Gold Royalty Corp. (NYSE: GROY) CEO David Garofalo on Creating the Next Multi Billion Dollar 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 an absolute pleasure to have you on. How are you today?

David Garofalo: Well, thanks for having me on Gerardo. I'm delighted to be here.

Gerardo Del Real: For those that aren't familiar, as I mentioned, you're the Chairman and CEO of Gold Royalty Corp. And we'll get into the business model in just a second, but you're the former President and CEO of a small little gold outfit called Goldcorp, which merged with another small gold outfit called Newmont in 2019. You're also the former President and CEO of Hudbay Minerals, and former SVP of finance and CFO of Agnico-Eagle. So, obviously that is a pretty impressive resume. I have to ask, what attracted you to Gold Royalty Corp.? Because coming on as Chairman and CEO, after that type of success, I think speaks to your faith moving forward in the company, right?

David Garofalo: Yeah, absolutely. I mean the asset base is tremendous. And Amir Adnani who founded GoldMining, our parent company, upon which we wrote all of these royalties that we own. He was a visionary in terms of accumulating these assets at the bottom of the cycle, anticipating a turn in the gold price dynamic and that has happened. And now he's putting capital and sweat equity into these assets to de-risk them and create value by attracting outside capital, not only from the public markets, but from established producers who are otherwise quite project starved. So he's accumulated these 12 odd assets, development stage assets, that the industry lacks desperately. In fact, reserves are down 40% over the last seven, eight years in the gold industry. So there is a dearth of development stage assets and GoldMining's wealth position, and by extension Gold Royalty with royalties on each of these projects, is well positioned to enjoy the rally in the gold price, and also the reinvestment in capital into development stage assets, which has become a lost art in the mining industry. There hasn't been any substantial mine construction over the last seven or eight years, and that's become an existential issue for the industry. So, that's why I'm involved with Gold Royalty, because royalty companies are an extremely important part of the ecosystem when it comes to mine development. They provide a very cost-effective source of capital for the producers to build up new capacity.

Gerardo Del Real: Let's talk about the business model. Historically, as well as companies like Goldcorp and Newmont have done and Agnico in the past, historically the royalty companies, especially the bigger names, the marquee names, have outperformed the market and its peers, right? And so can you walk me through what the business model looks like for those not familiar and new to the royalty model?

David Garofalo: Well, think of it as ETF with exploration upside. So, you can very well go out there and buy a physically-backed ETF, GLD on the New York Stock Exchange. And you get your ounce of gold back in your piece of paper, and that's a great way to participate in the gold price. You know, you don't take any underlying operating or capital costs risk by owning an operating company. But, what you're missing is the exploration upside that the royalty companies provide. So, we provide top-line exposure to good assets and in doing so, don't take into the operating or capital costs risk. So, we're similar to an ETF in that regard.

But, if the underlying operating companies, that are running these assets, are successful from an exploration standpoint, it adds to the reserves and resources. We participate fully in that as well. And so it's like an ETF with the upside providing full leverage, both to the gold price, but also to exploration success. And now, given the downward trajectory in reserves we've seen in the industry, now more than ever, the producer had to reinvest back into exploration in a very meaningful way. So we will see in time growth in reserves across the industry, because there's going to be fruit from that effort on the exploration side. And there's substantial budgets now being devoted to exploration. And that means that the royalty companies will enjoy that exploration upside through the royalties.

Gerardo Del Real: We're seeing more and more the importance of good solid jurisdictions, right? Oftentimes even if you have a project of merit, that's got great exploration upside and a great team leading it, government finds a way to get in the way, right? Can you walk me through the diversification of the asset base and the royalty base?

David Garofalo: Yeah, so certainly within our portfolio, we're diversified across half a dozen countries in the Americas. So North and South America with substantial assets in each of them. And that gives us some geographical diversity. But what I would also say, is that each of these assets are located in jurisdictions that are mining friendly, and that's important. And when we talk about geopolitical risk, the importance of a well-established and systematic regulatory process to get permits, to operate their minds, to engage with local stakeholders is extremely important. And that's a key criteria for us when we're looking at royalty opportunities. We want strong operators. We also want to be in jurisdictions where these operators are welcome to run their businesses.

Gerardo Del Real: The company provides great liquidity, you're located, you're listed on the New York Stock Exchange. I believe you have fully diluted approximately just over 54 million, 54.4 million shares outstanding. Is that accurate?

David Garofalo: Yeah, that's about right. And we're about a $200 million market cap company, very clean capital structure. We have no debt. We have $90 million in cash, which we raised in our successful IPO last month. So among the sub $1 billion market cap royalty plays in the space and there's been a proliferation over the last couple of years, we by far have the most cash. And cash is king when you're looking at royalty opportunities, whether you're buying them from gold producers or base metal companies that have by-product precious metals, or you're talking to prospectors are looking to liquidate some value in their royalty portfolios, cash is king. And we certainly have the wherewithal to participate in the market and be competitive for new royalty opportunities.

Gerardo Del Real: You mentioned the quality of the asset base in the jurisdictions they're located in. I got to point out the scale, right? I mean, across the measured and indicated and inferred categories. If I add those two together, we're talking over 26 million ounces at a time where, as you put it, we're looking at an existential threat for a lot of these producers, if they're not able to duplicate that reserve base and add to it, right?

David Garofalo: Well, that's exactly right. And then not only is it 26 million ounces of gold, but we have substantial amounts of copper by-products and silver by-products as well. So when you express that on a gold equivalent basis, a GoldMining's portfolio carries over 31 million ounces of gold and gold by-products on a gold equivalent basis. So, that's substantial leverage to the gold price and to copper, which is obviously fundamentally very sound in the current environment as the world looks to decarbonize. And we've got significant exposure to that through our royalty portfolio. And when you look at that accumulation of reserves and resources, that's bigger than some of the established producers in the industry, in terms of their global reserve and resource. I'm talking about the mid-tier and senior companies don't have that kind of inventory within their portfolio. And we have it within one company, in GoldMining, and we have royalties in each and every one of those assets in that portfolio.

Gerardo Del Real: The team that Amir and yourself have put together is an impressive one. Can you walk me through the team briefly?

David Garofalo: You know, what I would say is the recurring theme among that team is operational expertise. We're not financial players. We didn't come at this as former bankers or former sell-side analysts. We have built and operated mining companies. I have over 30 years have been involved in the construction of 15 separate mines over my 30 year career. I've operated multiple mines. Ian Telfer is the Chairman of our advisory board. Ian was the founding Chairman of Goldcorp and built multiple companies over his career. He's been a very credible and substantial operator, a member of the mining hall of fame here in Canada. So, it brings a lot of credibility expertise and depth of organization or depth of network, which we're leveraging as we grow our business. John Griffith was the former head of Merrill Lynch's mining franchise in North America. And he joined us in his job as chief development officer for Gold Royalty.

So, he has a transactional type of role, and he brings a lot of expertise, particularly on the royalties side, when he was advising a number of companies in the royalty space in his banking career. He was actually my advisor on the merger of Goldcorp and Newmont. So we've had a long history, and I have a lot of trust in him. Also on the board, Alan Hair, who was my successor as CEO at Hudbay, and was my chief operating officer there. And Alan has almost 40 years of experience as a metallurgical engineer. And he's a prolific mine builder, having built the three mines that we built that Hudbay when I was there, including the $2 billion Constancia project in Peru. He was responsible for our success and mine development construction when I was there, and has a long history of having done mine building over his career.

In addition to that, we have Warren Gilman on the board. Warren runs Queen's Road Capital. He manages Li Ka-shing's Natural Resource fund, and is a cornerstone investor in the company. Unusually for him, he joined the board. Normally he doesn't do that for investee companies, but he's had a longstanding relationship with both me and Ian for over 30 years, and he wanted to have some fun. And he really liked the investment model. He's put capital behind it, but he wants to participate in that on a more meaningful basis. And also we're able to leverage his network and get involved in a lot of situations that are not necessarily available in the marketplace. And the advantage of having collectively over 250 years of mine operating experience on our board management is access to virtually anybody in the mining business in the world, which means we've become aware of royalty opportunities before the rest of the market is aware of them. And so we acquired... To a large extent to avoid those competitive processes where royalties are overpaid for.

Gerardo Del Real: You answered my next question, David. I was going to ask you how you plan on leveraging that network, moving forward to create shareholder value, right? We both know that gold is going through, what I think is a healthy consolidation, right? We're talking near $1,800 an ounce gold here, but I think it's healthy from a broader perspective, but how do you plan on using that network and leveraging that moving forward? You answered that already. So I'll ask you a follow up to that. What can new shareholders and existing shareholders expect here in the next several quarters?

David Garofalo: You should expect us to responsibly deploy that $90 million of capital that you've entrusted us with. We understand that's your nest eggs, your personal wealth, and we're humbled that you would have entrusted us with that. What we will do, is deploy that capital to opportunities that creates net asset value per share, that grows in net asset value of our business. Effectively when you're running a royalty company it's like a bank, we've taken deposits from our shareholders, and we're putting that capital to work in meaningful opportunities on the royalty side, that generates strong and superior rates of return. And we're best positioned to do that, to assess our ability to generate those returns because we populated our board and our management with very experienced operators and mine builders, who understand how mine operations are built and operated and understand the underlying and inherent risks in doing that.

Gerardo Del Real: David, it's been an absolute pleasure. Thank you so much. Is there anything else that you'd like to add to that?

David Garofalo: No, look, I'm still a tremendous bull on gold. And I think really, when you're buying royalty companies, you're looking for leverage for gold price, and we do provide that. But gold is going up simply because we're in a period of sustained quantitative easing, printing of money, undermining via currencies, low interest rates for longer, that's driving capital into gold, and will continue to drive capital into gold. People are looking for ways to preserve their capital and what will likely be a hyper-inflationary environment where there seems to be no end to the spending the governments are willing to undertake, simply by printing money.

Gerardo Del Real: Well said. I would love to have you back on and we could have a completely separate conversation just specific to that. Thank you so much, David.

David Garofalo: Great. Thanks Gerardo. Thank you for your time.