Earnings Call Transcript - GROY Q3 2023

Joanne Jobin, Host

Good morning. I'm your host, Joanne Jobin, and I'd like to welcome you to the Gold Royalty Town Hall Forum hosted by VID Media. Today's Town Hall will focus on Gold Royalty's recent quarterly announcement, featuring David Garofalo and Peter Behncke, Manager of Corporate Development and Investor Relations. CFO Andrew Gubbels will join us at the end for a Q&A session. After the presentation, I will be pleased to moderate questions submitted by our audience. Now, a brief overview of the company. Gold Royalty Corp. is a royalty and streaming company centered on precious metals, providing innovative financing solutions to the metals and mining industry. It has a diversified portfolio of over 190 royalties located in favorable mining jurisdictions throughout the Americas. The company's business model includes acquiring royalties, streams, and similar interests at various stages of the mine life cycle to build a balanced portfolio that offers attractive returns for investors in the near, medium, and long terms. Please make sure to complete the short questionnaire at the end of the presentation, as it helps us and the company communicate more effectively with you in the future. Before handing it over to the team, please take note of the forward-looking statement at the beginning of this presentation. Gentlemen, the stage is yours.

David Garofalo, CEO

Well, good morning and good afternoon as the case may be to everybody. Thank you for attending our Third Quarter Town Hall. I'm delighted to walk through our quarterly results and then hand it over to Peter to walk through the advancements on our prolific and diverse portfolio of royalties. Our operators have been very busy both on the exploration and development fronts of the stocks to talk about today. And what's clear from our Q3 financial results is that we're very much at a tipping point right now. For the first time, we were free cash flow neutral as we drove down our cash operating costs by 50%. Crystallizing synergies from the mergers we completed in the first year of our existence. There are three companies that we took over and we went through an extensive post-merger integration period. We drove a lot of the redundant costs out of the business, and that's why you've seen such an appreciable improvement in our operating cost profile. We also saw a 48% increase in our total revenue land and agreement proceeds. And we're poised to be significantly free cash flow positive in 2024 with the startup of Cote next year, which, when fully producing will be Canada's second biggest producing gold mine. And as we saw during the past quarter, IAMGOLD, the operator reported over 90% physical completion of the property. They expect to have about 5 million tonnes or about six months of production of broken ore at the mouth of the mill. So they're in an excellent position to hopefully execute on a smooth ramp-up and significant free cash flow generation or revenue generation from a royalty over the course of 2024, which represents a significant step change for us in our total revenue profile and again, drives us into free cash flow positive territory. As we stated in our presentation, our company's operators, Agnico Eagle, i-80 Gold, Blackrock Silver, all announced material positive developments on their respective projects over the course of the quarter as well, which Peter will get into in a bit more detail in his presentation. We're very busy on the acquisition side as well. We continue to supplement what's one of the most prolific and diverse portfolios, not just in the junior royalty space, but in the royalty space generally. We're approaching over 240 royalties in the portfolio with the acquisition of over 20 royalties in this past quarter. And we did it in a very creative way, recognizing that capital is scarce in the sector right now. As we've had to be creative in terms of where we've acquired it. We acquired a producing copper silver royalty on the Cozamin mine in Mexico operated by Capstone, a large-cap copper producer based in Canada. We also acquired over 20 royalties from SOQUEM, which is the mine investment arm of the Quebec Government, and in return, SOQUEM and by extension, the Quebec Government took a strategic stake in Gold Royalty, again, expressing confidence in the intrinsic value of our portfolio, our management team, and our ability to continue to grow value, not only on an absolute basis but on a per share basis. This will be a very important relationship for us with SOQUEM, as they will continue, consistent with their investment model, to invest in exploration properties in Quebec. We now have a conduit, if you will, for any future royalty opportunities that generate from the properties they are investing in the normal course of their business. So that's been a very important relationship. It's an exclusive deal. We ended up purchasing all their royalties from their existing portfolio in return for shares in Gold Royalty Corp. We continue to add royalties through our royalty generator model, adding two in the current quarter with significantly well-capitalized operators. Again, we generate those royalties effectively for free through the sweat equity of our team, particularly in Reno, Nevada, and in fact, we not only get those for free, we quite often get paid for them, because not only do we get royalties in return for those properties, but we quite often receive option payments and option payments have been a significant component of our revenue through the first couple of years of our existence. So, it’s a strategy that not only pays for itself but actually generates profits for us while we're generating royalties on those properties that we stake through our exploration efforts. So we've been able to demonstrate growth through all four major legs. There are only four ways to grow in the royalty business. You can do it through M&A, which we've done capably when we had a much stronger currency over the course of 2021. We’ve done a few third-party royalty acquisitions. This is how we acquired Cote, which represents a significant leg of growth for us going forward. We've done project financings as well, and we do organic royalty generation. So we execute on all four of these strategies quite effectively, and this represents a unique value proposition for the small-cap royalty universe among our competitors. What was not a highlight in the quarter, and I'm the first to admit it, is share price performance, and it has been quite frustrating for investors in the gold universe to see this type of gold chart and not achieve the kind of performance and leverage to the gold price that they should expect in a rising gold price environment. Now, gold has been range-bound over the last couple of years between $1,900 to $2,000 an ounce, but it has held strong in the face of a massive exodus of capital out of virtually every other jurisdiction in the world into the US dollar. So that exodus of capital, that flow of capital into the US dollar has also gone into gold, because gold has held its value against the US dollar despite that flight to safety to the US dollar and US treasuries in particular. In fact, gold is at all-time highs in every other major currency globally. So, this is a recognition of the intrinsic value of gold. What we haven't seen is the performance you would expect in the share prices in a rising gold price environment. We have seen a significant underperformance, particularly in the last year relative to the gold price in the GDXJ Index and the smaller-cap universe where we have seen a 20% underperformance relative to the gold price, but we have also seen that in the larger-cap universe. Many bellwether stocks in the industry, whether you look at Agnico, Newmont, Barrick, are half the value that they were a year or two ago. This reflects the declining reserves and increasing operating and capital costs, which have eaten into their margins even as gold prices maintain value at approximately $2,000 an ounce. This doesn't make sense in the royalty universe where royalty companies should be performing much better because they provide that optimum leverage; that investment model provides you that leverage while also protecting you from inflation. What I think will continue to drive consolidation among the producers. We have seen a significant amount of consolidation among the producers over the last couple of years. In fact, looking back to 2018, given the shrinking pie of reserves and declining production profiles, you will start to see and continue to see the larger-cap players in the producer universe consolidate. I think inevitably, we will see that type of consolidation in the royalty universe as well, because we are a cost-driven business model. What has been demonstrated in the market is that scale matters. The largest companies in the royalty sector enjoy the best multiples, but they are also challenged to grow. We think the absence of a mid-tier company represents a significant opportunity for many of the smaller-cap royalty companies in the space, including Gold Royalty, to fill that void. We have the ability to create something that is big enough to be institutionally relevant and attract capital but small enough to grow, because the multiples of the seniors in the royalty space imply that they have significant growth ahead of them, which they clearly do not. They have high-quality portfolios but are significantly challenged to grow given their absolute scale. This is the opportunity we see for the smaller-cap universe to begin creating that in the royalty space as they continue to consolidate and create critical mass over time. So, I'd say watch that space closely. With that, I'd like to pass it on to Peter to walk through our portfolio, our growth plans in greater detail, and then we'll have some Q&A that Andrew Gubbels, our CFO and Peter, and I can answer at the end of the presentation. Thank you for your attention.

Peter Behncke, Manager, Corporate Development and Investor Relations

Thanks, David. So, speaking to the growth we have observed across the portfolio, with the pro forma closing of our recently announced SOQUEM acquisition, it brings our portfolio to over 240 royalties. That's a 13.5-fold increase in less than three years since our IPO in March of 2021; the fastest rate of growth of any royalty and streaming company in the sector. But, please don’t think it's just been a focus on quantity at Gold Royalty. We have really focused on a key metric: growing the underlying net asset value per share. As David noted, when we had a stronger currency in 2021, we were very aggressive on the growth front; and to that end, we issued stock in the context of several acquisitions, which has been the only context where we have issued any material quantity of shares—growing the portfolio. To that end, we have grown our overall gross net asset value by five times in less than three years while only increasing our underlying share count by 3.5 times over the same period. This translates into a 40% increase in the underlying net asset value per share of the business, a significant increase and a substantial creation of value for Gold Royalty shareholders, albeit it has not been translated into the share price yet. When we look at the consensus average figures, that’s where that 0.4 times price to net asset value metric comes from. I would also highlight that the average price target of our seven analysts is 225% above where our current share price is. So, we’ve created significant value in this business, albeit it has not been reflected in market performance. In time, that cash flow will start to crystallize and we will see a re-rating of the stock as cash flow begins to come in. The overall revenue profile of the company is materially unchanged for the quarter. We saw several positive advancements on our key assets, but the big picture is really the same. Leading revenue growth within the sector, key assets on track to enter production in the near to mid-term. As David mentioned, we expect to have 5 million tonnes of stockpile at Cote to see a smooth ramp-up in 2024, which will provide a meaningful step change to our revenue profile next year. 2025 and 2026 should present some upside potential at the Odyssey Project, especially with the internal zones and potential incorporation there. Additionally, assets like Granite Creek, REN, and Fenelon are expected to bolster our revenue profile towards the end of the decade. One thing we found very encouraging this quarter was the continued efforts on our cost savings. We achieved a 50% year-over-year decrease in cash operating costs in Q3 2023, which translates well to this revenue profile chart. Every dollar in revenue growth is driving towards the bottom line as we maintain a disciplined approach to our expenses. Diving into the portfolio in a bit more detail, as I mentioned, the core assets driving our business's value are on track and unchanged. We have supplemented our cash-flowing portfolio with the addition of Cozamin this quarter. However, Cote, Odyssey, and REN remain the true value drivers of the business over the next several years. The SOQUEM portfolio primarily fits into the green exploration bucket, albeit with quality operating partners and in one of the best mining jurisdictions in the world. To provide further detail, the SOQUEM portfolio consists of just north of 20 royalties, all located in Quebec, under solid operating partners like IAMGOLD, Agnico Eagle, Osisko Mining, and Probe, among others. Interestingly, this portfolio includes CAD 18.2 million in associated milestone payments and buyback proceeds, meaning our very attractive bargain purchase price of CAD 1 million in Gold Royalty stock could potentially yield multiples of that in terms of proceeds from these buybacks and milestone payments before we even consider the exploration optionality associated with the remaining royalty after the buybacks have been exercised. It's primarily a gold-focused portfolio, with a few assets having underlying resources, but for the most part, they are at the earlier exploration stage. I’ll reiterate that we have great operating partners who are well-funded and capable of exploring these assets in prolific mining jurisdictions, such as the Detour Lake Mine or near Val-d'Or. As part of the consideration, SOQUEM is entitled to 50% of any potential buybacks or milestone payments, which still leaves Gold Royalty with net CAD 9.1 million in potential proceeds, again, relative to a CAD 1 million purchase price. It's a very attractive transaction and a creative way to continue to grow our portfolio. Now moving on to the organic growth associated with the portfolio, I wanted to dive into some key assets and advancements we saw in Q3. At Odyssey, Agnico Eagle has continued to aggressively explore the Odyssey South deposit, specifically infill drilling at the internal zones, which lie mainly towards the north of Odyssey South, between the Odyssey North and Odyssey South deposit under our royalty coverage area. We are quite bullish on Agnico delineating a larger resource from the internal zones, which they continually emphasize represent upside to increase production from the underground during the transition period. The transition period being 2024 to 2028 when the Canadian Malartic complex shifts from open pit to underground, currently operating as both open-pit and underground. The key high-grade deposit at the Canadian Malartic complex is still East Gouldie, lying to the south of Gold Royalty's coverage area. However, I note that their exploration is focused along strike to the east and west in an effort to extend that East Gouldie mineralization. To the west, they've seen significant drill results near the Norrie Zone, which is actually underneath our royalty coverage area. Hence, we’re excited to see that East Gouldie style mineralization starting to appear under the Gold Royalty coverage area. To the east, although farther away, drilling towards our Midway royalty is also occurring. This area has a substantial mineral system, and we look forward to the potential for an East Gouldie style mineralization trend extending east towards our 1.5% NSR at Midway. At Cote, David mentioned that construction, as of September 30th, was approximately 92% complete, targeting 5 million tonnes of stockpile by the year-end, expected to initiate production in early 2024. Our 0.75% NSR covers the southern edge of the Cote pit where significant high-grade mineralization is occurring near the surface. This means we anticipate increased attributable coverage at Cote over the early years of the mine life, where IAMGOLD is focusing on that high-grade portion of mineralization. We expect our coverage to taper off towards the end of the mine life; however, early year coverage and increased cash flows from Cote starting immediately next year, based on estimates of the technical report production schedule and consensus commodity prices, we expect to see between $3 million and $4 million in revenue from Cote in the coming year, translating to bottom-line cash flow growth. The REN project is highlighted by Barrick as the future of the Carlin Complex. They released an updated press release in September outlining growth opportunities across Barrick's portfolio, and REN was flagged as a potential opportunity to supplement their 10-year mine plan at Carlin. They outlined a potential doubling of the current resource from 1.6 million ounces to over 3 million ounces in total, and they're targeting an advanced mining study or pre-feasibility over the next two years. Fenelon introduced its inaugural PEA in June this year, showcasing a 12.3-year mine life and annual production of 212,000 ounces. Our 2% NSR covers all mineralization included in that mine plan. The company has continued their drilling and exploration efforts across the project and recently appointed Brian Penny as their Interim CEO. We’re encouraged by the project’s continued advancement. While they face challenges like most small-cap advanced exploration companies, this does not undermine Fenelon's technical merits and its favorable jurisdiction located just 70 kilometers east of the Detour Lake mine. For our last two projects, Cozamin, our recent acquisition, had its initial revenue recognized this quarter, included in our total revenue and option proceeds adjusted figure. They plan to continue exploration efforts, specifically at the Footwall Zone, which is directly underneath our royalty coverage area. We’re optimistic about the continued strong performance at Cozamin, which is planned out till 2030 based on current reserves, with an updated resource estimate expected to be published in early 2024. Finally, the Granite Creek Mine project saw an operational update provided by i-80 earlier this fall on October 11th. The focus here has been ramping up underground production, achieving 592 tonnes per day of mineralized material, with a target of closer to 1,000 tonnes per day in 2024. A significant area of growth and continued exploration success is the South Pacific Zone, which is currently without resource. We look forward to delineating the South Pacific Zone and the associated resource as the mine starts rising in 2024. Beyond these six core assets, we expect to have over 240 royalties across the portfolio, alongside various other advancements and catalysts, but those are some of the key milestones we saw in the Gold Royalty portfolio in Q3. A reminder, we had 700,000 meters of drilling in 2022 and expect to see more than 600,000 meters of drilling across the portfolio in 2023, all at no cost to Gold Royalty. Though we may not see immediate benefits from much of this drilling in terms of growing resources or de-risking these assets, this type of investment will continue to grow our portfolio throughout the rest of the decade. Lastly, a comment on our commitment to sustainability. As evident in our most recent acquisitions, we emphasize ESG-related due diligence and focus on sustainability. Cozamin is an established operation with a good social license, and Capstone is a reputable operator with a strong track record of commitment to sustainability parallel to Gold Royalty's values. The SOQUEM portfolio aligns perfectly with our core strategy, partnering with vendors that share similar values as us, with SOQUEM being a prime example. With that, I’ll hand it back to David to wrap things up; we've had a great quarter, and we can open things up for Q&A as well to address your questions.

David Garofalo, CEO

Thanks very much, Peter. So, to wrap up, as Peter said, there’s significant intrinsic value in the portfolio. The target price on the stock across the seven analysts that cover us—which is a remarkable sell-side research coverage for a relatively young company—is about $4.25 per share. Our consensus net asset value is about $3.30 per share, more than double our current share price. So, there is significant intrinsic value in a sector facing cost pressures. I’m talking among the producers, who face significant capital expenditure and operating cost pressures, along with declining reserves and production, which have driven M&A, which, over time, has shown to be a zero-sum game. It doesn't create value in the sector; it merely maintains current production and reserve profiles without adding per share value. We’re focused on going through multiple means, as I said, through M&A, project financing, third-party royalty acquisition, and organic royalty generation, which delivers value per share while providing leverage to the gold price, protecting against inflation, as well as the exploration success of our underlying operating partners who invest over $200 million per year on our portfolio, to which we contribute nothing. To summarize, we provide optimum exposure to the gold price and significant intrinsic value that has unfortunately been tarred with the same brush as the operating companies; there’s been a capital exodus from the gold sector, leading to significant underperformance of equities despite gold hitting all-time highs in all other major currencies and maintaining its value against the US dollar. I think this disparity is well overdone in the royalty sector; there’s significant value here, particularly in the Gold Royalty stock. So, we are happy to take any Q&A now, Joanne.

Joanne Jobin, Host

Excellent. Thank you very much for that update, gentlemen. That was fantastic. We've got a lot of people online, and there's lots of questions to be asked. So, let's go to our first one, and it's regarding expenses. Can you hold expenses in 2024? A big part of the stock price underperformance may be the small-cap nature of the stock and the lack of profitability. What kind of profitability can you drive next year if you meet your revenue targets?

Andrew Gubbels, CFO

Thanks, Joanne, I can take that one. So, look, regarding holding cash or operating expenses from this year, we are tracking towards our guidance of recurring cash operating expenses for 2023. We've seen decreases quarter-over-quarter, which is really due to eliminating redundancies connected with prior corporate transactions and the disciplined use of consultants and professional services, et cetera. There may be some additional refining of contracts as we go into 2024. That being said, I aim to sustain roughly consistent operating costs. I will have to assess how 2024 looks and see where the cost profile will fall out. That being said, we've reduced our costs to be consistent with many companies in the sector, which is an achievement. Regarding future profitability, we’ve reached a point where free cash flow neutrality is being recorded monthly. In this past quarter, we were very close. I suspect we will be free cash flow positive in future quarters, certainly through 2024, which is great for profitability. We don’t provide revenue guidance beyond this year; we’ll evaluate what we do next year. All I can comment on is what is available in the public domain regarding analyst revenue forecasts, based on what I have seen for 2024 and 2025. If we maintain a consistent operating cost base, we will generate profitability next year, depending on which analyst’s cash and gold price assumptions you reference. But we certainly have turned the corner and will join the ranks of profitable, free cash flow-generating royalty companies in 2024.

Joanne Jobin, Host

Excellent, that's a great milestone. And going back to the cash costs, are there any further cost reductions expected? Like, is there any way you can squeeze some more margin out of there? We have a lot of questions on that, and that's why I'm coming back to it.

Andrew Gubbels, CFO

Yeah. Look, we’ve taken a fairly conservative approach to our budgeting through 2023, and we'll do it again in 2024. There are some fundamental costs in our company that are difficult to avoid. For instance, we have certain insurance costs associated with management structures and general insurance that are somewhat contingent on the fact that we IPO-ed in 2021; it takes a track record before some of those costs start to decrease. We are establishing a track record over the last couple of years. Being listed only in New York has an impact on our regulatory and listing fees; that’s a relatively fixed cost as well. So, when you compare our company to other Canadian listed or foreign-listed companies, we have some fixed costs that are difficult to reduce. That said, can we chip away more costs from the system? That’ll depend on where we get to concerning those fixed expenses like insurance, which we do not renew until 2024, as well as generally looking at vendor selection for ways we can minimize costs more significantly in different areas. However, I think we’ve reached a stage where we are much more aligned with our peers now.

Joanne Jobin, Host

Okay. So let's move on to the portfolio before we dive back into more financing questions. Do you see Cote entering production next year? And will it impact your bottom line?

Peter Behncke, Manager, Corporate Development and Investor Relations

Yeah. Absolutely, Cote is 92% complete in construction, as of September 30th, targeting 5 million tonnes of stockpile ready to go in early 2024. We expect initial production in Q1 and a smooth ramp-up throughout next year. In terms of its impact on the bottom line, we are projecting close to 500,000 ounces of annual production next year, translating into roughly 2,000 gross equivalent ounces (GEOs) for Gold Royalty Corp next year alone, which means a considerable increase in our overall attributable production revenue and a direct impact on our bottom-line cash flow.

Joanne Jobin, Host

Great. Thanks, Peter. And can you comment on the news regarding Fenelon and Tonopah West projects, as well as what other catalysts we should watch for such as Granite Creek, Odyssey, and Cote—all of which I know you went through in the presentation?

Peter Behncke, Manager, Corporate Development and Investor Relations

Yeah, I know I spoke to Granite Creek, Odyssey, and Cote at length. But Fenelon and Tonopah West are great examples of advanced exploration assets within our portfolio. Tonopah West had over a 100% increase in its underlying mineral resource; it’s a very attractive high-grade silver deposit down in Nevada. Similarly, Fenelon is an asset that has published its initial economics, and they are continuously looking for ways to grow and expand that production profile. These are catalysts across our portfolio that presently do not attract much value, even if there’s potential cash flow that’s still 8 to 10-plus years away; that said, meaningful value creation is happening across the portfolio. As examples, we now have over 20 advanced exploration assets and more than 170 early-stage exploration assets, many of which are undergoing some kind of work or exploration across the portfolio.

Joanne Jobin, Host

Okay. As you can imagine, there are lots of questions on the SOQUEM deal. So, how did it come about? And was there a bidding process? Can you get a little more granular with that deal for us?

David Garofalo, CEO

Yeah, I'm happy to. Time and again, since our IPO in 2021, we have demonstrated that leveraging our Board and Management's relationship—collectively over 400 years of industry experience—leads to significant growth. Virtually every deal we've completed has been on an exclusive basis, utilizing relationships a couple of our Management and Board members have with the executives at SOQUEM. You may recall, I spent many years in Northwestern Quebec with Agnico Eagle, so I have a network within the Quebec institutions. This was meaningful in terms of negotiating this exclusively with SOQUEM. More importantly, it opens us up for future deals with them. Now that we’ve established this alliance, we have a formal commercial arrangement wherein they’ll continue to invest in exploration in Quebec—a fundamental part of their mandate—which will generate more royalties, providing us the opportunity to monetize these royalties within a public vehicle like Gold Royalty. Hopefully, I can’t guarantee that it will remain exclusive, but now that we have a structure in place, we can leverage this to our advantage.

Joanne Jobin, Host

Okay. And I receive a question frequently, why wouldn't they just keep the $1 million and take the proceeds from the royalties? Why did they decide to parcel off or spin out their royalties?

David Garofalo, CEO

SOQUEM's mandate is not to hold these assets indefinitely. Their purpose is to incentivize exploration in Quebec, making those investments to grow reserves and resources across a broad spectrum of metals—not just precious ones; and ultimately, to exit those positions over time to recycle capital back into new exploration opportunities. Holding these royalties forever does not fit their mandate. They’re seeking to invest capital back into exploration in Quebec, which is fundamental to their objectives.

Joanne Jobin, Host

Okay. The last question on SOQUEM is, clearly, it's tough to model at this early stage, but do you have metrics that indicate how this deal will look for Gold Royalty in the end?

David Garofalo, CEO

There are a couple of perspectives to consider. Peter talked about the $18 million in buybacks within the royalty contracts, of which we’ll receive 50%. So, in very aggressive scenarios where all those get bought down, we stand to gain nine times our investment back simply in cash. This does not even account for the exploration and potential royal value tied to those remaining royalties. Another way to view this is that we procured 20 royalties for the equivalent of approximately USD $600,000, which comes to around $30,000 per royalty. It's comparable to what our royalty generator model costs in terms of staking claims and the expenses attributed to our personnel in Reno. This represents a highly cost-effective method of integrating significant royalty options into our existing portfolio.

Joanne Jobin, Host

Okay. Let's shift focus to precious metals in North America, combining this with another inquiry about platinum pricing and gold nearing the cheapest valuations ever. Are we venturing into platinum streams in royalty contracts?

David Garofalo, CEO

We will remain focused on LME-traded metals that are quite liquid. If you evaluate our Board and Management team, including myself, we have substantial expertise in precious metals; I've built copper, zinc, silver, and gold mines throughout my career. We do take a broader view towards the spectrum of metals we understand. We might consider opportunities in polymetallic deposits containing core minerals, but we will maintain a focus on precious metals with some diversification into certain LME metals.

Peter Behncke, Manager, Corporate Development and Investor Relations

David, I would add that looking at platinum and palladium commodities, we see them as relevant within the precious metals category. However, the amount of opportunities we identify in that domain, compared to the considerably larger gold, silver, and copper sectors, is much less. Since we went public, we've explored over 300 opportunities, of which we’ve only executed on a handful. I’ll note that the majority of those surveyed opportunities have been in gold, silver, and, to a smaller extent, copper.

Joanne Jobin, Host

Okay. Let’s circle back to your portfolio—what percentage of your revenue is anticipated to stem from Odyssey next year, and how does the ramp look over the next few years in terms of expected revenue?

David Garofalo, CEO

Peter, would you like to take that?

Peter Behncke, Manager, Corporate Development and Investor Relations

Certainly. From Canadian Malartic in 2023, we expected a substantial amount of our attributable production to come from the Barnat Pit. While we've seen less output from Barnat due to the sequencing at Canadian Malartic, we expect most of that to be rectified throughout 2024, targeting closer to 30,000 ounces of total production reporting back to our 3% NSR from the pit. We are still waiting for specific guidance on the Odyssey South and internal zones, as I noted; they continue to delineate that internal zone resource, and our goal is to incorporate that into the mine plan as soon as next year. However, we can provide clarity on our expectations through the end of the decade—assets like Odyssey North and East Malartic on a combined basis could report closer to 200,000 ounces of total production entering our 3% NSR by then, ramping up significantly through ‘27 and ‘28.

Joanne Jobin, Host

Okay. And how many assets do you forecast will be producing by 2024 and 2025?

Peter Behncke, Manager, Corporate Development and Investor Relations

By the end of next year, we currently anticipate our four producing assets; we’re eager to see Cote enter production. The Odyssey underground has the potential to supplement that. Thus, we envision six royalties producing by the end of 2024. Closer to the end of 2025, we have a handful of smaller royalties in Nevada that could increase that figure of producing royalties upwards of eight by then.

Joanne Jobin, Host

Okay. I have a couple of inquiries here, and I'm combining them, which revolve around royalties companies. David, what are your thoughts on whether more mergers among royalty companies will rise in the next year? Also, why are they underperforming in the markets currently?

David Garofalo, CEO

Actually, we’ve seen significant M&A activities since our IPO. We launched in March of 2021 during a period where there were no mergers taking place. We ignited the consolidation by merging with three peer companies—Ely, Golden Valley, and Abitibi—over the course of 2021. Post that, we witnessed a host of other M&A dealings; at least six royalty companies have consolidated or disappeared. Firms like Mavericks, Nomad, and Ultra Strategies are examples of those that vanished over the past couple of years. Therefore, consolidation has indeed taken place, primarily to achieve scale swiftly and reduce capital costs. However, the expected re-rate from this consolidation has not materialized because of a massive capital outflow from gold equities in general—not just in the royalty and streaming sphere. The drivers behind this capital exodus include inflationary pressures—especially rising operating and capital costs—shrinking margins in a steady, low-price environment. Gold has maintained value within the range of $1,800 to $2,000 an ounce over the past couple of years. The stubborn gold pricing is one contributing factor to the decline in profitability among producers—growing operating capital costs against a backdrop of shrinking reserves and production profiles have further complicated matters. Unfortunately, the royalty and streaming companies have faced this downturn too, despite the fact that we provide significant cost advantages. As a result, the royalty sector has similarly suffered, experiencing this baby-with-the-bathwater-type response, which is disappointing for gold investors seeking leverage in a climbing gold price market. Notably, gold has hit all-time highs in various currencies and has held its ground against the US dollar, yet we haven’t seen corresponding performance from royalty companies. In time, however, they will bounce back because they inherently provide the optimum exposure to the gold price while protecting against inflation. Therefore, the first dollars will eventually flow back into royalty and streaming companies when generalist investors return to the sector, as these firms offer a safer investment proposition than producers and developers.

Joanne Jobin, Host

David, do you have a strategy prepared should someone approach you with a hostile bid or proposal for a merger? Where do you see yourself in three to five years?

David Garofalo, CEO

I believe that consolidation among the remaining half-dozen to ten royalty and streaming companies is inevitable. There is a significant gap in the sector; no notable mid-tier royalty and streaming company competes for capital and opportunities with the sizable entities. As I mentioned earlier, the larger firms are receiving valuations implying substantial growth potential that they are unable to fulfill due to their sheer size. Their quality sites are liquid, and consequently, they’ve become attractive options for specialist funds in the precious metal landscape while generalists await. As we begin to see generalists return to the space, specialists will seek growth vehicles, which provide better leverage; we aim to position ourselves as that mid-tier company among our peers, distinguished by our growth ability while still being relevant in trading and capital attraction. This mid-tier representation is currently absent, and soon we will witness remaining smaller-cap players consolidate. I can’t predict the exact sequence of these events or which smaller company will acquire another, but it’s clear everyone in this sector has been relatively quiet due to the intense discounts we face relative to our net asset values.

Joanne Jobin, Host

Excellent. Just a few more questions, and we’re nearing the end of our session. At what cash flow level would you consider spinning off contracts that won’t generate returns for years? Specifically, what value are you maintaining?

David Garofalo, CEO

I’ve heard that perspective before. However, the reality is that we aren’t currently reaping any financial benefit from that option value in the small-cap company like ours—our $200 million market cap places us at the larger end of the smaller-cap spectrum. So, a smaller vehicle with no cash flow would arguably attract an even lower valuation. From an economic standpoint, spinning these options off into separate vehicles that don’t generate cash flow is unwise. The limited value we gain would effectively disappear in those cases, and setting up additional G&A costs is unavoidable because public companies have fixed costs that don’t fluctuate; it does not matter whether your transaction size is small or large. Why recreate those expenses? We have been moving toward consolidation and realizing synergies. So deconsolidating introduces unnecessary costs to the system.

Andrew Gubbels, CFO

Additionally, investors sometimes overlook that core assets within the portfolios of companies like Royal Gold and Franco-Nevada originated as exploration assets without any production. Therefore, retaining some of these long-term options that haven’t yet captured monetary value may eventually yield returns in the future.

David Garofalo, CEO

That’s an excellent point, Andrew. The best part is these assets are bought and paid for. They don’t come with ongoing costs or decay; they merely sit and wait. Eventually, there will be value realization—not on every one of them, certainly—but that’s the beauty of our model: there’s no cap onhow many royalties we can amass, and we could manage 2,000 royalties within the current G&A footprint. They don’t occupy our resources nor pose a burden—providing infinite optionality to shareholders at near-zero expense.

Joanne Jobin, Host

As a final question for today, do you have specific valuation metrics or multiples that you monitor to determine whether to initiate a buyback of your own shares? Alternatively, if other publicly traded royalty and streaming companies approach those levels, do you have a plan?

David Garofalo, CEO

It’s clear that when we transition into sustainable free cash flow next year, we will need to revisit the notion of returning capital to shareholders in one form or another. This is a discussion I look forward to having with my Board next year, once we reach the tipping point we’ve spoken about with the onset of Cote, the ongoing ramp-up of Odyssey, and REN projected to come on in the following years. Our revenue growth will almost present a hockey-stick scenario over the next while while our cost structure has been well stabilized under Andrew's guidance as CFO over the last year since he assumed the role. I am very satisfied with our position, where we can approach our Board next year and determine the most effective methods to begin sharing some of that free cash flow with our shareholders. Should we distribute dividends? Initiate buybacks? Are there different ways to return capital to shareholders that genuinely support our share price?

Joanne Jobin, Host

Excellent. I was going to ask if you'd like to say a few more words to your shareholders before we sign off, but what you just mentioned holds significant value, and I think shareholders will appreciate your perspective. Great management team and a great presentation as usual. We are now at the top of the hour, so we’ll conclude our Town Hall Forum. Thanks, everyone for tuning in. It's been a pleasure to host you, and we will see you on the next VID Town Hall Forum. Thank you very much, everyone.