Gold Royalty Corp (NYSE-AMER: GROY) shares have been in rally mode. In fact, during September alone, its share price has seen a more than 30% surge to its current $5.65 level. The move comes after transformative acquisitions positions GROY for considerable growth in the coming quarters. An update on Monday highlighted the opportunity. Even better, it showed how its new interests in several properties could transform this current $215 million company into a more than $500 million business in the coming quarters.
On Monday, GROY announced an update on certain royalties forming part of the new Gold Royalty upon closing the transactions reported on September 7, 2021. Investors responded well to its news highlighting growth across the new Gold Royalty’s cash flowing, development, and exploration stage royalties for selected key assets. Better news for investors, GROY has committed to issuing royalty and asset updates to shareholders quarterly. That could keep the value-proposition in play on a forward-looking basis.
That value comes from at least seven royalty-producing interests in development.
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Drilling For Value In Multiple Assets
The more excellent news is that cash flow is already happening through cash generated from GROY’s Project and Royalty Generator Model and marketable securities. Already, GROY is accruing value from six royalty interests on five producing mines, including portions of the Canadian Malartic open pit, Jerritt Canyon (two royalties), Isabella Pearl, Marigold, and the Rawhide Mine. All have considerable value.
Specifically, the Jerritt Canyon Mine, a producing mine since 1981, has given up over 9.5 million ounces of gold during its 40-year production history. Peak annual production has exceeded 450,000 gold ounces. Last year, GROY noted that the mine produced 112,749 ounces of gold at a cash cost of US$1,289 per ounce, according to First Majestic Silver Corp. Under new ownership, GROY expects the 119 square mile land package at Jerritt Canyon to have significant exploration potential. First Majestic, which acquired the mine in April 2021, can capitalize and maximize the value inherent to that property.
The project is already doing well. In August, First Majestic announced that during May and June of 2021 (62 days), Jerritt Canyon produced 18,762 ounces of gold and processed 146,611 tons of ore. Investors should know that a significant opportunity to increase the mining and processing rates at the mine under First Majestic’s ownership is likely, with the processing plant on average operating at approximately 2,200 TPD, which is about 50% of its designed capacity.
Of course, that’s only a single interest. A comprehensive analysis of its claims, including dig rates by location, can be more closely evaluated by clicking here. The details provide ample fuel to maintain its value-creating momentum.
The broader picture is what paints the near-term opportunity.
GROY Breaks Higher As Value-Proposition Builds
Notably, GROY is moving along with a gold market attacking its $1800 resistance levels. However, as a royalty company, GROY can set a trend of its own, showing that to be the case this month as gold sees pockets of mild weakness.
In fact, the steady move higher in GROY stock comes as investors take action to capitalize on opportunities through well-positioned gold sector companies that are both diversified and positioned to benefit from increases in the bullion price. GROY fits that model. And by having ample cash to see development through 2021, no debt, and a growing portfolio of assets, investors are catching on to the value already intrinsic to the GROY proposition.
Better still, if the past month indicates 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. That’s more true after its update earlier this week. Not only does it indicate substantial value, but it also shows that its recent acquisitions can be transformative to its revenue-generating potential.
Adding more firepower to the value proposition, GROY secured a revolving credit line of up to $25 million, which could extend its acquisition campaign. GROY has been transparent, stating that accretive acquisitions remain in its crosshairs. Hence, expect current balance sheet strength to translate into long-term value. And as the GROY story gets more popular, both near and long-term value can come sooner rather than later.
Here’s why:
A Robust Portfolio Of Revenue-Generating Assets
Foremost, GROY is a substantially bigger company than they were only a few months ago. 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 was not only big; it immediately transformed GROY into a leading Americas-focused precious metals royalty company with scale, diversification, cash flow, and access to capital. Even better, it positions the company to quickly execute its strategy to become a leading consolidator in the royalty space. Its plan to turn ambition into dollars is already happening.
In September, 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. Terms of the agreement quickly benefit investors.
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. More excellent, the project is expected to keep on giving, with the open-pit reserves expected to remain sufficient to support mining operations until 2028. Thus, more than adding roughly six years of business visibility to the product, it, more importantly, translates to having substantial untapped money in the ground. It’s always great to be sitting on gold.
Underground Opportunities Add More Value
Know this, too. Longer-term value can come through Agnico and Yamana, developing an underground mine at Odyssey after identifying additional underground deposits. Estimates are bullish on the prospects, indicating that the additional Odyssey deposit contains measured, indicated, and inferred resources of nearly 2 million toz gold. And 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.
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.
Also, 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.
Things get even better. Factoring what GROY owns today, a sum of its parts equates to a more appropriate valuation of assets closer to the $500 million levels. From current levels, that’s a more than doubling in price. Still, as GROY continues to make deals and benefits from interests that are 191 royalties deep, that valuation may prove conservative. If gold prices continue higher, it most certainly will be.
Of course, revenues are what will drive share prices higher. GROY is delivering in that respect.
Near-Term Revenue Potential Gets A Surge
Indeed, the acquisition of Abitibi and Golden Valley is expected to drive revenues substantially higher in the coming quarters. Even better, as its portfolio assets mature, and even with gold still in the ground, their contributions can increase on the balance sheet. Already, analysts evaluating 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 impressively higher in September, it’s anticipated that the accretive nature of its acquisitions will soon become more reflective of GROY’s share price. The lag is understandable, especially with the number of new assets to evaluate. But, with the trend in share price gains decidedly bullish, the gap in value between intrinsic value and current share price should close. As noted, a value closer to $10 is more reflective of assets under management.
Better yet, as updates continue, even a doubling in price could prove conservative. Recent reports show Golden Valley has an intrinsic value of roughly $137.5 million, with Abitibi interests at $249.6 million. Thus, a 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 coming at least every quarter, the bullish sentiment for GROY will likely intensify along with the expectations of strong metals markets well into next year.
Running With The Gold Bugs
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.
Moreover, as investors in the sector learn more about the value of the transformative moves made by GROY during the past sixty days, expect the paced action higher to be met with more determined investment interest. In other words, pressure to the upside can build. It already is.
And with Gold Royalty Corp. positioned to substantially increase shareholder value, having completed a transformational multi-faceted deal and benefiting from a well-deserved growth stock multiple, its $5.65 price tag may be short-lived. Good stocks in hot sectors don’t stay under the radar too long. GROY is no exception.
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