosmos.

Operator (participant)

The next question is from Tanya Jakusconek from Scotiabank. Please go ahead.

Tanya Jakusconek (Analyst)

Good afternoon, everyone. Thank you so much for taking my questions. I have two. I just wanted to start by saying a lot of your... You know, we had the Investor Day, so a lot of detail was provided in the Investor Day. But I thought maybe if someone could walk us through the rest of the portfolio, your smaller royalties and streams and others, and kind of give us a little bit of a, you know, outlook into how, you know, these could add in the next sort of, you know, five years or so. We have the big mines, so those ones, we have a better idea, but there's a lot of smaller ones, and so it would be helpful to know what those could contribute.

Bill Heissenbuttel (President and CEO)

Thanks, Tanya. I might turn that over to Martin. I will say we don't spend a lot of time on some of the smaller ones, but Martin, I don't know if there are a few things you could share, particularly about maybe some of the newer ones like Côté and Mara Rosa.

Martin Raffield (SVP of Operations)

Yeah, thanks. Thanks for the question, Tanya. So, you know, looking forward towards the, the end of this year, I think we, we are expecting things to strengthen as we go towards the end of 2024 and 2025, and, you know, we are expecting TV to ramp up. We're expecting Peñasquito to have improved gold production. We're expecting Goldrush to ramp up. So those are key in our, in our forward-looking side. But we do have some, some of our smaller operations that are also, coming online. So Manh Choh, Kinross reported yesterday that that project is going well. They have started the ore haulage over to the Fort Knox site. So we're looking to that to start up early in Q3 and to start receiving revenue there over the, over the next few years. The Côté ramp-up has started.

They poured first gold on March thirty-first, so that is moving ahead. They're looking to get to commercial production in Q3. Mara Rosa, they produced their first gold on February the twenty-first, and they're looking to ramp up to commercial production over the next few weeks. So they're looking in the, in the longer term or in the short term, in 2024, 83,000 oz-93,000 oz, and then ramping up to 100,000 oz over the first four years of operation. So those ones are going well. The other ones that I would mention are probably Bellevue. Very good exploration results out of Bellevue or, and good definition drilling results over the past quarter. So we're expecting good things there over the next few years. So that's—those are the ones that jump to mind, Tanya.

Tanya Jakusconek (Analyst)

Yeah, it's just, you know, these ones are, you know, the operators are well covered. I was kind of thinking more of some of the smaller ones, but we could take it offline, and see. I knew a couple of years ago you had talked about some of these smaller ones contributing anywhere between 10,000 and 25,000 GEOs or thereabout. Obviously, some of them are in here. I was just kind of wondering if there was, you know, some smaller ones beyond the ones you just mentioned now, that we should be thinking about that would contribute above and beyond these ones.

But we can take it offline. That's okay.

Bill Heissenbuttel (President and CEO)

Yeah, we can take it offline, and if there are any specific assets you're looking at, we'd be happy to respond. Just want to hit the ones you're interested in.

Tanya Jakusconek (Analyst)

Okay. I think so that...

Bill Heissenbuttel (President and CEO)

Yeah, specific ones.

Tanya Jakusconek (Analyst)

... Yeah. Yeah, just because those ones we cover already from the operator, so we kind of well know those ones, and those are already in our models. I'm just wondering, maybe there are some smaller ones that, you know, we can get to. But we'll take it offline. My second-

Question is just on the transaction environment, if I could. You know, every call I ask every company what they're seeing out there. I asked again, you know, I know in the Investor Day, but wanted to circle back because it's very dynamic. So wanted to hear from you again today, you know, what are you seeing size-wise for deals? Hopefully by now, Newmont has opened the data room for these Newcrest and other assets for sale. So just wanted to see, you know, size-wise, understand whether it's still, you know, mine builds, you know, financing, balance sheet repairs. And then I want to understand the structure of the deals, whether you're focused mainly on, you know, just royalty streams, or would you also look at equity and/or debt components. So that would be helpful. Thank you.

Bill Heissenbuttel (President and CEO)

Sure. Lots to unpack there. I'm gonna turn this over to Dan. The one comment I would say is, we're not gonna comment on anything specific that we might be looking at, but Dan can certainly give you a feel for what we're seeing.

Dan Breeze (SVP of Corporate Development of RG AG)

Thank you, Bill. Hi, good morning, Tanya. Thanks, thanks for the question. And I think you, you've heard this from some of our peers publicly already with their comments. The pipeline is pretty robust at the moment. I think that's the best way to describe it. We're quite busy right now with reviews on a number of opportunities. And I think the higher commodity prices are really starting to settle in, Tanya, and I think that's moving projects forward. And I think we're seeing the equity markets really opening up, and that source of capital is coming into the sector, and that's helping projects move forward as well.

And I think as we look at the debt markets and thinking out and looking at where interest rates are and where they might remain elevated for a while, I think that's also gonna keep counterparties interested with looking at other sources of capital, like royalties and streams. So I always tell you that the size range, Tanya, is the $100 million-$300 million level. I think that's broadly fair still here. We are aware of a few larger opportunities in the market, and I think it's fair to say that those opportunities are generally related to improving balance sheets and liquidity and so forth, mainly over base metal assets. So we would be looking at by-product precious metals in those cases.

But and also just mentioned, you know, you heard from Paul and his comments on our liquidity, and we have lots of internal liquidity with almost $1 billion to look at those kinds of transactions as well. So we feel pretty good about the market. On the smaller end, it's still very busy for us. I mentioned the equity opening up a little bit, but there are some interesting sub-$100 million type opportunities, earlier stage projects and whatnot, that we're looking at as well. So hopefully that gives you a little bit of flavor from our side with what we're seeing.

Tanya Jakusconek (Analyst)

Yeah, thanks for that. [crosstalk]

Go ahead

Bill Heissenbuttel (President and CEO)

... And let me just complete the last part of your question, which was, you know, doing equity and debt. And I think we've been pretty consistent. We're relatively open to it. It's not our core business. We wouldn't earn, you know, our valuation premium on a debt investment or an equity investment. At the same time, if the stream is a very large percentage of an overall financing package where we can provide all of those things, we're certainly open to it. You've seen us do debt at Khoemacau and Wassa. So certainly wouldn't close the door on it and say: We're not gonna play in those markets, but the stream's got to be the prize.

Tanya Jakusconek (Analyst)

Okay. Okay, thank you so much for taking my questions. I will let somebody else ask. Thank you so much.

Bill Heissenbuttel (President and CEO)

Thanks, Tanya.

Operator (participant)

Thank you. As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad now. Our next question comes from Brian MacArthur, from Raymond James. Please go ahead.

Brian MacArthur (Managing Director)

Good morning, and thank you for taking my questions. Just back to Cosmos' question about the tax. So if I understand this right, you paid $13 million in tax on the $25 million cash payment from Centerra. Is, is that all cash? And secondly, like, why is the tax rate so high on that?

Bill Heissenbuttel (President and CEO)

Paul, I'm gonna hand that right back to you.

Paul Libner (SVP and CFO)

Yeah, no, and that's, and it's a fair question. And again, this really goes back to that, the accounting and the tax on this transaction, it was unique, and it was unique in the sense that the treatments differed. So, for U.S. income tax purposes, the U.S. income inclusion rules, the value of the consideration that we've received when we entered into the transaction, that was immediately taxable. And again, the consideration that we received was the $24.5 million, the value of the 50,000 deferred gold ounces, as well as the free cash flow interest.

So when we took that entire value, which the majority of that was the value of the deferred gold, which I think was roughly $2,000 an ounce when we entered into the transaction, that's about $100 million. So that's $125 million. So then you apply the GILTI rate to that, which is that 13%, and that gets you roughly to that $13 million.

... that we paid in taxes there in Q1.

Brian MacArthur (Managing Director)

And that was all cash?

Paul Libner (SVP and CFO)

Correct.

Brian MacArthur (Managing Director)

Not deferred or anything, so you don't-- Okay.

Paul Libner (SVP and CFO)

Correct. Yeah. And then, as I mentioned to Cosmos, you know, going into the future, again, that value, that deferred gold, it could go up, and if that happens, then at a future date, when we receive the delivery of those gold ounces, we could pay that same cash tax, you know, the GILTI rate, 13% in the future. But on the flip side, again, too, if that value should go down, then we could see a cash tax benefit come through.

Brian MacArthur (Managing Director)

Okay. But we're talking all cash to this, not just book accounting?

Paul Libner (SVP and CFO)

Correct.

Brian MacArthur (Managing Director)

Okay. My second question, and if maybe this is better offline. It talks about you got to, you know, the cash consideration of, and then the cash flow interest received of $25 million. You know, why is it $0.5 million for that free cash flow interest? I assume that's calculated on an NPV basis post 2030 or something, but on the offset of that, you might have to make cost component support payments. So, like, if it's too complicated, we can take it offline, but, like, I just not quite sure I understand where those values came from. And the reason I ask is I'm still trying to feel it, figure out the value of the deal, right? Because there's, you know, if it's cash tax payment, it changes what the value of the deal is.

Bill Heissenbuttel (President and CEO)

Yeah, Brian, let me just focus on the free cash flow royalty a little bit. Okay, that, that was, as I called it, when, when I asked for it, it's idiot insurance, right? The metal prices go up so high, they didn't actually need our, our cost support. The mine would have been fine, and we didn't need to change anything. And so all we wanted was something that says, if the metal prices go up really, really high and this thing's making cash flow, is cash flowing, I want a share in it, even to a small amount. And it's carried. We don't have to contribute to cost. It's not a joint venture interest, or anything like that.

And I will say that, you know, when we were doing our calculation at the time and at the prices, the long-term prices we were using, there just wasn't a lot of free cash flow that we thought might be there. And so we really heavily discounted it, and we just came up with a value of $500,000. Now, at today's price, it, you know, it's probably worth more. But that... It's pretty far in the future, because you get to 2030, they've got to be thinking about expanding the tailings storage facility. There are going to be costs that will be incurred that would get deducted from any free cash flow interest.

So, you know, it was just something I wanted, just so we didn't look kind of dumb for giving up something today, if we didn't need to, five or six years from now.

Brian MacArthur (Managing Director)

No, no, it makes sense to me. In fact, I was trying to think about it the other way, because if you extend the mine through to 20, 40 or 50 or 60, then doesn't that thing become quite valuable?

Bill Heissenbuttel (President and CEO)

Well, it could be, but all we've got right now is a two-year extension of reserves, and they're working on a PEA.

Brian MacArthur (Managing Director)

Right.

Bill Heissenbuttel (President and CEO)

That might be a conversation to have when the PEA comes out.

Brian MacArthur (Managing Director)

Right. Okay. So that was kind of calculated to 2035, I guess that. Okay, that helps a lot. Thanks very much, Bill. That makes, that, that clears it up. Thank you.

Bill Heissenbuttel (President and CEO)

Thanks, Brian.

Operator (participant)

Thank you. As a final reminder, if you'd like to ask any questions, please press star one on your telephone keypad now. We currently have no further questions, so I'd like to hand back to Bill Heissenbuttel to conclude.

Bill Heissenbuttel (President and CEO)

Well, thanks everyone for taking the time to join us today. We certainly appreciate your interest in Royal Gold, and we look forward to updating you on our progress during the next quarterly call. Take care.

Operator (participant)

This concludes today's call. Thank you for joining. You may now disconnect your line.