General Precious Metals
Gold Royalty (NYSE-American: GROY) President David Garofalo on Building a Next-Tier Precious Metals Royalty Firm Anchored by a Foundational Asset in Quebec, Canada
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the chairman & CEO of Gold Royalty — Mr. David Garofalo. David, great to have you back on. I know you've been busy. How are you?
David Garofalo: I am well. Thanks very much for having me on, Gerardo. Really great to hear from you.
Gerardo Del Real: Well, thanks for coming on. Let me start by asking you about the gold price. I sense — and I'm going to inject my own opinion here — but I sense that we're getting that final shake-out before the next leg up. It's currently trading right around the $1,735 level. You've seen many of these cycles. I'd love to get your take on the current gold price action and what you see coming up next.
David Garofalo: Well, all the fundamentals are in place for a sustained run in the gold price. In other words… lower interest rates, continued quantitative easing. What that means is, obviously, printing of more fiat currency. But what the market has been looking for is a catalyst.
And it's perhaps this morning we've seen one with two of the biggest gold companies in the world now seeing their merger; Agnico Eagle and Kirkland Lake. And that's generally been a precursor to a sustained run in the gold price. It generates generalist interest in the space. I'm optimistic that we're going to see more capital flow into the space as a result of this merger.
And it's an existential necessity for companies to start to merge with each other. We've seen a 40% decline in reserves over the last seven years. And if you're not finding it, you're going to have to buy it. And that means doing M&A.
And I think what that'll do is sustain generalist interest in the space both in terms of the physical commodity but also in terms of the mining equities as well.
Gerardo Del Real: You've made it very, very clear that you are laser-focused on getting gold royalty cash flowing and building the business, right? How is that coming along? You had a release yesterday that I think just speaks to the velocity of growth within the company. How are things coming along on that front?
David Garofalo: Well, very nicely. I mean, from a standing start a year ago when we were a private company and no royalties, we've — through a series of transactions and our IPO — gone from zero to almost 200 royalties: six of them in production, seven in the construction stage, which positions us to see a five-fold increase in our free cash flow over the next three to five years.
And beyond that, as the Odyssey underground program comes into play at Agnico and Yamana's flagship Canadian Malartic Mine, we see the potential for a significant upward-trajecting cash flow beyond the next five years.
So we're really, really well positioned, uniquely positioned, given the broad array of royalties we have in our portfolio from early-stage exploration right through to production. And again, it's 200 royalties almost… collectively focused in the Americas, focused on precious metals. It really puts us in an enviable position as we vault ourselves up a tier in the royalty space.
Gerardo Del Real: You mentioned the Odyssey exploration approach and success. They drilled, I think, it was 77.9 meters of 7 g/t gold. And I think it was 6.1 g/t gold over 28.2 meters back in July. Obviously, when you're vetting these royalties, you're taking your time and you're not just coming in and picking up royalties for royalties' sake. Walk me through what comes next as far as the approach and the business model.
David Garofalo: Well, you touched on Odyssey. I think, first off, what I want to say is we have a lot of embedded organic growth within the portfolio now that we're folding in Golden Valley and Abitibi and bringing the royalty in Canadian Malartic and its Odyssey underground mine into the portfolio.
That provides us meaningful growth for decades to come from an asset that's still being geologically defined. And as they invest $1.6 billion in a new underground mine there, that opens up deeper horizons for drilling. And so I'm very optimistic that there's going to be significant growth in the resource there, which means there's going to be significant growth in our royalty from that mine, which, for us, is like our Gold Strike.
As Gold Strike is to Franco-Nevada, Canadian Malartic is to us. It's that foundational multi-decade asset that's going to be an annuity for many, many decades and generations to come for our shareholders.
Beyond that — we create a critical mass. We're approaching $800 million of market cap on a pro forma basis from a standing start a year ago as a private company. That creates relevance. It creates scale. It reduces our cost of capital, which puts us in a very good position to compete for new royalty opportunities to continue to perpetuate what's an enviable portfolio.
Gerardo Del Real: David, great work. I'm looking forward to an exciting Q4 in the gold space. I think you're spot on with the M&A being a precursor to more activity and higher prices here in the near to mid-term. Thank you so much for your time today.
David Garofalo: Thank you.