Gold Royalty Corp. (GROY) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call shows mixed signals: strong financial performance with a 50% EBITDA increase and positive free cash flow, but concerns about potential dilution from warrants and limited revenue growth. The Q&A reveals management's focus on deleveraging and strategic growth, yet lacks specific details. The absence of immediate shareholder returns and potential dilution risks balance out the positive financial metrics, leading to a neutral sentiment.

Key Financial Performance

Adjusted EBITDA $2.4 million in Q2 2025, a nearly 50% increase compared to the previous quarter. The increase is attributed to contributions from the Vareš and Côté Gold Mines and strong gold prices.

Total Revenue $4.4 million in Q2 2025, which includes land agreement proceeds and interest. This translates into 1,346 gold equivalent ounces. Revenue also included $0.3 million from a favorable judgment in a royalty dispute.

Operating Cash Flow and Free Cash Flow Positive in Q2 2025, primarily due to contributions from the Vareš and Côté Gold Mines and strong gold prices averaging $3,279 per ounce.

General and Administrative (G&A) Costs $1.8 million in Q2 2025, relatively flat compared to previous quarters.

Revenue from Côté Gold Mine Over $1 million in Q2 2025, driven by the mine achieving nameplate throughput capacity ahead of schedule.

Revenue from Borborema $1.2 million in Q2 2025, attributed to preproduction payments of 250,000 ounces of gold per quarter at strong gold prices.

Revenue from Canadian Malartic Mine $18,000 in Q2 2025, attributed to temporary mine sequencing issues.

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Operating Highlights

Vareš Mine: Achieved commercial production on July 1, 2025.

Côté Gold Mine: Achieved steady-state run rate on June 23, 2025, and nameplate throughput ahead of schedule.

Borborema Mine: Started operations on March 28, 2025, and progressing towards commercial production later this year.

Revenue Growth: Achieved record quarterly revenue of $4.4 million, translating to 1,346 gold equivalent ounces.

Gold Prices: Strong gold prices averaging $3,279 per ounce contributed to revenue growth.

Free Cash Flow: Transitioned to positive free cash flow due to contributions from Vareš and Côté mines.

Debt Reduction: Focused on reducing $27.3 million outstanding on the revolving credit facility, aiming to be debt-free by 2026.

Consolidation in Royalty Sector: Monitoring industry consolidation and aiming to create a mid-tier royalty company with organic growth and scale.

Capital Allocation: Prioritizing debt reduction, shareholder returns, and strategic growth opportunities.

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Risk or Challenges

Debt Reduction: The company is focused on reducing its $27.3 million revolving credit facility debt. However, this reliance on debt reduction could limit flexibility in capital allocation for growth opportunities or shareholder returns.

Industry Consolidation: The company anticipates accelerated consolidation in the royalty sector, which could create competitive pressures and uncertainties in strategic positioning.

Operational Risks at Key Assets: The Vareš mine reduced its 2025 guidance due to lower-than-expected ore milled, and the Borborema mine has not yet achieved commercial production, posing risks to revenue projections.

Revenue Dependence on Gold Prices: The company’s revenue is significantly influenced by gold prices, which, if they decline, could adversely impact financial performance.

Mine Sequencing Issues: The Canadian Malartic mine reported lower revenue due to mine sequencing, which could affect short-term financial results.

Warrant Dilution Risk: The exercise of 20 million outstanding share purchase warrants could dilute existing shareholders and impact share value.

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Guidance & Outlook

Revenue and Cash Flow Growth: Gold Royalty expects a minimum 5-year period of pronounced attributable gold equivalent production growth across its portfolio of royalties and streams. The company maintains its full-year guidance of 5,700 to 7,000 GEO in 2025 and a 5-year guidance of 23,000 to 28,000 GEO. This growth is supported by mature and brownfield operations owned by experienced operators.

Debt Reduction: The company plans to use excess cash, including proceeds from outstanding warrants, to repay the $27.3 million outstanding on its revolving credit facility. Gold Royalty aims to be effectively debt-free by the end of 2026.

Operational Improvements: IAMGOLD's Côté mine achieved nameplate throughput ahead of schedule, with further improvements expected from the installation of a second cone crusher later in 2025. Aura Minerals' Borborema mine is expected to achieve commercial production in the current quarter, contributing to revenue growth.

Market Trends and Consolidation: Gold Royalty anticipates an acceleration in consolidation within the royalty sector, driven by the need to create mid-tier royalty companies with organic growth and sufficient scale to attract global institutional equity investors.

Capital Allocation: The company emphasizes disciplined capital allocation, prioritizing debt reduction, potential capital returns to shareholders, and strategic growth opportunities. Paying down the revolving credit facility remains a priority.

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Shareholder Return Plan

Capital Returns to Shareholders: The company is considering capital returns to shareholders as part of its capital allocation strategy. This is mentioned in the context of debt reduction and strategic growth opportunities.

Convertible Debentures and Common Share Warrants: The company has convertible debentures and outstanding common share warrants that are deeply in the money. This financial position could lead to the company being net debt-free by the end of 2026.

Share Purchase Warrants: As of June 30, 2025, the company had approximately 20 million outstanding share purchase warrants, with each warrant exercisable into a common share at USD 2.25 per share. The warrants are listed on the NYSE American under the symbol GROY.WS and expire May 31, 2027.

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Key Q&A

Q:Could Gold Royalty specifically state how the free cash flow from Q2 2025 was handled?

A:Andrew W. Gubbels explained that the company generated positive free cash flow for Q2. They aim to maintain a cash balance, including an undrawn revolver, above $5 million. Currently, they have cash slightly above $3 million and $2.7 million in undrawn revolver capacity, totaling slightly above $5 million. They plan to accumulate more free cash flow in Q3 and Q4 and evaluate repayment of the revolver in the coming quarters.

Q:Can you elaborate on Jerritt Canyon revenues and expectations for the balance of this year and next year?

A:Jackie Przybylowski stated that the revenues received were related to a settlement reached earlier this year. The royalty includes a 0.5% NSR and a sliding per tonne rate, with the settlement amounting to $0.3 million. No further revenues are expected this year unless Jerritt Canyon restarts operations, in which case royalties would resume.

Q:How does the merger landscape affect Gold Royalty's plans? Would you be more likely to be a consolidator or look to be acquired?

A:David A. Garofalo noted that consolidation in the royalty space is expected to accelerate due to favorable gold price fundamentals and new entrants like Tether. Gold Royalty aims to eventually become a consolidator but is currently focused on deleveraging and generating strong returns from its portfolio. They are not in a position to be a significant consolidator at this time.

Q:When acquiring a royalty, how far out do you typically look at the project coming online?

A:Peter Behncke explained that for M&A and individual asset acquisitions, they focus on assets with a clear path to cash flow within a 5-year window. Longer-term assets are generated through their royalty generator model, primarily in Nevada.

Q:Are you staying primarily in Canada and the U.S., or are you looking at other jurisdictions?

A:Peter Behncke stated that while their strong base is in Quebec, Ontario, and Nevada, they are open to opportunities in stable jurisdictions abroad, such as Brazil, Australia, and selective parts of Africa, provided there is trust in operators and enforceable contracts.

Q:At what point would you consider reinstating a dividend?

A:David A. Garofalo mentioned that the focus is currently on deleveraging. They expect to be net debt-free by the end of next year, at which point they will consider returning capital to shareholders, including potentially reinstating a dividend.

Q:Review of Unclear Management Responses

A:Management did not avoid any questions directly, but some responses, such as the discussion on the merger landscape and jurisdictional expansion, included general statements and lacked specific actionable details.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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