Gold Royalty Corp. Just Got Considerably Larger; Its Value Proposition As Well (NYSE-AMER: GROY)

September 21 07:04 2021

To those investing in the gold sector, they saw the news. Gold Royalty Corp (NYSE-AMER: GROY) just got bigger. Much bigger. In fact, its recent acquisitions of two significant properties are expected to turn this current $215 million company into a more than $500 million business based on assets in the ground. Better still, while its 45% jump in share price since its March IPO is impressive, the recent move in gold to breach the $1800 level puts more significant gains in play. 

And while gold may battle resistance bands at that level before its expected break higher, investors are already making moves to take advantage of companies positioned to benefit the most from increases in the bullion price. That’s where GROY can outpace competitors. That’s especially true with GROY having formidable cash balances, no debt, and a growing portfolio of assets. 

Moreover, if the past two weeks are any indication of what to expect in the coming weeks, investors taking advantage of GROY prices at these levels could be in store for appreciable gains into the end of the year. Why? Because GROY completed a series of acquisitions that can be transformative to its growth.

Better still, in addition to its acquisitions, GROY secured a revolving credit line of up to $25 million, which could extend its acquisition campaign. At the very least, the trifecta of excellent news regarding the fresh capital and acquisitions justifies a higher valuation. And as investors come to know this relative newcomer to the space, those gains can come sooner rather than later. 

Actually, valuations are already appreciating. Since the start of September, GROY’s share price has been higher by roughly 23% to $5.20 intraday on Monday. The good news is that the forecast in the gold sector is calling for more gains to come. Thus, while its roughly $215 million market cap is impressive, the additional assets under management should cause analysts to reevaluate that valuation. And with new interests contributing to an already increasing revenue stream, even doubling in value is not out of the near term equation. Here’s why:

Adding Substantial Accretive Value

Foremost, GROY just got substantially larger as an enterprise. A large part of its transformation started last month after completing its strategic business combination with Ely Gold Royalties Inc. through a plan of arrangement under the Business Corporations Act in British Columbia. 

That deal is a big one and almost immediately transformed GROY into a leading Americas-focused precious metals royalty company with scale, diversification, cash flow, and access to capital. Better still, it positions the company to quickly execute its strategy to become a leading consolidator in the royalty space. That ambition is turning into dollars.

Earlier this month, GROY announced it closed on its planned acquisitions of Abitibi Royalties (OTCPK: ATBYF) and Golden Valley Mines (OTCQX: GLVMF) in an all-share deal. As a result, existing GROY shareholders now own a controlling 54% interest in a much larger entity. And while shareholders may have been diluted, they received a lot in return. 

GROY immediately gets Abitibi’s royalties on various parts of the Canadian Malartic mining complex. And more than a substantial revenue contributor, it adds diversification to the portfolio. The deal with Abitibi brings to GROY a 3% NSR royalty on Odyssey, East Malartic, Jeffrey, and Barnat, a 2% NSR royalty on Gouldie and Charlie, a 1.5% NSR royalty on the Midway project, and a 15% NPR royalty on Radium Zone. By the way, these interests are also associated with the best in the business.

The Canadian Malartic mine, owned by Agnico Eagle Mines (NYSE: AEM) and Yamana Gold (NYSE: AUY), is measured to hold reserves of 4.43 million troy ounces (toz) of gold. In 2020, the mine gave up 568,634 toz of the precious metal. Better still, it’s a project expected to keep on giving, with the open-pit reserves expected to remain sufficient to support mining operations until 2028. In the gold mining business, that’s excellent visibility. It also represents a tremendous amount of untapped money. 

More Opportunities Underground

Even better for the long-term, Agnico and Yamana are developing an underground mine at Odyssey after identifying additional underground deposits. Estimates suggest that the additional Odyssey deposit contains measured, indicated, and inferred resources of nearly 2 million toz gold. That’s in addition to the estimated 6 million toz of gold situated at East Malartic and roughly 6.5 million toz of gold at East Gouldie. Thus, while the prospects were already excellent, they got even better.

Still, there’s more to like. GROY also acquired Golden Valley, which owned about 45% of Abitibi Royalties at the time. The new interests bode well for GROY, benefiting from Abitibi’s 37.96% stake in Val-d’Or Mining (OTCPK: VDOMF) and its 11.45% stake in International Prospect Ventures (OTCPK: URANF). While GROY won’t get all that interest, they will reap a substantial portion. 

Further, GROY gets Golden Valley’s 2.5-4% NSR royalty on the Cheechoo project owned by Sirios Resources (OTCPK: SIREF), and a 3% NSR royalty on Bonterra Resources’ (OTCQX: BONXF) Lac Barry project (part of the combined Urban-Barry project). The former holds inferred resources of about 1.96 million toz of gold from surveys collected before last year. An updated resource and reserve estimate for Cheechoo is expected soon. The same goes for Lac Barry, which contains inferred and indicated resources of nearly 1.4 million toz gold. They, too, expect an update for the Urban-Barry project before the end of 2021.

Now to the best part. Considering what GROY owns today, a sum of its parts indicates that a more appropriate valuation of assets should be closer to the $500 million levels. From current levels, that’s a more than doubling in price and is well-deserved once GROY integrates its portfolio of assets that now stretch 191 royalties deep. 

Keep this in mind, too. With six of GROY’s properties located in the world-class Canadian Malartic mine, having cash and marketable securities of roughly $47 million, no debt, and bringing world-class assets under management, they are better positioned than ever to maximize its in-ground opportunities. 

Of course, revenues are what will drive share prices higher. GROY is delivering in that respect.

Maximizing Near-Term Revenue Potential

The acquisition of Abitibi and Golden Valley is expected to push revenues significantly higher sooner rather than later. Even better, as these portfolio assets mature, their contributions are expected to increase. Analysts looking at the deals suggest that about $10 million can be earned by 2023, with that number more than doubling to an expected $25 million by 2025 as royalties from the Odyssey (a part of the Malartic complex), Ren, and Fenelon start to stream.

Thus, while the stock is trading nicely higher, it’s anticipated that the accretive nature of these acquisitions will soon become more reflective in GROY’s share price. The lag is understandable, especially with the number of new assets to evaluate. Hence, investors shouldn’t be discouraged by the lack of a gap higher. In fact, they may be encouraged that the expected end result of the detailed analysis will support higher prices in time.

Better yet, those reports are already getting published. According to its breakdown, Golden Valley has an intrinsic value of roughly $137.5 million, with Abitibi interests at $249.6 million. Thus, a simple calculation puts GROY’s stake in Abitibi interests through Golden Valley’s 44.96% ownership level, at a value of roughly $112.2 million. Then, factoring in the rest of Golden Valley’s assets recently valued at $25.3 million with a peer industry multiple, GROY is already positioned to enrich shareholders. 

Hence, despite the stock’s bullish performance thus far in September, as a growth stock in a sector expected to see significant interest in the coming weeks, further appreciation is likely. And with updates on revenues and portfolio reserves expected later this year, the bullish sentiment for GROY can intensify along with the expectations of a strong metals markets well into next year.

Bull Run In 2021

Indeed, September set up GROY for potentially exponential growth in the coming quarters. The better news is that the backdrop of higher inflation and rising bond yields supports that GROY can maximize its interests sooner rather than later. And with an up to $25 million credit facility, a substantial revenue-generating portfolio of assets, and cash flow to support further development, GROY is more than substantially larger as a company compared to thirty days ago; they are positioned to grow even more. 

Further, as investors digest the transformative moves made by GROY during the past sixty days, the sum of the parts from its multi-party acquisition won’t be ignored for long. Thus, catching some near-term volatility can be an excellent way to capture value as that analysis takes place. Remember, too, GROY will be headlines driven. And with inflation data now getting hot, investors can benefit from a combination of assets and gold prices. That’s a win-win proposition.

Moreover, despite the political rhetoric that can spin economic data, the “peoples” inflation, including food and energy, is rising quickly. And while the Fed can battle the data, they are running out of arrows in the quiver to keep a lid on inflation much longer. Hence, expect savvy investors to be ahead of the inflation trade. While inflation is bad news for consumers, it can translate to excellent news for investors focused on gold-stock opportunities. 

And with Gold Royalty Corp. having completed a transformational multi-faceted deal and benefiting from a well-deserved growth stock multiple, resting in its stock may be an appropriate way to play the inflation trade. Better still, its diversified portfolio and ability to add accretive value make that proposition extremely more comforting.

 

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