Gold Royalty Corp. (AMEX:GROY) Q4 2023 Earnings Call Transcript

Gold Royalty Corp. (AMEX:GROY) Q4 2023 Earnings Call Transcript March 28, 2024

Gold Royalty Corp.  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Joanne Jobin: Good morning. I’m Joanne Jobin, your VID Media host. Welcome to the Gold Royalty Quarterly Town Hall Forum. Before we commence just a reminder that if you do have any questions for the company, please place them into the Q&A tab located at the top of this screen. After the presentation, I will be delighted to moderate submitted questions from our audience. With us this morning is the Gold Royalty team, led by Chairman and CEO, David Garofalo, who will make the intros to the team and take you through the highlights of the most recent quarterly results. David, the stage is yours.

David Garofalo: Thank you, Joanne, and good morning, everybody. We’re delighted you could join us to talk about our fourth quarter results. I’m joined today by our Chief Financial Officer, Andrew Gubbels; and our Director of Investor Relations and Corporate Development, Peter Behncke. And I’ll pass it on to them shortly. But I thought what I would do to start today is talk a little bit about the gold price environment that we find ourselves in, and I think it’s been an auspicious start to the year. Many of the themes that we were talking about over the course of 2023 and even before that have really come to pass in terms of a rising gold price in the face of falling real interest rates. Inflation is still quite deeply entrenched.

The headline numbers really understate the reality on the ground. We’re not experiencing 3% or 4% inflation fact, if you look at our day to day expenses, whether it’s food, fuel, or shelter, and as we see interest rates reset on mortgages, we’re seeing 15% to 20% inflation on the ground. And gold is a very accurate barometer of the inflation we’re experiencing and where real interest rates lie. Yes, interest rates have stabilized on a normal basis. They have gone up significantly in the last couple of years as the Federal Reserve and other central banks have tightened monetary policy, but the reality is inflation’s continued to accelerate. So that’s driven real interest rates down deeper and deeper into negative territory. What gold is telling you is the purchasing power of your fiat currencies is steadily being deteriorated through inflation.

You’re losing your savings through inflation. Gold is the ultimate protector of your capital because it’s the one currency can’t be printed and it’s telling us that inflation is still undermining the value of our paper currencies, and we’ll continue to do so. The Federal Reserve is starting to pivot, or at least signaling that they will, and going to be cutting nominal rates, and I would argue that’s actually quite premature. It’s not going to be as a result of inflation coming down. It’s because of the onerous debt levels that we’ve stopped on globally, at the government level, corporate level, and individually at 350% to debt to GDP, interest rates right now, nominal rates make debt unserviceable. There’s no fiscally responsible way for these governments to repay the debt.

So the central banks are pivoting away from higher interest rates in order to preserve corporate and government balance sheets, not because inflation is slain. That’s why we think gold will continue to accelerate. And it’s nowhere near the all time highs for gold on a real basis, because you look at the last big inflation cycle we had in the 1970s, gold actually peaked close to $3,000 an ounce on a real basis [indiscernible]. So well away from where the all time high for gold is. And I would argue that we’re going to experience much higher gold prices than we experienced in the last big inflation cycle because, as I said, the central banks are cutting interest rates prematurely before inflation has actually been tamed and that will result in unprecedented levels for the gold price.

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Q&A Session

And the question you quite often have to ask yourself is where are you best positioned to get leverage of the gold price? It certainly hasn’t been the equities, and I know that’s disappointing for many gold investors. You would think that you would get leverage from operating companies in a stable cost environment, but we are not in a stable cost environment. So even though gold is up nearly 8% this year, to all-time highs in U.S. dollar terms, we’ve actually seen the GDX, which is the large cap producers, see virtually no change in their equity valuation. So in other words, the gold equities have gone up zero year-to-date, in spite of an 8% increase in the gold price. And that’s also true for the juniors. That’s not unexpected. The smaller cap names tend to benefit from gold price rallies a little later in the cycle as money starts to trickle down from the larger cap players.

But it’s telling that the larger cap players in our universe, the producers, are not experiencing any leverage to the gold price. And there really is two distinct reasons for that. One is cost inflation. They have an overhang in their costs due to inflation in the general economy, they are certainly not immune from inflation, fuel and labor costs and we’re still experiencing that to a great degree. And that’s overhung their margins. And so even though the gold price has been going up, their margins continue to be compressed and stressed. And the other reason is because the industry continues to shrink, because of the lack of capital for the juniors, who have not experienced any sort of relief in the space of this gold price rally, we haven’t seen any significant exploration in the industry to replace depleting reserves.

And so as a result, we’ve seen a 40% decline in reserves since 2012, among the producers. And we continue to see a cannibalization of the companies within the space, more and more merger activity to sustain unsustainable production levels among the senior companies. The biggest producers in the gold universe, the largest cap names, are producing the same amount of gold today that they did 26, 27 years ago. The big change has been that their share count has gone up exponentially. So in other words, they have had to cannibalize other companies in order to maintain production levels that frankly are unsustainable, given the global decline in gold reserves and the lack of exploration activity to replace those depleting reserves. That’s why time and again, we’ve said that the best place to be placed to get optimum leverage of the gold price is among the royalty companies that offer top line exposure while protecting you from inflation, they offer you diversification, and they also offer you leverage to the exploration upside of our underlying operating partners.

Last year alone, our operators invested over $200 million in exploration on their properties. We contributed nothing to those exploration budgets, but we got all of the upside within our very diversified royalty portfolio of over 240 royalties. And we’ve actually started to see good financial results in the fourth quarter for the first time in our history, and we’ve only been in business for a little over three years now. Our anniversary was March 11 since our IPO, third year anniversary since our IPO in March of 2021. And we’ve already realized a $0.01 of adjusted earnings in the fourth quarter versus a $0.02 loss on an adjusted basis in the previous fourth quarter of 2022. We did actually book a non-cash impairment of just under $20 million in the fourth quarter.

Again, that’s an accounting impairment, it doesn’t have anything to do with cash on the balance sheet. Really the biggest chunk of that write off related to First Majestic’s Jerritt Canyon Mine, which suspended operations on last year. We took the conservative view of writing that down to zero, even though First Majestic has been aggressively drilling out that mine and is looking at ways to bring that back online. So, in fact, if they do bring it back online, we would actually reverse the impairment as a result of that. So we’re optimistic that First Majestic will find a plan to resume operations there, and then we’ll start to get cash flow from that operation going forward once they do that. We’re poised to deliver very significant growth this year.

100% increase in our revenue versus what we realized in 2023, so a doubling. And we’ve run a lot of costs out of our company as a result of the post-merger integration efforts. As you’ll recall, we merged with three other companies over the course of 2021. We bought Ely Royalties, Golden Valley Royalties and Abitibi. And as a result of our integration efforts, we run almost 40% out of our operating costs last year, and now we’ve stabilized our cash operating cost of about $8 million per annum. So we’re in a position now to continue to book positive earnings, we believe, and also positive free cash flow for the first time in our history, so starting to compile cash going forward from our operations. And that’s a remarkable achievement for a company that’s only three years old.

You’ll remember when we started our company back at our IPO in March of 2021, we only had 18 royalties. None of them were cash flowing, a significant mineral endowment underlying those 18 royalties. But as a result of our consolidation efforts and the acquisition of some very strong royalties, including Cote in Ontario, Cozamin in Mexico and Borborema in Brazil, all of which are going to be contributing meaningfully to our revenue growth this year. We’ve seen significant revenue growth, and we’re forecasting on a consensus basis, about 60% compounded annual growth in our revenue right through the end of this decade. And given that our costs are quite stable right now, that means that our revenue growth is going to fall right to the bottom line and continue to compound the increase in our free cash flow going forward.

So with that, I’d be delighted to hand it over to Andrew Gubbels to talk about our financial results in the fourth quarter.

Andrew Gubbels: Thanks, David. Okay. Let me start off with the revenue line and what we’ve already indicated as 2024 GEO guidance. In 2023, GEOs of 2,703 ounces were largely driven by revenue from Canadian Malartic, Borden and Isabella Pearl royalties and a partial year of revenue from Cozamin and land agreement proceeds from our – really our royalty generator business. In 2024, we expect to effectively double our GEOs and in turn, our total revenue, land agreement proceeds and interest. And that’s for several factors. First, from our existing operations, we see GEO enhancement from our operating mining partners in areas whereby Gold Royalty has even more royalty coverage. We see this at Borden, Cote and Odyssey in particular, where operations are actively expanding or transitioning into new areas in the near to medium term.

Also, our recent acquisition of Cozamin and Borborema royalties will provide incremental revenue in 2024, relative to 2023. Those are strategic acquisitions that are major contributors to what we’ll see in the coming year 2024 and beyond. And finally, as I mentioned before, our royalty generator business continues to generate new royalties and create new sources of revenue, which is in the form of land agreement proceeds for the year. Now from an operating cost perspective, 2023 was a year whereby Gold Royalty strengthened its foundation after two years of fast-paced growth via consolidation. Now this included, as I mentioned before, the strategic acquisitions of two quality cash-generating assets, in the form of Cozamin and Borborema, but also involved the rationalization of the company’s corporate overheads.

2023 saw cash operating costs decreased by 36% from $12.6 million to $8 million, as the company eliminated redundancies, centralized operations and optimized its service agreements throughout the year. In 2024 and moving forward, we expect recurring operating expenses to be within a similar range as 2023. Taken together with higher revenues, stabilized operating costs, we’re confident that our ability to generate positive operating cash flow this fiscal year and beyond. Now beyond 2024, Gold Royalty has an industry-leading growth profile, as forecasted by brokers you see in this page. This will largely be driven by cash flows from projects being developed by large, well capitalized operators, all of which, you know, very well. It includes the continued ramp up of Côté Gold, which just started producing, Aura Minerals Borborema project, whereby we’re being currently earning pre-production payments and Agnico Eagle’s Odyssey underground operations.

Later on in the decade, we do expect to see additional growth from high quality royalties such as Nevada Gold Mines expansion of the Goldstrike deposit, and that’s the Ren royalty. We hope to see that later in the decade. Now, with the stabilized cost structure and no exposure to mine operating exploration or development costs, as Dave mentioned before, every dollar of revenue growth goes straight to the bottom line and increases our available cash flow in the future. Now with that, I’ll pass it over to Peter to provide an update on the portfolio.

Peter Behncke: Thanks, Andrew. So, building on this purely in revenue growth chart, diving in a bit to the assets that are fueling that growth, I think it’s no surprise, and we’ve shown this image before on the pipeline of assets we have within our portfolio, all the way from cash flowing to early exploration. But what I think is important to highlight is the dynamic nature of this pipeline and specifically, the cash flowing bucket of royalties and the work we’ve done over the last 12 months, to focus on supplementing our cash flow profile. Borborema and Cozamin assets both acquired in the second half of 2023, and Côté, an asset that is on the precipice of entering production are all going to provide a meaningful portion of our 2024 revenue.

Beyond that, within the development bucket, we’ve seen consistent positive news from our operating partners advancing those assets towards production, and like Côté, we’re quite optimistic to see several of those gray assets enter the blue cash flowing bucket in the near to mid-term. Two key points I’d like to remind shareholders and investors of, and Andrew spoke to this earlier is the quality of operating partners that are driving forward these assets. David mentioned the $200 million in exploration spend, the significant investment by our operating partners going into these assets. All that benefit accrues to Gold Royalty at no cost. But also these key development stage assets that are being advanced, being developed are in the hands of very well capitalized companies, which in our view is a significant de-risking factor relative to other peers.

I’d also highlight, and it’s quite timely within the royalty and streaming sector, our geopolitical profile with 80% of our portfolio in Quebec, Ontario and Nevada, very stable and safe mining jurisdictions. And I’d note that our key development stage assets are on brownfield sites with very few assets subject to any meaningful permitting risk. These are assets that are being developed near existing operating mines and that significantly, again, derisks the development profile of our portfolio. Now, with 240 royalties, don’t need to expand across all of them, but a few of the specific highlights to bring to your attention, as always, our three cornerstone royalties, royalties on three of the five largest gold mines in Canada or the USA, Odyssey, Côté and Ren, we’re quite excited and we’ve seen positive advancements at all of these assets.

At Odyssey, Canadian Malartic continues its transition to become Canada’s largest underground gold mine, Agnico, with their most recent mine plan update and recent exploration updates continue to emphasize the potential of the internal zones. While nothing definitive has been outlined or disclosed by Agnico, they do see the potential for the internal zones to supplement the underground mine plan over the next couple of years. And beyond that, another key area of upside is the potential for a second shaft, which could increase the underground mining throughput by 10,000 to 15,000 tons per day. This would be a meaningful contributor to the excess mill capacity that is at the Canadian Malartic complex currently. For our royalty in 2024, we’re expecting relatively modest consistent revenue.

We’ll take a conservative view, but do see that upside from the underground in the near-term. As a reminder, Canadian Malartic complex really shifts to becoming a full underground mine towards 2028, where we’ll see a meaningful step change in our royalty coverage. At Côté, the most immediate catalyst within the portfolio based on IAMGOLD’s Q4 results in 2024 guidance announced that IAMGOLD would achieve first gold pour imminently here by the end of March, which is where we’re at, and then achieving commercial production in Q3 of 2024. Given this is the ramp up year, they’ve provided guidance of 220,000 to 290,000 ounces in 2024 on 100% basis of the asset, while Côté within the mine plan ramps up closer to 500,000 ounces per year once at full capacity.

As a reminder of Gold Royalty’s coverage at Côté, our royalty covers zones five and seven of the patchwork of royalties at Côté, which is the southern portion of the pit. Importantly, mineralization at Côté is concentrated near surface and the higher grade portion of mineralization is within our royalty coverage area. So we do expect to see an immediate benefit as the royalty holder once this asset starts producing in the very, very near-term. At Ren, Barrick outlined their growth prospects last September, where they disclosed that Ren was the subject of an internal pre-feasibility study, which they are targeting to publish in early 2026, and then incorporating Ren into the mine plan thereafter. They’ve continued their exploration efforts through Q4, some exciting drill results include 4.7 meters at 24.9 grams per ton at the Corona zone or the Corona corridor, that’s the western portion of the property.

So they’re continuing to expand that resource, get a better understanding of it, also advancing development and internal studies. So we’re quite bullish that this high grade resource close to 7 grams per ton currently is going to be incorporated into the overall Carlin Complex later this decade. Now, beyond these cornerstone assets, pivoting to some of our most recent acquisitions and where they’re standing, the most recent deal we closed is the Aura Minerals financing package, where we received a 2% NSR royalty over the Borborema project in addition to a gold linked loan. In Aura’s most recent quarterly results, they outlined that construction was 17% complete at Borborema and they maintained to be on track with first production in early 2025.

In fact, February 2025 is their guidance. Aura is a proven mine builder within Brazil. The team that is currently constructing Borborema just came off the successful completion of the Almas mine on time and on budget. So we are quite confident in that team’s ability to deliver at Borborema. As a reminder of our exposure at Borborema, we do receive those pre-production payments until they achieve technical completion of 1,000 gold equivalent ounces per year. And our coupon payment associated with the gold linked loan is 440 gold equivalent ounces per year. So while this is a development stage asset, we’re already receiving 1,440 GEOs in 2024 or expect to. At Cozamin, a relatively small mine within Capstone’s portfolio, but a high grade, high margin operation with great exploration success and a track record that we would expect to continue into the future.

In 2024 consistent with their previous mine plan and consistent with 2023, they’ll look to have relatively similar production with marginally higher costs. But this is still a first quartile operation in terms of costs. We do expect continued exploration work at Cozamin as well to potentially extend the mine life. And this will be an asset that will be producing well beyond the reserve life in our view. And finally, our royalty at Granite Creek, reminder, this royalty was acquired through a package of royalties from Nevada Gold Mines, the joint venture between Barrick and Newmont. i-80 Gold the operator has had continued exploration success, extremely high grade drilling results at their South Pacific zone, which is the deeper area of mineralization at the underground of Granite Creek.

This area is expected to be the main mining horizon in 2024 and they’re targeting to ramp up production here to 1,000 tons per day. Our royalty to Granite Creek, the 10% net profit interest is subject to 120,000 ounce production threshold. They mined just shy of 10,000 ounces total to date. And once fully ramped up, we expect that hurdle to be met quite quickly. So with those three cornerstone assets, three recent acquisitions, we’ve got a robust growth profile in 2024 and out towards the end of the decade as well. With that, I’d pass it back to David to wrap things up, speak a bit about where we sit within the sector and then we can open things up for Q&A.

David Garofalo: Thanks Peter. Thanks very much for that overview of our operations. Look, I think what’s important to talk about is where we’re positioned relative to our peers in the sector. And as you’ve heard me say before, there are two distinct solitudes in our sector. There’s the large cap universe, the Wheaton Precious Metals, Franco-Nevada’s Royal Gold all exceptional large cap liquid companies with great royalty portfolios. But what they lack is growth, what we provide is an opportunity to grow significantly, even exponentially off of a very strong and diversified portfolio, one, in terms of our scale, that’s actually comparable to the seniors in the space and some of the best royalty opportunities in North America.

We have royalties on three of the five biggest producing gold mines in North America, including Canadian Malartic, Côté and also the underground extension of Goldstrike and Ren. So that provides a quality proposition in addition to the significant diversification we have within those three principle jurisdictions in Nevada, Quebec and Ontario, and now in Brazil, with the Borborema asset, which will be coming into production in early 2025, but also already contributing, I should say, pre-production royalty revenue over the course of 2024. So exceptional growth in the best jurisdictions from a well diversified portfolio, but with foundational assets, cornerstone assets that will be delivering royalties for our shareholders for many decades to come.

So, to sum up, and again, thank you for your kind attention. We’ll take questions shortly. The royalty model is the superior model in order to participate in an unmitigated basis to leverage in the gold price, we’re protecting our shareholders from cost inflation as a result of our top line revenue exposure. We have diversification that no operating company can hope to achieve with over 240 royalties across the portfolio. And across the lifecycle of a mine, from production right up to early stage exploration, we provide a lot of optionality in addition to that revenue growth. As the gold price goes up, that option value will start to be crystallized in the marketplace, in our view. And also, again, free exploration upside. As a result of the exploration efforts of our 80 plus royalty operators or operating companies within our royalty portfolio that invest significantly in exploration around their existing mines and deposits in order to achieve reserve and resource upside, which we benefit from in our royalty portfolio without actually having to contribute to it.

But I think what’s also important about our story, and it’s quite unique among the royalty players, even the large cap players, is we have four distinct legs of growth, which none of the royalty companies in our space do, and that includes M&A, which we did quite aggressively over the course of 2021, we had much stronger currency. We IPOed $5 per share, and we had strong currency over the course of 2021. We recognized our relative multiple advantage and we used it to the advantage of our shareholders to accumulate significant critical mass and diversification through M&A efforts as we acquired three companies. When the currency abandoned us, as the Federal Reserve started to tighten interest rates in early 2021 or 2022, I should say we started to look at other means of growth and that included third party royalty acquisition, as we did with Cote.

We bought that from the state of a deceased prospector, and that’s going to deliver significant revenue growth for us this year. We did through project financing, as well as we did recently with Aura Minerals and the Borborema project in Brazil. And then we also generate royalties organically through our efforts, principally in Nevada, where Jerry Baughman runs our U.S. business. He stakes exploration claims around existing mines and deposits and generates royalties not only for free, we actually get option payments for the royalties we generate as we farm those properties out to the operators and explorers. Last year alone, we generated almost $3 million of option revenue through our royalty generator model, and we generate two to three royalties per quarter.

Doing that again, not only for free, but we actually get paid to generate those royalties. No other company in the royalty universe grows through all four means, and I think that’s a testament to the depth and breadth of our management team, which collectively has over 400 years of industry experience. That gives us the advantage of being able to grow through multiple means and access royalty opportunities through leveraging our relationships in the industry. So with that, Joanne, we’d be delighted to take questions from our shareholders.

A – Joanne Jobin: Excellent. First of all, thank you, gentlemen, for a fantastic update. We really have a global, full house audience today, so thank you to the audience for tuning in this morning. Really means a lot to us. Before we take questions, just a reminder to please place your questions into the Q&A tab located at the top of your screens. And the first question for today is, David, if possible, could you please comment on the Arizona Metals’ Kay Deposit in Arizona, which is approximately 45% gold, 45% copper, and still drilling. Just curious if you have any opinion on them.

Andrew Gubbels: David, just to get ahead of you on that. So we don’t have a royalty over Arizona Metals’ Kay deposit. It’s an interesting deposit. We know the Arizona Metals team. But from our perspective, it’s interesting. We don’t have a royalty, which there is on a Metals team, the best. But it’s not something within our portfolio.

Joanne Jobin: All right. Well, then that’s been answered. And I think there’s been questions regarding the royalty generation model, which you answered and summed up in the last part of your presentation, David. So I think we’ve answered that question. So next question. How many of your projects will become producers within this gold cycle?

David Garofalo: Peter?

Peter Behncke: Yes. So currently, with six cash flowing assets, we do see several assets ramping up and entering production, named a few already, REN, Odyssey, Granite Creek, other potential development stage assets include Gold Rock. So we’re approaching 10 to a dozen producing royalties by the end of the decade, if that’s how you want to define this gold cycle.

Joanne Jobin: Okay. Questions on Côté. Are they on track for production and ramp up in 2024?

Peter Behncke: Yes. So based on all information and as I noted, from IAMGOLD, they’ve indicated production by the end of March, which is imminent and really ramping up to commercial production in the second half of the year in Q3.

David Garofalo: I think the one thing that gives me significant comfort as a royalty holder is the fact that they have 5 million tons of ore stockpiled, ready to go into the mill. And I think that’s extremely important. Having been a mine developer myself over my career, having a consistent feed of ore during the commissioning phase is extremely important to optimize the metallurgical recoveries and get a consistent production level from the operation. So they’ve done an exceptional job in that regard, and that gives me some confidence that they’ll have a relatively smooth ramp up.

Joanne Jobin: Thank you. Lots of questions on the dividend. Do you foresee reintroducing or entering back into the dividend phase?

David Garofalo: Look, I think as we get into free cash flow territory and sustainable free cash flow is the conversation that I know my Board would be delighted to have returning capital to shareholders on a consistent basis. So I don’t want to get ahead of ourselves. But we are entering the free cash flow territory this year, which is a great place to be.

Joanne Jobin: Thank you, David. In regards to Borborema advancing. Is February 2025 production realistic, feasible?

Peter Behncke: Definitely based on Aura’s track record as a Latin American operator, we’re quite confident that we’ll see that asset enter production early next year. But given how we’ve structured that investment as well, we’re significantly de-risked on if there was a delay. We’re still receiving 250 gold equivalent ounces per quarter until they enter production. So we do see an increase once into production, but we’ve got very reliable cash flows up to a maximum of 10 years, if that asset was never built, which is not the case, but we’ve really protected ourselves on the downside with the structuring.

David Garofalo: And the other component of that, about 1/3 of the financing we provided was in the form of our convertible debenture, which actually generates interest during the preproduction phase. And that debenture is convertible into an additional royalty on the property. So as they ramp it up and we gain confidence in the underlying operation as they start to convert that significant resource over 2 million ounces in the reserve and extend the mine life, then it will make a lot of sense for us to convert that that debenture into an additional royalty over and above the initial royalty that we have.

Joanne Jobin: Excellent. Next question, cost savings. Where did the majority of cost savings come from in 2023 versus 2022?

Andrew Gubbels: Yes. I’ll take that one. So the majority of savings, it came from a few different areas. First and foremost, I mentioned in the presentation we came off a couple years of a fairly high pace growth, corporate consolidation and 2023 was a year whereby we removed some duplication which came into the company, and that was in the form of administrative functions and associated office costs related to primarily the Ely, Golden Valley and Abitibi acquisitions. Further to that, over the course of the year since I became CFO we’ve established more of a streamlined FP&A function to re-evaluate and monitor our G&A costs, and that allowed us to focus on the highest value add services as well as review service contracts and make improvements where we could.

We started down that track through 2023. And then lastly, the third area was really, we have seen a reduction in some of the professional fees and in 2023 we did take on a little more in house from a technical review standpoint, something the team that reviews projects, as well as in the finance team in particular, so really centralization of our operating footprint within our Vancouver office system.

Joanne Jobin: Excellent. Question on evaluating future growth opportunities; how is the company doing that?

David Garofalo: We’ve never been busier. We’re in a perpetual state of due diligence, that’s our business. There is such a dearth of capital for development stage assets, even expansions of existing operations that we’re seeing more and more companies whether they’re at the operating stage, development stage or exploration stage, meaning the corporate streams and royalties into their capital structure more consistently. That means we’re getting an influx of opportunities thrown our way but we have a very, very heavy screen. Since our IPO, we’ve looked at over 300 opportunities. We’ve only executed on eight, including the M&A deals we’ve done. So we’re very, very choosy about the things that we invest in and write royalties on because we have very stringent rate of return criteria.

Unidentified Analyst: Excellent. David, do you expect speaking on the sector, do you expect more consolidation within the mid-tier royalty space in the near future? What are your thoughts on that?

David Garofalo: Well, I think there’s definitely going to be a continued consolidation on the producer side, and there has been significant consolidation, big, small and medium. Big being Newcrest being the biggest ever since the Newmont Goldcorp merger back in 2019. That was – this one was over $50 billion. And then we’ve seen smaller ones like recently Argonaut being taken over by Alamos and Calibre taking over a project Marathon’s project in Northland. That will continue to happen because, as I said, with the lack of exploration occurring in the sector, the seniors have to take out other companies in order to maintain unsustainable production profiles. They’re kind of caught in this vicious cycle and have been for decades, and I don’t think that’s going to reverse.

So given the lack of exploration, continued deterioration in the reserve profile of the industry, they have to basically play Pac-Man with each other. On the royalty side, I see lots of scope workers on acceleration. There’s probably too many players in the small cap universe, and there’s a complete absence of a mid tier competitor in the royalty space, which is big enough to be relevant to institutional investors, generalists that come into the space, but still small enough to grow. And so there is no $5 billion market cap royalty player out there. The absence of that, to me, is a void that needs to be filled. I think you’re going to see consolidation among the smaller cap players to enhance their multiple and drive down their cost of capital.

The order of that, the sequencing of that is hard to predict, but I think it’s inevitable because it’s such an economic imperative for the smaller cap universe.

Joanne Jobin: Excellent. Regarding your Granite Creek project, was that a net profit royalty rather than an NSR? Can you provide clarity on that?

Andrew Gubbels: Yes, no, it’s a good question and good to provide clarity. So it is a net profit royalty that we have at Granite Creek, and it’s one of the few net profit, bottom line royalties we have in our portfolio. The reason we got really excited about this royalty in particular, was the grade of the underground and the potential for a very high margin deposit. With IAD [ph] bringing that asset forward, the current underground resource is over 11 grams per ton, and the continued expiration success of the South Pacific Zone could see that expand and potentially improve as well. So because of the potential for a high grade, high margin deposit here, it was one of the rare occasions where we did find the net profit interest quite attractive. But I would note that the vast majority of our portfolio, there’s only a handful, only a couple actual net profit interest. Almost all of our royalties are top line net smelter return royalties or gross revenue royalties.

Joanne Jobin: Okay. And what are your plans for the cash generated in 2024? Do you have any preferences?

David Garofalo: No. Look, I think, as I said earlier, returning capital to shareholders is something that’s definitely on the table that we’ll discuss as we get into sustainable free cash flow. But we’re looking at a significant, a number of opportunities that will help us grow our business accretively, and putting that cash to work, I think, is a priority.

Joanne Jobin: Excellent. And David, there’s been a number of questions regarding the share price and performance, and perhaps you can comment on that.

David Garofalo: Well, we’ve had a very good start in the year. We’ve certainly been a relative outperformer, a dramatic relative outperformer to the sector. And I think that’s really a testament to the fact that we’re pivoting into free cash flow territory. As I said, we had our first order positive adjusted earnings fourth [ph] quarter of last year and that we’re poised to deliver positive earnings and positive free cash flow going forward. And I think the market recognizes that, that we have unparalleled growth in the sector.

Joanne Jobin: Excellent. Well, we are at the top of the hour, so we will end the Q&A session at this time. And if you have any other questions, please forward them directly to Peter at pbehncke@goldroyalty.com. David, before we sign off, would you like to say a few more words to this great audience today?

David Garofalo: Well, thank you so much for such incredible participation today, for your questions. And as Joanne says, you don’t need to end your questioning today. We’re easily accessible through our website, through our emails, through our phone numbers. If you go to our website, you can see how we can contact us. And if you have any follow-up questions, we’re delighted to hear from you.

Joanne Jobin: Thank you, David, and thank you, team. Just a reminder that this Town Hall will be available on Gold Royalty’s website and across all of our socials within the next 24 hours. Before we sign off, 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. Thank you for joining us today and we will see you all on the next town hall forum. Goodbye.