David Garofalo, CEO of Gold Royalty Corp, was interviewed by host Adam Torres on the Mission Matters Money Podcast.
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David Garofalo shares how Gold Royalty Corp provides investors with exposure to rising gold prices while insulating them from inflation in general.
How did you get started on this path?
Garofalo started his career as a CPA in the 1980s but soon got into the mining business in a junior position, allowing him to learn the mining business from the ground up. In his 32 years in mine development and operations, he’s run large-cap companies building and operating mines in base metals and precious metals. With Gold Royalty Corp, he says he’s stepped into the royalty business, as the industry is more prone to growth than mining due to the inflationary environment.
Tell us more about the mining industry.
“Mining is a capital intensive business where we’re constantly building, exploring, expanding, and putting capital to work looking for good rates of return for our shareholders,” Garofalo says. The life cycle of a mine is quite long; the process of discovery to production, he notes, takes 15 to 20 years. An operating company with a diversified portfolio of assets from early-stage exploration to production is in a perpetual state of developing advancing derisking assets and raising capital.
“Another exciting part about it is you’re creating wealth out of something that was nothing before and generating a lot of value not only for your shareholders,” he says, “but also for stakeholders, the surrounding communities, the government.”
How does the royalty industry benefit investors?
“Precious metal royalty companies are like specialized banks in the mining sector,” Garofalo notes. “We provide capital to the explorers, the developers, and operators looking to build, expand, or optimize existing operation and revenue, expecting to get that capital back. For the repayment of the loan, we take perpetual royalty not only on the existing reserves and resources but any expiration upside.”
He further explains that royalty provides the upside to the gold price, as they get a percentage of the revenue. The royalties go up as the gold price increases. Moreover, if the operating partners are successful in finding new deposits and extending mine life, they get the exploration upside too.
What’s more, gold is a natural hedge against deflation, he points out, as it’s a finite currency rather than a commodity.
“200,000 metric tons of gold that have been mined since the beginning of time and only 4000 metric tons per annum is being mined,” he explains. Even if gold prices go up in response to the inflationary environment, mine supplies can continue to decline, which is hugely supportive of gold’s price.
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Tell us more about Gold Royalty Corp.
Gold Royalty Corp is a one-year-old company that offered IPO and raised $90 million with a post-money valuation of $200 million. With an initial royalty portfolio of 14 royalties on 12 development-stage assets, it has grown up to 192 royalties.
“We were looking for assets closer to cash flowing than our initial royalty portfolio afforded us,” Garofalo says, “and we succeeded by introducing 20 royalties into the portfolio that are either cash only or expected to be in cash flow.” In just the first 10 months, the company introduced dividends with a 1% yield.
Garofalo credits the company’s success to the team’s depth of industry experience, collectively totaling more than 400 years’ worth. A majority of the management team has spent years in operating roles, which gives them a unique perspective on royalty opportunities. Their seniority also provides them with broad access throughout the mining industry globally, giving them strategic advantages.
“We’ve avoided competitive processes, which tend to drive up prices and drive down returns for our shareholders—a secret to our success,” he shares.
What’s next for you and Gold Royalty Corp?
Garofalo is focusing on capturing the mid-tier section of the industry, which has a $3-5 billion market cap. “We can capture this section even better than the senior companies because of that growth element that the seniors can’t deliver,” he says. “It would be a significant rewrite for our shareholders.”