Gold Royalty - Earnings Call - Q2 2025

Transcript

Moderator (participant)

Good day, everyone, and welcome to the Gold Royalty Corp second quarter 2025 results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I would like to turn the conference call over to David Garofalo, Chair and CEO. Sir, please go ahead.

David Garofalo (CEO and Chair)

Thank you, Operator. Good morning, ladies and gentlemen, and thank you for participating in today's call to review our second quarter 2025 results. Please note, for those not currently on the webcast, a presentation accompanying this conference call is available on the presentation page of our website. Some of the commentary on today's call will include forward-looking statements, and I would direct everyone to review slide two of the presentation, which includes important cautionary notes. Speaking alongside me on today's call will be Andrew Gubbels, Chief Financial Officer, and Jackie Przybylowski, Vice President Capital Markets. We are proud to report that this quarter we have firmly reached our inflection point, achieving positive free cash flow and another record quarterly revenue, adjusted EBITDA, and operating cash flow.

We also continue to expect steady improvement over the coming quarters through the successful ramp-ups of several of our key assets, including Vares, which achieved commercial production on July 1, Côté, which announced on June 23 that it has reached its steady state run rate, and Borborema, which started operations on March 28 and continues to progress towards commercial production later this year. Growing cash flows and revenues continue to improve our balance sheet, as Andrew will discuss in a moment. First, I want to talk about our approach to capital allocation. Capital allocation continues to be an important strategic priority and will be even more important as we harvest cash through this year. Looking ahead, we maintain a clear focus on debt reduction while considering capital returns to shareholders and pursuing strategic growth opportunities when appropriate.

With our convertible debentures and outstanding common share warrants now deeply in the money and our growing free cash flow, we could be in an essentially net debt-free position by the end of 2026. We continue to monitor the landscape of consolidation across the royalty space. With the entry of new strategic capital in Perfector and the recent announcement of two major mergers in the royalty space this year already, we do expect the pace of consolidation in the royalty sector to accelerate. While we can't predict the sequence of participants in industry consolidation, we believe the drive to create a mid-tier royalty company with organic growth and sufficient scale to attract global institutional equity investors, while also realizing cost synergies, will be a big driver of continued merger activity.

While we believe the re-rate being experienced by Gold Royalty and some of our peers is partly reflective of this dynamic, we also expect that the realization of Gold Royalty's peer-leading revenue and cash flow growth this year has been a large driver of our share price performance in 2025. The better news is that this is just the beginning of a minimum five-year period of pronounced attributable gold equivalent production growth across a portfolio of royalties and streams on large scale and long-life mines in some of the best jurisdictions in the world. We spent significant time on our June 12th Capital Markets Day discussing our capital allocation strategy and our views on consolidation. If you weren't able to attend the event live, I would encourage you to view the replay, which is archived on our website under Investors and Corporate Presentation.

With that, I will pass the call over to Andrew Gubbels to discuss the details of our first quarter results and our outlook on slide four.

Andrew Gubbels (CFO)

Thank you, David, and good morning, everyone. We're pleased to report new records for revenue and adjusted EBITDA in the quarter and half year. Adjusted EBITDA was $2.4 million in the quarter, a nearly 50% increase compared to the previous quarter. Total revenue, net agreement proceeds and interest was $4.4 million, translating into 1,346 gold equivalent ounces in a quarter. Our reported revenue included the recognition of $0.3 million in revenue related to royalties payable for prior periods after we received a favorable judgment in a previously announced dispute with the operator of the Jerritt Canyon mine regarding our per ton royalty interest. This judgment will not impact chief of royalty revenues should Jerritt Canyon restart. As David mentioned, we reported both positive operating cash flow and free cash flow this quarter.

We are very excited about this transition to positive free cash flow, which is primarily due to the contribution of the Vares and Côté Gold mine's strong gold prices to average $3,279 per ounce in the quarter and relatively flat D2 G&A costs of $1.8 million. Our operating costs, which include G&A and project evaluation expenses, continue to be in line with an average of our other small cap royalty and streaming tiers, as we showed at our June 12th Capital Markets Day. Looking forward, we reiterate our 2025 and five-year outlook. We will use excess cash, including any proceeds from the exercise of outstanding warrants, to opportunistically repay the $27.3 million outstanding on our revolving credit facility. As our EBITDA grows over the coming quarters, we expect to deliver quickly, such that Gold Royalty is effectively debt-free by the end of 2026.

I'll now pass the call over to Jackie to review our key operations.

Jackie Przybylowski (VP of Capital Markets)

Thanks, Andrew. Turning to slide five, I'll review a few of the key developments in our asset portfolios. Côté has achieved a major milestone, achieving nameplate throughput. IAMGOLD reported that on Saturday, June 21, 2025, the Côté processing plant operated at a nameplate capacity of 36,000 tons per day on average over 30 consecutive days. Nameplate capacity was reached well ahead of the company's target of Q4 2025, and our revenue from Côté was strong at over $1 million in the quarter. IAMGOLD expects further improvement with the installation of a second cone crusher later this year, which is expected to improve the reliability of the comminution circuit and debottleneck at the dry side of the plant, offering the potential for further optimizations and improvements in the near future. Aura Minerals continued startup activities at Borborema after the mine achieved first production in late March.

Aura has maintained its 2025 guidance of 33,000 to 40,000 ounces of gold produced. While the asset has not yet declared commercial production, the operator continues to expect this milestone in the current quarter. As such, we continue to receive pre-production payments of 2,500 ounces of gold per quarter, which contributed a meaningful $1.2 million in revenue in the second quarter at strong gold prices. Offsetting the strong performances at Côté and Borborema, we reported $18,000 in revenue at Agnico Eagle's Canadian Malartic mine in the second quarter. We view this relatively light result as a temporary issue of mine sequencing. The operator continues to highlight the tremendous potential at Odyssey in the longer term, including a potential extension to shaft number one and installation of a second shaft.

We also continue to watch Adriatic Metals' Vares mine, which achieved commercial production on July 1, 2025, roughly in line with the operator's target of Q2 2025. On July 28, Adriatic Metals reduced its full-year 2025 guidance to 475,000 to 585,000 tons ore milled from 625,000 to 675,000 tons previously. Despite the guidance cut at Vares, Gold Royalty maintained its full-year guidance of 5,700 to 7,000 GEO in 2025, as the shortfall at Vares is expected to be partly offset by better than expected performance from other portfolio assets, including the assets mentioned previously. We are also maintaining our five-year guidance at 23,000 to 28,000 GEO, and we continue to note that this longer-term outlook is fully bought and paid for and is comprised mostly of mature and brownfield operations owned by experienced and well-funded operators. With that, I'll pass the call back to David for closing remarks.

David Garofalo (CEO and Chair)

Thank you, Jackie. There's indeed lots to get excited about as you look across our portfolio and the various high-quality assets ramping up and entering production. One of the key benefits for our diversified portfolio is the steady flow of exciting growth catalysts at our underlying assets. Those near, medium, and long-term catalysts will contribute to peer-leading growth that Jackie highlighted in our 2029 outlook. Our relative valuation chart shows that Gold Royalty Corp has made significant progress towards fair value and a price-to-net asset value basis since our first quarter call on May 8th. However, we continue to see compelling upside to our share price as our portfolio assets continue to develop according to our 2029 outlook. We emphasize that we will remain patient and disciplined as we consider any acquisitions and as we review our capital allocation options going forward.

Paying down a revolving credit facility will continue to be one of our priority uses of capital. As our share price has now been comfortably above our warrant exercise price for some time, we think it's prudent to highlight this to any warrant holders on today's call. As of June 30th, 2025, the company had approximately 20 million outstanding share purchase warrants, with each warrant exercisable into a common share at $2.25 per share. The warrants are listed on the NYSE American under the symbol GROY.WS and expire May 31st, 2027. For more information on exercising warrants, please see our second quarter earnings press release. Thank you, everyone, for tuning in to the earnings call. With that, I'd be happy to open up the call to Q&A. Operator?

Moderator (participant)

Ladies and gentlemen, at this time, we will begin the question and answer session. If you would like to ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then one to cue into the question queue on the audio side. We'll pause momentarily to assemble the roster.

Jackie Przybylowski (VP of Capital Markets)

While we're assembling the roster, I do have a question that's come in by email. Could Gold Royalty specifically state how the free cash flow from Q2 2025 was handled?

David Garofalo (CEO and Chair)

I'll pass it on to Andrew to answer.

Andrew Gubbels (CFO)

Thanks. Thanks, David and Jackie. Yes, we did generate positive free cash flow for Q2 of this year. At this stage, with respect to free cash flow, I would like to target a cash balance inclusive of our undrawn revolver above $5 million. We have cash a little above $3 million. We've got $2.7 million in undrawn revolver capacity as well. We are slightly above $5 million at this stage. I do expect in Q3 and Q4 to accumulate more free cash flow, and as we do, we will consider or evaluate the repayment of our revolver. At this stage, given we finished the quarter, we're slightly above that threshold that I'm looking to keep when we look at repayments to the revolver moving forward in the coming quarter.

Moderator (participant)

If you would like to ask a question, please press star and then one. We do have a question on the audio side, and this comes from Eric Winmill from Scotiabank. Please go ahead with your question.

Eric Winmill (Analyst)

Oh, hi. Good morning, David and team. Thanks for taking my question. Just wondering if you can elaborate at all on the Jerritt Canyon, the revenues you received, and how we should think about Jerritt for the balance of this year and next year. Are you expecting any additional revenues to come in there? Be helpful. Thank you.

David Garofalo (CEO and Chair)

I'll hand that off to Jackie.

Jackie Przybylowski (VP of Capital Markets)

Hi. Yes, sir, thanks. Thanks, Eric, for the question. The revenues that we received were in relation to a settlement that had been reached earlier this year, just at the end of the quarter. Our royalty on Jerritt Canyon includes two components. This is 0.5% NSR, and as Andrew mentioned, it's a sliding per ton rate as well. That's the aspect that was disputed. The settlement that we've recorded in the quarter represents the final amount for that settlement that we were expecting. We had previously accrued a small amount as well, but this $0.3 million is the final amount that we're expecting. We're not expecting any further revenues from Jerritt Canyon this year, and nothing else related to that settlement.

If Jerritt Canyon were to restart and the company, First Majestic, has indicated that they are looking at restarting, then, of course, we would receive the royalty revenues, both from the 0.5% NSR and the sliding per ton rate, going forward. We're not expecting anything else until the mine were to restart.

Eric Winmill (Analyst)

Okay. Great. Super helpful. I appreciate it. Maybe just one more, if you don't mind, the comment on the merger landscape. I know you touched on the preamble at the outset, but just curious, obviously exciting time in the royalty space, and Gold Royalty stock has appreciated pretty substantially this year. How does that affect your plan, and would you be more likely to be a consolidator or look to be acquired? I mean, you've got a good advantage profile. Anything you could touch on there would be helpful. Thank you.

David Garofalo (CEO and Chair)

Yeah. Thanks very much, Eric. I do think that consolidation can only accelerate from here. Obviously, the fundamentals of the gold price are very helpful in that regard. Also, there's been new entrants in the space. You know, namely, we've seen a very large stablecoin fund and Tether taking a very significant investment in one of our peers, with the stated objective of consolidating the sector and putting more capital to work and perhaps free trading more stablecoin products backed by royalties and streams. That can only enhance the amount of capital available for the smaller cap universe of royalty players. I'm optimistic that will lead to more consolidation and lead to significant synergies. There's probably $50 million to $75 million of excess G&A among smaller cap players in the space. There's a lot of value to be created through consolidation and scale.

I think the creation of a mid-tier player has always been a driving corporate vision for Gold Royalty. One that's sufficiently large and liquid to attract general effective investors, but still small enough to grow in contrast to some of the larger cap players in our space who are excellent companies but don't have the growth profile that a mid-tier competitor can create. We think that can create a significant re-rate opportunity. We've always seen ourselves as a player in the space. We want to be eventually a consolidator, but we don't feel we're in a position right now or have the currency to be a significant consolidator. What we want to do is harvest a very strong rate of return from the significant investments we've made in our portfolio.

I would say over the short term, we're very much focused on making sure that our business is running well. It's deleveraging and, hopefully in time, returning cash flow to shareholders in various forms. Hopefully in time, we'll be a consolidator as opposed to being acquired.

Eric Winmill (Analyst)

Okay. Great. Thank you very much. I really appreciate the color. I'll hop back in a few. Cheers.

Moderator (participant)

Once again, if you would like to ask a question, please press star and then one. We do have an additional question from John Bear from Ascend Wealth Advisors. Please go ahead with your question.

John Bear (Analyst)

Thank you. Thank you for taking the question here. Sort of as a follow-up to that last question, when you're looking at acquiring a royalty, how far out do you typically look at the project coming online? In other words, you're looking at a two to three-year timeframe, five years, and how does that play into your strategy?

David Garofalo (CEO and Chair)

We have Peter Behncke, who's our Director of Corporate Development and Investor Relations, also on the call taking questions. I'll hand that off to Peter to answer.

Peter Behncke (Director of Corporate Development and Investor Relations)

Thanks, David, and thanks for the question, John. The answer is really, it depends. I'd say for M&A, individual asset acquisitions through financing or a third party, we are looking at that line of slice of cash flow. Assets where there's a clear path, a capitalized operator that's going to develop that asset, to your examples, within that five-year window. Longer-term assets, early expiration state royalties, we actually generate those ourselves through our royalty generator model, primarily in Nevada. We can get longer dated assets, effectively for free. Our focus for non-organic growth is really in that near-term cash-flowing royalty.

John Bear (Analyst)

Okay. Jurisdictionally, staying primarily in Canada and the U.S., are you looking elsewhere? Are there other jurisdictions that are considered, let's say, relatively stable that you are investigating?

Peter Behncke (Director of Corporate Development and Investor Relations)

Yeah, no, it's a good question. With our strong base, over 85% of our business in Quebec, Ontario, and Nevada, we have that scope to look abroad, and we have looked abroad. To your point, staying in safe jurisdictions is definitely a priority. We go where there's high-quality assets we've directed from the operators, and there's that rule of law in place that we can enforce our royalty or streaming contracts. As we've made in the last couple of years, investments through Brazil, we'd love to have interest in Australia, although those opportunities are sometimes less frequent, and then parts of Africa that would be selective. We have a very strong base to begin with, and we continue to look for opportunities in Canada and the USA as well.

John Bear (Analyst)

Last question, appreciate it, is at what point would you consider reinstating dividends?

David Garofalo (CEO and Chair)

Yeah, I was going to grab that one. Vince, at this stage, we're very much focused on deleveraging. As I said earlier on in the call, we expect to be net debt-free by the end of next year. We expect our debentures will convert, given how deep in the money they are. We also expect to largely repay our revolver. I think at that point, we're in a position to start to talk about returning capital to shareholders because then we'll be in a very steady and long-term free cash flow generating phase of our existence.

John Bear (Analyst)

Yeah, that's good. Getting deleveraged is a very important thing, in my opinion. Thank you very much for taking my questions.

David Garofalo (CEO and Chair)

Thank you.

Moderator (participant)

Ladies and gentlemen, at this time, ensuring no additional questions, I'd like to turn the floor back over to management for any closing remarks.

David Garofalo (CEO and Chair)

Thank you, everybody, for your attention today. Of course, we're always delighted to hear from you. If you'd like to call in at our 1-800 number, we're happy to return calls or email us, either [email protected] or [email protected] as well. Peter and Andrew would be happy to take your questions as well if you'd like to email us or call us. Hope to hear from you over the course of the quarter.

Moderator (participant)

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.