Categories: Precious Metals
Topics: General Precious Metals

Gold Royalty Corp. (NYSE-American: GROY) CEO David Garofalo on Growing Into a Leading Royalty & Streaming Company in the Sub-US$1 Billion Category

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the president, CEO, and chairman of Gold Royalty Corp. — Mr. David Garofalo. David, how are you today?

David Garofalo: I'm very well. Thanks for asking and thanks for having me on, Gerardo.

Gerardo Del Real: Well, we're chatting every week or two now it seems like… and I suspect that may continue to be the case. You have been very, very active using this latest consolidation in the gold space to your advantage. 

You just acquired another five gold royalties. I would love for you to provide the details and the context behind the acquisition here.

David Garofalo: Sure. Well, it brings me back to one of the places where I started my career in the Abitibi Greenstone Belt in northwestern Quebec, which is one of the most prolific gold districts in the world with one of the best operators. 

Monarch — and Jean-Marc Lacoste, their CEO — have been long-standing operators in that region of gold deposits and gold mines. And they've assembled a property position around the old Beaufor mill that they're looking to restart operations on. So this is a brownfield development.

The capital we're putting in, which is about C$15 million, will be put right into the ground to facilitate the restart of those operations by next year. So these royalties will actually start cash flowing in 2022 and — over the next five years at current gold prices — would generate virtually all of our investment back. 

So it's a very quick payback with a resource that has quite a bit longer life than that. So we're likely to have a significant return — a double-digit rate of return — on the capital we're investing in this opportunity.

Gerardo Del Real: You've been very aggressive in using your balance sheet and the network that you and the team have developed over the years. Is that something that shareholders can continue to expect more of?

David Garofalo: Absolutely. I mean, we procure people… and we see the procurement of the right people on our board management as equally important to actually procuring royalties. Because what our board management does with collectively 300 years of operating experience in the mining sector is they open doors for us. They open doors to bilateral opportunities like this one. 

This was not a competitive process. This was a relationship that we had longstanding through our board management with operators in the Abitibi Greenstone Belt, and it opened up an opportunity that wasn't available to other royalty players. 

So that's a really important element and distinguishing feature of our story. In the sub-US$1 billion market cap category of royalty companies, we have, we think, the strongest and deepest bench among our board management. That opens up opportunities.

Gerardo Del Real: Well said. I've got to get your take on the gold space. I started by talking about the consolidation… your thoughts going into the latter part of the year here?

David Garofalo: Well, the last time we spoke, I talked about what I saw is a recipe for strong and prolonged gold price increases over the next 6 months to 18 months because we're in an environment where we're going to see continued quantitative easing, continued low interest rates. 

But what we're also seeing, and I said this before, is inflation rearing its ugly head. We're certainly seeing general inflation rates go through 5%... at least on a headline basis. And I think we all know that inflation is far beyond that in reality in our day-to-day lives. 

But what I think that also means is that there's going to be significant cost inflation in the mining industry on operating capital costs. And the reason that is is because the general inflation in the economy but also because of the underinvestment we've seen in new mine development and exploration over the last half a dozen years, which precipitated a significant decline in reserves. And it's become an existential issue for the industry.

So I think we're going to see the kind of cost inflation we saw 10 years ago. I'm not sure I'd want to be in gold mining operating equities in that environment even with the gold price going up. 

I think you're going to get much better leverage in the royalty space because, as a royalty holder, we're insulated from operating cost and capital cost inflation. We just have top-line exposure. In other words, we get a fixed percentage of the revenue regardless of what happens to the underlying operating capital cost of a mine.

And so I think when you want leverage to the gold price, leverage to exploration without the underlying risk in capital cost and operating cost inflation — you want to be in the royalty business. 

And I think with Gold Royalty Corp., we have now, on a pro forma basis with Ely, one of the most significant portfolios among the smaller cap royalty companies; the best leverage to the gold price; long mine-lifes in the underlying deposits that underlie our royalties. And that really provides optimum leverage to the gold price and exploration.

Gerardo Del Real: You describe your journey, in the press release, of growing into a leading royalty and streaming company as eventful. I will describe it as impressive! Congrats on the great work, and I'm looking forward to chatting again… soon, it sounds like!

David Garofalo: Thanks, Gerardo. I hope that's the case.

Gerardo Del Real: Appreciate your time. Thank you as always.

David Garofalo: Okay.