Categories: Precious Metals
Topics: General Precious Metals

Gold Royalty Corp (NYSE: GROY) CEO David Garofalo on Creating a Leading Growth and Americas Focused Precious Metals Royalty Company

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the Chairman and CEO of Gold Royalty Corp, Mr. David Garofalo. David, it's been a busy couple of months for you. How are you doing?

David Garofalo: I'm well, thanks. It actually goes back to last summer when we really started putting together a team to bring Gold Royalty to the market, and that took many months of preparation, legal work, and what not, and culminated with our successful IPO back in March, when we raised $90 million, US, and now we're putting that capital to work as we promised.

Gerardo Del Real: Let's talk about how you're putting that capital to work. You've had an eventful ... As you mentioned, it's been an eventful year, obviously. But this week in particular, you announced a combination with Ely Gold to create a leading growth and Americas-focused precious metals royalty company, a transaction that was very well received by the market. I saw several analysts that up their price targets on the transaction and the assets. Tell me a bit about why it's accretive, why it's attractive. Again, congrats because the last time we spoke, we talked about the robustness of that treasury, and you're obviously putting it to good use.

David Garofalo: Look, what it does is instantly doubles the size of our company from a market cap standpoint. It's almost a merger of equals. This is almost a $300 million Canadian acquisition of Ely Gold Royalties and compliments our $200 million, US market cap, but also compliments and diversifies our portfolio of royalties. We came in to this transaction with 18 royalties across the Americas, all of them in a development stage. What Ely brings is an additional 80 royalties, so brings our royalty count to almost 100, and brings four cash flowing royalties currently with another three or four in the development stage. So really diversifies not only the number of royalties we have, but brings some near-term cash flow into the portfolio to compliment our development stage assets.

We have plenty of organic growth within our existing portfolio through exploration and de-risking of those projects. But now we have a more mature royalty portfolio to compliment that, and creates critical mass. As generous investors come into the space, they're going to be looking for companies with critical mass in the royalty space. That affords an opportunity for significant re-rate of our multiple. Typically, the more mature, larger scale royalty companies trade at one and a half to two times the underlying value of the business. We're trading at about one times right now. So that means we expect a re-rating of 50 to 100% over and above our current share price as this transaction is consummated. That's exciting. The upside is immense for our shareholders.

Gerardo Del Real: The timing is excellent. Gold Royalty just announced that it was included in the VanEck Vectors Junior Gold Miners ETF. That happened earlier today. I want to get back to Ely's portfolio because there's also 43 exploration assets within that. Can you speak to that a bit? Because you're setting up a pipeline in what seems, to me, one of the most overlooked aspects of this bull cycle that we talked about last time. That is that there's a lack of quality exploration assets and companies that actually know how to develop them. We talked about the team last time, the experience, and the business model. This really puts you in a sweet spot. Can you speak to the exploration assets for a bit?

David Garofalo: Well, that's the other thing that compliments our skillset in bringing the group from Ely into the mix. Trey Wasser will be joining our board. He's the CEO of Ely currently, and Jerry Baughman, his partner, will also be staying on in a consulting capacity post the merger. What's exciting about their model is they've generated all of their royalties internally. In other words, they took exploration stakes in a number of assets in Nevada, and then sold those exploration properties to explorers and developers and took royalties back. So they're continually generating, at the grassroots level, new royalty opportunities, rather than going out there and competing for existing royalties, which is a crowded space. The values tend to be a dear. It's very, very hard to generate returns.

They're generating royalties and originating them themselves. That compliments our skillset. We're great at capital markets. We're great at doing M&A within the existing group at Gold Royalty, but this generative model, this platform that Trey and Jerry have created over a number of years really adds another dimension to the gold royalty story that didn't exist before. It really makes us a more whole royalty company with skillsets across the spectrum.

Gerardo Del Real: I couldn't agree more. That's very well said, David. Anything else that you'd like to add to that?

David Garofalo: Look, I'd say to your point, there is a dearth of exploration and development opportunities in the gold sector. As I pointed out the last time we spoke, we've seen a 40% decline in reserves in the gold industry over the last six or seven years. So these projects that we're ... that Ely is generating in the gold royalty world as we put these two companies together, are going to become an increasingly dear and important commodity that the gold industry that's looking to replenish their pipelines, to add more development stage and exploration stage assets.

We're going to own royalties on these assets that are going to increase in value. As they increase in value, the underlying assets, the royalties by extension will increase in value. That's certainly true of the gold mining portfolio. Our parent company, upon which we've got royalties on all their assets, these assets are becoming increasingly more valuable in an industry that starved for development stage opportunities. So as Alastair Still, the new CEO GoldMining, de-risks those assets, we're going to see a re-rate within GoldMining's portfolio, and we're going to see a re-rate by extension of Gold Royalty because we have royalties on each and every one of those projects.

Gerardo Del Real: Seems like you're putting yourself in a pretty good spot there for what I see coming. If I'm half right about what's coming, I think it's going to be a pretty significant re-rating in pretty short order. Congratulations again, David.

David Garofalo: Well, thanks so much for having me on again.

Gerardo Del Real: Look forward to chatting again soon. It sounds like you've got some more deals up the pipeline there.

David Garofalo: Indeed. Thank you.

Gerardo Del Real: Bye now.

David Garofalo: Okay. Bye bye.