Q2 2023 Gold Royalty Corp Earnings Call

Speaker 2: in our net asset value and as we'll see a little later on the presentation as Andrew and Peter get into it, tremendous revenue growth, free cash for growth in the short to medium term. We have had in the face of scarce capital resources to defer and suspend our dividend, but that's for a specific reason we had the opportunity to acquire a very high-quality copper silver royalty on existing world-class mine in Mexico operated by one of the largest copper copper producers in the world capstone, which will add tremendous revenue growth in the short term. And I'm very confident that over time as we start to generate free cash flow, positive free cash will make sure that we revisit that dividend and reintroduce it back into into the company. So with that what I'd like to do is pass it on to Andrew to talk about our operating results for the second quarter of 20.3. Andrew. Thanks Dave. As they've mentioned, I'll run you through some of the highlights of our second quarter. In Q2, you'll note we've maintained our financial guidance of five and a half to six and a half million dollars of revenue.

Speaker 2: and land agreement proceeds for the year. Now this is despite lower revenue in the second quarter, which has really been due to the sequencing of production within the Barnett pit at the Canadian Malarctic mine. We are confident that cash flow expected from Malarctic will be substantially recovered in the second half of this year. And as a result, I've maintained our financial guidance for 2023. Our Q2 2023 cash operating costs were down 30% compared to the second quarter of 2022.

Speaker 2: Now this continues a trend which occurred in the first quarter and we expect to continue going forward as well. It has been a concerted effort to focus on ensuring we have cost discipline in our business, which has been born out in the last two quarters. Now before that we will shameful call and apply for this. To improve our business, in the coming quarter we will only need one commission, for the 1st quarter.

Speaker 2: The lower offering cost has helped offset the lower revenue, as I mentioned before, and contributed to an unchanged adjusted net loss for share of two cents in the quarter.

Speaker 2: We're also on track to meet our expectations for recurring cash operating costs of between $78 million for the year.

Speaker 2: In the quarter are operators, including the Nikoegal, I am gold, Barrett Gold, Walbridge, and I 80, amongst others.

Speaker 2: all announce positive developments at their respective projects.

Speaker 2: Given the weighting in our portfolio towards the growth end of the market, this is further de-risked our world-class portfolio and given us even more confidence about our future.

Speaker 2: This royalty has a media cash flow from established copper mine in Mexico and fits quite well with our current portfolio. Finally, our team in Nevada has generated two new royalties through our proprietary royalty generator model. This is something that's unique to Gold Royalty, the only royalty company that does have a dedicated team focused on generating new royalties in this manner. We've created 37 new royalties within the company since 2021.

Speaker 2: Now taking a quick glance at our capital structure and capital market activity in the second quarter.

Speaker 2: Our share and capital structure remained fairly consistent in the quarter.

Speaker 2: That again is in excess of many of our smaller competitors. We also had two new analysts initiate research coverage in the second quarter. It also adds to more the flow in our stock. Scotiabank initiated with an outperform recommendation and a $3 target price and national bank also initiated coverage also with the outperform recommendation and a $2.85 share target price. Scotiabank national join our five other existing analysts.

Speaker 2: All of which have target price as well, above gold royalties, current share price. Now let me add a few points on the new Cozeman royalty.

Speaker 2: As I mentioned at the end of July , we acquired a 1% NSR on the Cosmin copper silver mine in Mexico.

Speaker 3: many on the phone who are

Speaker 3: Familiar with capstone copper will be familiar with this mine. It's been operating for quite a while. The Cosmon royalty is immediately cash flowing.

Speaker 3: It's generated roughly a million dollars in royalty proceeds for the holder of the royalty over the last 12 months.

Speaker 3: So we do expect it to be additive to our near-term cash flow profile as well.

Speaker 3: We're bullish on on copper prices. We are primarily precious metals or a fee company. We do see the appeal of good quality.

Speaker 3: assets in command, maybe such as copper as well.

Speaker 3: And in this scenario, consistent with the other assets in our portfolio that are more growth related, we're very excited to be working with a great operator.

Speaker 3: that our team knows very well in capstone copper. This team has had a strong performance track record at the mine of our number of years.

Speaker 3: is very positive for us as well.

Speaker 3: The royalty, as I mentioned previously, fits very well in our existing portfolio.

Speaker 3: Calfimates are growth profile by adding that immediate cash flow in your term.

Speaker 3: A few more words on a kosamin.

Speaker 3: The mine itself is consistently operated within the first quartile of a copper cash cost curve.

Speaker 3: which gives it quite a bit of invincibility in a volatile market.

Speaker 3: The mine life extends to 2030 based on its current reserves.

Speaker 3: And with current brownfield expiration, we see good potential for continued resource conversion.

Speaker 3: Potential mind life extension.

Speaker 3: Moving forward, we were also encouraged by drill results in the Malanoche and Malanoche football zones.

Speaker 3: which could add additional resources into the mind plan. again,

Speaker 3: Now for more information as with all the royalties in our portfolio, I do encourage you to review Capstone Copper's disclosure on the Postman Mine.

Speaker 3: Now with that, I will pass it on to Peter that's a provide an update on our portfolio.

Speaker 4: Thanks, Andrew. So continuing to speak to the recent acquisition of the Cozumand Royalty, this was really a strong complementary fit to our existing portfolio.

Speaker 4: It's widely known that we have a development and exploration heavy portfolio with a lot of very strong key assets coming down the pipeline and entering production in the near term. However, Cosmin immediately stimulates our revenue and our free cash flow in 2023.

Speaker 4: Also, with Cosmin being operated by Capstone Copper, a multi-billion dollar producing company, it really fit in well with our existing suite of operating partners that represent the largest gold mining companies in the world, such as Newmont, Barrick, and Ignico Eagle.

Speaker 4: An important point on this chart, the pipeline of exploration development in producing assets is that it's dynamic.

Speaker 4: We've seen several advanced exploration assets move forward towards development. Assets like Phenalon have a PEA defined around them and seeing those projects move towards production over the next several years. And we'll continue to see that in future quarters as early exploration stage assets have resources delineated on them.

Speaker 4: given the significant amount of drilling that's been completed across the portfolio and more economic studies completed across the advanced exploration stage assets within our portfolio.

Speaker 4: What this pipeline delivers to us is pure leading revenue growth. Despite a lighter Q2 and revenue, our long-term outlook based on consensus estimates of revenue growth are unchanged.

Speaker 4: We see several assets coming online over the next few years, Canadian-malarctic ramping up at Odyssey, and now the addition of cosmon into our revenue profile, fueling our revenue growth over the next three years.

Speaker 4: Beyond 2026 towards two thousandand 27, 2020 .-eight. In the end of the decade we see even more significant revenue growth as Odyssey fully ramps up as an underground operation at Canadian molarctic.

Speaker 4: Speaking to the specifics of some of the specific catalysts across the portfolio that are driving that growth, I highlighted on the previous slide, three of our producing assets, Odyssey mine, Borden mine, and the recently acquired Cozman mine are all expected to increase in revenue over the next several years. The first initial production from Odyssey South started in 2023, March of this year, and they're transitioning to over 500,000 ounces a year of underground production by the end of the decade.

Speaker 4: A key area of upside at Odyssey is the internal zones, which are primarily located under our royalty coverage area, and are identified as potential increased production from the internal zones during the transition period per ignoity goal, the transition period being between the years 2024.

Speaker 4: We expect to have partial revenue in 2023 for the second half of the year, but will benefit from a full year of revenue at Cozumel in 2024. And Capstone has continued to highlight the area under our royalty as a key area of exploration upside. We're bullish to see that mine life extended into the future beyond the existing mine plan based on reserves. One of these producing assets, Cote Gold, is the most immediate catalyst within our profile in terms of revenue growth. IM Gold came out with their

Speaker 4: Q2 results yesterday and outlined that the project is 86% complete construction and they are on track to deliver initial production in early 2024. By early 2024, I would expect that to be sometime in Q1.

Speaker 4: and gold royalty would then benefit from the majority of 2024 being cash flowing from Co-Tay.

Speaker 4: Beyond Cote, we have a suite of Nevada-based assets fueling our revenue growth between 2025, 2026, 2027. 5 F

Speaker 4: Gold Rock is a satellite deposit to the pan line operated by a caliber.

Speaker 4: There's an expected release of a feasibility study and a construction decision to be made in 2024 and given the proximity to existing infrastructure, this asset could be brought into production shortly thereafter.

Speaker 4: Ren, one of our cornerstone assets, the northern extension of the Gold Strike Mine, continues to be advanced by Barrick, and they're looking to incorporate this into the mine plan in the near term. Currently, I believe they're in the process of

Speaker 4: The last two Nevada assets here, railroad pinion acquired by Orla Mining from –

Speaker 4: strategy in Nevada. They gave a comprehensive overview of the asset and are looking to update studies in the second half of 2023, an updated feasibility study and an updated PEA and resource estimate for the South Pacific zone, a key area of high-grade upside at Granite Creek. They are doing some smaller scale mining at Granite Creek already and some tolmilling research, as well as show 1896, as well with the

Speaker 4: with the ore there, but are ramping up production towards 1000 tons per day in 2024. Beyond these developments in producing assets, really fueling our growth, a couple of key development stage assets that we don't have a clear line of sight to cash flow or revenue on.

Speaker 4: but are coming down the pipeline and have had significant investments put into them. The first being Fennelon, a PEA was published on the project in June of this year, which outlined a 12.3-year mine life over 200,000 ounces of year of annual production and Goldroyalty holds a full 2% MSR over this project. So we're excited to see Walbridge.

Speaker 4: continue to deliver and de-risk that asset in a great jurisdiction in Quebec.

Speaker 4: Finally, our royalty over the Wister project in Alaska. This was recently spun out into a company called US Gold Mining Inc, who raised $20 million to an IPO on the NASDAQ, and have just commenced their inaugural expiration program on an asset that is fully permitted and fully funded now for a two-year program.

Speaker 4: highlights I just spoke to advancements as Odyssey specifically with East Malarctic and Odyssey North ramping up at the end of the decade and the internal zones representing near-term upside. Co-Tay well-entracted for production next year, Ren continuing to be advanced and then the suite of development and advanced exploration assets fueling our growth for the second half of this decade.

Speaker 4: All of that exploration investment really does accrue to Gold Royalty and is somewhat difficult to quantify in the near term. But over time, all that investment results in increased resources, de-risking of assets, economic studies, and ultimately increased production and cash flow for the Gold Royalty portfolio. We're still primarily anchored in the best mining jurisdictions in the world in Quebec, Ontario, and Nevada. And we do have the recent addition of One Royalty in Mexico, our first entry into that country.

Speaker 4: To briefly touch on our commitment to sustainability as our existing shareholders and many of you will know, we published our inaugural sustainability report and asset handbook earlier this year, really striving for best practice and disclosure in terms of our record early reporting.

Speaker 4: but also in terms of these annual reports that provide a deep dive into the portfolio and I implore you to review them when you have a chance. It's an exercise that will be completing annually and will update as the portfolio advances and develops and changes over time given how dynamic it is.

Speaker 4: reports that provide a deep dive into the portfolio and I implore you to review them when you have a chance. It's an exercise that will be completing annually and will update as the portfolio advances and develops and changes over time given how dynamic it is. in temporary.

Speaker 2: The largest cap players in the Gold Universe are at half the valuation they were back in 2021, the Gold prices last through $2,000 announced. We've been significantly hit on a relative basis, but those growth is being very heavily discounted. This is a very growth oriented story with 60% compounded growth through the end of the decade in our revenues. It puts us in a position to start to generate strong free cash flow in the next year and start to talk about reintroducing our dividend, but in growing that dividend over time, but in the meantime in this market, the smaller cap universe has been very severely discounted.

Speaker 2: the dividend. We're getting lots of questions about that. Are you going to reinstate it or are you just going to keep investing in the properties that you have or potential M&A that you see coming down the pipeline? It's a suspension of our dividend for the time being. We do expect to be free cash flow positive next year. It's something that we're going to reintroduce at the right point. We were faced with an opportunity to bring in a very high quality asset to the portfolio in the face of a market where capital is very scarce. The smaller cap players in the gold universe, whether it's junior explorers, royalty companies, are now able to raise fresh capital. What we're having to do is reallocate scarce internal capital.

Speaker 3: Okay, great. Next question. What are the main areas for cost savings and for further decreases in cash costs? Because you did such a great job with Andrew this year or this quarter. I could take that. Thanks, Joanne. The main areas for cost savings was really, first and foremost, people on the phone are aware that the company grew quite quickly since its inauguration through a couple corporate acquisitions in particular.

Speaker 3: With those acquisitions came consolidation of some corporate entities, some overlap in roles within the company. I think some of the savings have come from a decrease in you.

Speaker 3: consulting fees and professional costs by bringing in administrative activities in house and Vancouver There has been a focus on

Speaker 3: So, sharper negotiations with our insurance providers, and particularly with our track record year on year, we've been able to bring some of the insurance costs down.

Speaker 3: We've taken a more holistic view on some of the cash spent on marketing activities and really focused on the most value-added areas.

Speaker 3: And the glass with respect to just general office and IT spend just tightening up in areas where I felt we could make some some tangible savings. So all in all, I think with where we're tracking and with the line of sight on what our peers are doing, I think we've done a great job.

Speaker 3: company on a very efficient effective manner on the cost base that was projecting for 2023.

Speaker 2: Well, I think the reason is, is quite frankly, in a rising, interest rate environment, any growth oriented stock, not only in the mining industry, but it's more broadly, it's been severely discounted. This is not a market that's paying for growth. It's paying for free cash flow today. It's a very defensive market, particularly in the commodity space. And the ones that offer that free cash flow immediately, are the ones that are getting, at least the better relative valuations. The whole sector is down dramatically. There's been a severe compression and multiples in the sector generally, but the ones that offer free cash flow now are generally the ones that are providing defensive.

Speaker 3: postures in a declining market for gold equities more broadly speaking. Thank you, David. What is the mix between Royalty Revenue and Land Agreement proceeds for the year? Outlined in our recent financials, we're expecting approximately $3.2 million in Land Agreement proceeds in 2023 assuming all existing option agreement.

Speaker 2: that $3.2 million is realized. And then the balance of our guidance of five and a half to six and a half million will be made up in royalty revenue this year. And I just want to emphasize the unique aspect of that pillar of growth within our business. We're not only generating those royalties for free, we're getting paid to generate those royalties for our shareholders. Jerry Baughman in particular in Nevada, he stakes expiration claims around existing mines, existing deposits, waits for the neighbors to knock on the door and says, yeah, you can have the property, but you're going to have to pay me an option payment. You're going to have to make a work commitment on the property. You're going to have to give me a royalty. So we're not only getting the world back.

Speaker 2: free through scary sweat activities, they're giving us options as they're exploring those properties. So, instead of a meaningful meaningful pillar of our revenue going forward, we're not assuming that we're going to be able to sustain it long term. When we look at our projections of our revenue, we've just only included our revenue projections for once, so we have committed

Speaker 3: I think I'll just add to that. It's a very cost effective business as well. Our mineral interest, maintenance expenses in the first half of the year is only about $80,000. We got Jerry's salary. He's really a one man team for the most part. So the cost of this business given the cash flow it brings in is a great addition to our normal course or royalty business. Okay, excellent. Next question. What is your expected ROI on your latest announced royalty acquisition?

Speaker 2: I should add that's just assuming reserves to the end of 2030 if you include resources and they've had a very strong track record of converting resource to reserve that would bring the mine life out to 2036. Just remember, Cozumand started production in 2007 with about five years of reserves ahead of it. Here we are almost 20 years later, it's still producing, still adding reserves, still very prospective with a very well capitalized strong operator in CAPSTO.

Speaker 2: I should add that's just assuming reserves to the end of 2030, if you include resources and they've had a very strong track record of converting resource to reserve, that would bring the mine life out to 2036. Just remember, Cozum and started production in 2007 with about five years of reserves ahead of it. Here we are almost 20 years later, it's still producing, still adding reserves, still very prospective with a very well capitalized strong operator in Capstone.

Speaker 3: Next question, why was Canadian Malartic revenue so low for this quarter and will this revenue be made up in future quarters? I can start with that. The Canadian Malartic revenue, I must say Canadian Nico Eagle through their malartic operation is one of our...

Speaker 3: best operators in terms of providing us advanced notice of expectations on their mining throughout the year. We do have a plan from them for the year and expectations on which would help us with our projections. Simply put, given how mining is progressing within the Barnettasc clot pain level, people are more likely to Second, people are more likely to project better than the normal, lower carbon sources.

Speaker 3: plan in terms of resequencing mining. We've been assured.

Speaker 3: that the ounces will come. It's a matter of a decision that the team at Agnico made throughout the first half of this year in terms of where they mined in that pit.

Speaker 3: We haven't made adjustments to our expectations in the back half of this year. In fact, we expect probably a little bit more from what they told us initially to catch up some of the revenue with the remainder coming through 2024. So from our perspective, we're very comfortable with respect to what the team at UNICO is doing.

Speaker 3: our cash flow sources because some of our mining partners do make decisions throughout the year in terms of where they mine.

Speaker 3: Looking forward with respect to Canadian Malartic and Odyssey as the mine heads from an open pit to going underground, I am comfortable and confident that we will see more consistency in the cash flow profile from Canadian Malartic but in this particular case.

Speaker 3: and it really is just a re-sequencing of where the production happened throughout the year.

Speaker 5: Thank you, Andrew. Mr. Murphy from the UK wants to know next year the three-year warrants from the IPO expire. Is there any plan to extend the expiry date given the outlook in the sector in general in the last 12 months?

Speaker 2: No, there's not. Okay.

Speaker 5: Is the company still focused on growth?

Speaker 5: Is the company still focused on growth through consolidation?

Speaker 2: Well, I think there are several avenues for us to grow. I think consolidation is more difficult in this depressed environment. It's very difficult to have a conversation on M&A with a counterparty whose share prices are coming 52 week lows as well. There's not a lot of financial incentive for them to look at consolidation in the sector. So I think you'll see a lot of consolidation.

Speaker 2: I think we're going to continue to grow through other avenues. I've talked about our royalty generator model. We continue to generate two to three royalties per quarter and that adds to our revenue. So the option payments we get on the royalty generation and it continues to pile on, which is positive. We'll continue to look at the acquisition of third party royalties as we did with the Cozumand transaction, which delivered very strong rates of return on a high quality long life deposit with a high quality operator. And from time to time, we'll look at project financing. Given the scarcity of capital in the Gold Universe, particularly for the junior explorers and developers, we're seeing more and more opportunities to help them finance their businesses.

Speaker 2: What will drive our decision to acquire those assets is the length and quality of the life of the mine, the deposit quality, the geological quality of what we're acquiring, but also is this something that will be cash flowing either immediately or in the very short term.

Speaker 2: to add to the cash flow growth that we're going to have in the short to medium term. Alright, and speaking of M&A and organic growth, how are we being protected from a takeover?

Speaker 2: Really, there's nothing to protect us from a takeover other than good share price performance. And obviously we've underperformed and I understand that, I understand the frustration that our shareholders have, but as long as we're continuing to fundamentally add value to our business.

Speaker 2: There's no reason we shouldn't share those annuities with our shareholders in the form of returns of capital in whatever form. Can you comment about the Monarch deal allowing buyback of royalties? Absolutely. In that case, Monarch was in financial difficulty last year. In that case, we restructured the royalties in order to make them more attractive on their exploration properties. Your exploration stage is around the Brownfield Bofor project. In fact, if those buybacks are exercised, we get all our capital back.

Speaker 5: that we put into monarch from day one, but we've retained fully the royalties on the Bulfour mine and Bulfour Mill. Great, and maybe we can just one more time reiterate how many assets will be producing.

Speaker 5: by 2024 and then we can wrap it up as we are at the top of the hour.

Speaker 4: We'll have five cash flowing royalties expected in 2024 with Cote entering production in addition to the four existing cash flowing royalties we have currently, Cozumand, Canadian Malletc, Isabella, Pearl, and Borden.

Speaker 4: loyalty is expected in 2024 with Côte entering production in addition to the four existing cash loan royalties we have currently, Cozumand, Canadian Electric, Isabella, Pearl and Borden. Great.

Speaker 5: So as I said, we are at the top of the hour, so we will end our town hall. But before we go, David, would you like to say a few words to the shareholders and audience members?

Speaker 5: Thank you, David, and thank you, team. And thanks everyone for tuning in. The presentation will be on the website. We've had a few questions asking about that. And we will see you soon on the next Vid Town Hall forum. Please don't forget to fill out the questionnaire as you exit. Goodbye, everyone, and thank you for tuning in.