Gold Royalty Corp. (AMEX:GROY) Q3 2023 Earnings Call Transcript

Gold Royalty Corp. (AMEX:GROY) Q3 2023 Earnings Call Transcript November 19, 2023

Joanne Jobin: Good morning. I’m your host, Joanne Jobin, and I’d like to welcome you to the Gold Royalty Town Hall Forum hosted by VID Media. Today’s Town Hall will be focused on Gold Royalty’s recent quarterly announcement and will be hosted by David Garofalo and Peter Behncke, Manager, Corporate Dev and Investor Relations; and CFO, Andrew Gubbels, will join us at the end for Q&A. After the presentation, I will be delighted to moderate submitted questions from our audience. Now a few words on the company. Gold Royalty Corp. is a precious metals-focused royalty and streaming company offering creative financing solutions to the metals and mining industry. It currently has a diversified portfolio of over 190 royalties located in mining-friendly jurisdictions throughout the Americas.

A close-up aerial shot of a sprawling gold-mining operation in a desert landscape.

The company’s business model includes acquiring royalties, streams and similar interests at varying stages of the mine life cycle to build a balanced portfolio, offering near, medium and longer-term attractive returns for investors. [Operator Instructions] And please ensure that you fill in the short questionnaire at the end of the presentation. This really helps us and the company communicate more effectively with you in the future. And before I turn it over to the team, please note, the forward-looking statement at the beginning of this presentation. Gentlemen, the stage is yours.

David Garofalo: Well, good morning and good afternoon as the case may be to everybody. Thank you for attending our Third Quarter Town Hall. I’m delighted to walk through our quarterly results and then hand it over to Peter to walk through the advancements on our prolific and diverse portfolio of royalties. Our operators have been very busy both on the exploration and development fronts of the stocks to talk about today. And what’s clear from our Q3 financial results is that, we’re very much at a tipping point right now. For the first time, we were free cash flow neutral as we drove down our cash operating cost by 50%. Crystallizing synergies from the mergers we completed in the first year of our existence. There are three companies that we took over.

And we went through an extensive post-merger integration period. We’ve drove in a lot of the redundant costs out of the business, and that’s why you’ve seen such an appreciable improvement in our operating cost profile. We also saw a 48% increase in our total revenue land and agreement proceeds. And we’re poised to be significantly free cash flow positive in 2024 with the startup of Cote next year, which, when fully producing will be Canada’s second biggest producing gold mine. And as we saw during the past quarter, they reported IAMGOLD, the operator reported over 90% physical completion of the property. They expect to have about 5 million tonnes or about six months of production of broken ore at the mouth of the mill. So they’re in an excellent position to hopefully execute on a smooth ramp-up and significant free cash flow generation — revenue generation or a royalty over the course of 2024, which represents a significant step change for us in our total revenue profile and again, drives us into free cash flow positive territory.

As we stated in our presentation, our company’s operators, Agnico Eagle, i-80 Gold, Blackrock Silver, all announced material positive developments on their respective projects over the course of the quarter as well, which Peter will get into in a bit more detail in his presentation. We’re very busy on the acquisition side as well. We continue to supplement what’s one of the most prolific and diverse portfolios, not just in the junior royalty space, but in the royalty space generally. We’re approaching over 240 royalties in the portfolio with the acquisition of 20 royalties in this past quarter, over 20 royalties, in fact. And we did it in a very creative way, recognizing the capital is scarce in the sector right now. As we’ve had to be creative in terms of where we’ve acquired it.

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Q&A Session

We acquired a producing copper silver royalty on the Cozamin mine in Mexico operated by Capstone, a large-cap copper producer based in Canada. We also acquired over 20 royalties from SOQUEM, which is the mine investment arm of the Quebec Government, and in return, SOQUEM and by extension, the Quebec Government took a strategic stake in Gold Royalty, again, expressing the confidence in the intrinsic value of our portfolio, our management team and our ability to continue to grow value, not only on an absolute basis, but on a per share basis. And that’s going to be a very important relationship for us with SOQUEM and that, they will continue as is their investment model, to continue to invest in exploration properties in Quebec. And now we have a relationship with conduit, if you will, for any future royalty opportunities that generate from the properties they’re investing in the normal course of their business.

So that’s been a very important relationship. It’s an exclusive deal. We ended up purchasing all of their royalties from their existing portfolio and return for shares in Gold Royalty Corp. And also, we continue to add royalties through our royalty generator model, adding two in the current quarter with significant well-capitalized operators. Again, we generate those royalties effectively for free through the sweat equity of our team, particularly in Reno, Nevada, and, in fact, we not only get those for free, we quite often get paid for them, because not only we do we get royalties and return for those properties, we quite often get option payments and option payments have been a significant component of our revenue through the first couple of years of our existence.

So, it’s a strategy not only pays for itself, but actually pays profits for us while we’re generating royalties on those properties that we stake through our exploration efforts. So we’ve been able to demonstrate. We continue to grow through all the four major legs. There’s only four ways to grow in the royalty business. You can do it through M&A, which we’ve done quite capably when we had a much stronger currency over the course of 2021. We’ve done a few third-party royalty acquisitions. That’s the way how we acquired Cote, which represents a significant leg of growth for us going forward. We’ve done project financings as well, and we do organic royalty generation. So we do all four things we think quite capably, which is unique value proposition for the small-cap royalty universe among our competitors.

What clearly was not a highlight in the quarter, and I’m the first to admit it, is, share price performance, and it has to been very, very frustrating for investors in the gold universe to see this type of gold chart and not getting the kind of performance and leverage of the gold price they should expect in a rising gold price environment. Now, gold has been range bound over the last couple of years between $1,900 to $2,000 an ounce, but it’s held in like a champ in the face of a massive exodus of capital out of virtually every other jurisdiction in the world into the US dollar. So that exodus of capital, that flow capital into the US dollars also gone into gold, because gold has held its value against the US dollar in spite of that flight to safety to the US dollar and US treasuries in particular.

And, in fact, gold is at all-time highs and every other major currency in the world. So that’s a recognition of the intrinsic value of gold. What we haven’t seen is the kind of performance you would expect in the share prices in a rising gold price environment. And we’ve seen a significant underperformance, particularly in the last year relative to the gold price in the GDXJ Index and that’s a smaller-cap universal where we’ve seen a 20% underperformance relative to the gold price, but we’ve also seen that in the larger-cap universe. Many of the bellwether stocks in the industry, whether you’re looking at Agnico, Newmont, Barrick are half the value that they were a year or two ago. And that’s a reflection, I think in the producer universe of declining reserves and also increasing operating costs and capital costs, and that’s eaten into their margins even as the gold prices maintain value at about $2,000 an ounce.

So, that doesn’t really make sense in the royalty universe. So royalty companies should be doing significantly better because they provide that optimum leverage, that investment model provides you that leverage while protecting you from inflation. But what I think what’ll continue to do is drive consolidation among the producers, and we’ve seen a significant amount of consolidation among the producers over the course of the last couple of years. In fact, going back to 2018, given the shrinking pie of reserves, shrinking production profile, you’re going to start to see and continue to see the larger-cap players in the producer universe continue to consolidate. I think inevitably, you’re going to see that kind of consolidation in the royalty universe as well, because we’re at cost to capital-driven business.