September 16, 2021 -- InvestorsHub NewsWire -- via Prime
Time Profiles --
Gold stocks are risky. After all, they are more than driven by
straight commodity prices; they are also moved by global headlines.
The swings can be violent for the smaller companies in the sector,
with risk beta’s often causing a smaller gold-focused company to
either outperform or underperform the general gold market by +/-
10% on any given day.
But, like the market itself, playing the risk can lead to
substantial rewards. And for a company that has diversified its
holdings and is still considered “small” by industry standards,
investor gains can sometimes be exponential. A company fitting that
profile is Gold Royalty Corp. (NYSE:
GROY). In fact, since its March 9, 2021, IPO closing price,
there’s a reason why shares are higher by more than 45%. Investors
like its prospects.
But while prospects were good then, consider them great now. In
fact, if the past two weeks are any indication, investors may be in
for a surge in shareholder value during the last two quarters of
this year and even more substantially in 2022. Why the bullish
sentiment? Because GROY completed what can only be referred to as a
transformative acquisition. Better said, they made two.
Actually, it gets better. By adding in its recently secured
revolving credit line of up to $25 million, GROY posted a trifecta
of excellent news since the start of September alone. Of course,
the available cash is great. But, its new assets are what should be
getting investors excited. And despite its recent 26% jump in price
since the start of September to $5.30, the forecast calls for more
gains to come. Thus, while its $212 million market cap is
impressive, its new assets could create a justification for GROY’s
bullish momentum to continue. Here’s why:
Acquisitions... And More
Acquisitions
Foremost, GROY is in hyper-growth mode, to say the least. In
August, GROY completed its strategic business combination with Ely
Gold Royalties Inc. (TSXV: ELY) (OTCQX: ELYGF) through a plan of
arrangement under the Business Corporations Act in British
Columbia. That deal can be huge going forward. Almost immediately,
it transforms GROY into a leading Americas-focused precious metals
royalty company with scale, diversification, cash flow, and access
to capital. It also positioned the company to further execute its
strategy to become a leading consolidator in the royalty space.
That ambition turned prophetic.
Adding to its four producing royalties, GROY announced last week
that it closed on its planned acquisitions of Abitibi Royalties
(OTCPK: ATBYF) and Golden Valley Mines (OTCQX: GLVMF) in an
all-share deal. The excellent news is that existing GROY
shareholders will own the controlling 54% interest in the combined
entity once the transaction is formally completed. And while
shareholders gave up some, they received a lot.
From the start, GROY gets Abitibi’s royalties on various parts of
the Canadian Malartic mining complex. And not only is it a big deal
but it’s also diversified. 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 Midway project, and a
15% NPR royalty on Radium Zone. It also involves big names. And it
never hurts to be associated with the biggest in the business. Nor
does it hurt to be part of a well-producing mine.
The Canadian Malartic mine, owned by Agnico Eagle Mines (NYSE: AEM)
and Yamana Gold (NYSE: AUY), boasts holding reserves of 4.43
million troy ounces (toz) of gold. In 2020, the mine gave up
568,634 toz of the precious metal. Also, the more good news is that
the open-pit reserves will remain sufficient to support mining
operations until 2028. In the gold country, that’s excellent
visibility.
It Gets Better With Age
Better still, Agnico and Yamana are developing an underground
mine at Odyssey, where additional underground deposits were
identified. According to estimates at that site, the Odyssey
deposit contains measured, indicated, and inferred resources of
nearly 2 million toz gold. That adds to an estimated 6 million toz
of gold situated at East Malartic and roughly 6.5 million toz of
gold at East Gouldie. Thus, more than having gold in the hills, the
underground deposits present a compelling long-term proposition to
GROY interests.
Still, that was only the first purchase. GROY also acquired
Golden Valley, which owned about 45% of Abitibi Royalties at the
time. The interests from both get somewhat confusing. But, keeping
in mind that the percentages listed are a good thing, it all bodes
well for GROY in the end.
Abitibi also owns 37.96% of Val-d’Or Mining
(OTCPK: VDOMF) and an 11.45% stake in International Prospect
Ventures (OTCPK: URANF). A good amount of that is inherent to
GROY.
In addition, Golden Valley owns 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 later this year.
With what GROY owns now, reasoned speculation points to a more
deserved valuation closer to the $500 million levels. That could
put prices closer to double their current levels once GROY
integrates its portfolio of assets that now stretch 191 royalties
deep. Remember, too, at least six of those properties are located
in the world-class Canadian Malartic mine, the company has
considerable cash and marketable securities reported at roughly $47
million and no debt. Of course, investors want to see revenues to
support the market cap speculation.
Revenues Expected To
Ramp
There, the acquisition of Abitibi and Golden Valley is expected
to drive revenues sooner rather than later. But, as these assets
mature in its portfolio, the expectation is that their
contributions can increase. Already, estimates 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.
Still, after breaking down the deal structure, Gold Royalty may
already be rewarding its investors. The market just needs some time
to digest the data, especially with the number of new assets to
evaluate. However, expect the end result of that analysis to
generate a bullish thesis.
That’s already apparent. According to its breakdown, Golden
Valley has an intrinsic value of roughly $137.5 million, and they
have Abitibi standing strong at $249.6 million. Thus, simple math
puts GROY’s stake in Abitibi interests through Golden Valley’s
44.96% ownership level, a value close of about $112.2 million.
Then, with the rest of Golden Valley’s assets recently valued at
$25.3 million based on its asset representations, and a fair and
balanced multiple, GROY is well-positioned to deliver on its
intentions.
And while there is the suggestion that the GROY market cap may
be stretched even at current levels, the numbers tell a different
story. Moreover, investors hungry for growth believe that GROY can
grow into even more lofty valuations above the $500 million
levels.
Hence, while the stock looks expensive to some today, an
aggressive multiple on revenues is likely to be in fashion. Updates
on the portfolio reserves later this year or in 2022 can intensify
the bullish proposition even further.
Big Finish To 2021
Undoubtedly, September has been a transformative period for GROY.
Still, the impression made is that its pace of growth won’t slow
down. Now supported by an up to $25 million credit facility, a
substantial revenue-generating portfolio of assets, and cash flow
to support further development, GROY is substantially more powerful
as a company than they were only thirty days ago. And its strength
comes from more than assets. They have also earned its position for
more mainstream financing, better bargaining position, and what
most hope for, higher royalties.
Notably, the deal exposes the value that investors needed to see.
And the premiums paid to Golden Valley and Abitibi should satisfy
those shareholders as well. Even better, as an all-stock deal,
confidence must be high that GROY will produce far more value than
either could have done on their own. Thus, while there may be some
overhand and short-term selling pressure from Abitibi and Golden
Valley shareholders, expect the channel to return to its decidedly
bullish trend.
Also, considering that GROY shares rebounded quickly as investors
worked on valuing the sum of the parts of this multi-party
acquisition, catching some volatility in a long-term investment
play can be an excellent way to capture value. Still, timing the
market, particularly individual stocks, can be tricky and leaves
money on the table more often than not.
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Source - https://primetimeprofiles.com/acquisitions-cash-and-a-compelling-asset-portfolio-gold-royalty-corp-is-getting-too-big-to-ignore/
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