Gold peaked in 1981 when it reached $850 an ounce in nominal terms, but adjusted for inflation, that would equal $3,000 in real terms today. $3,000 is this cycle’s coming peak, David Garofalo, CEO of Gold Royalty Corp. told David Lin, anchor for Kitco News.
Kitco news special coverage of the Denver gold forum is brought to you by new Pacific metals. Our next guest is David , chairman and CEO of gold royalty. Welcome to the show. Thank you for being here. Good to see you in person. Finally, we spoke about the existential crisis of gold, the sector. Last time you're on the.
Yeah, some good news. First you have a very bullish forecast and we will be talking about the macro economics around gold, but first busy year for you for acquisitions first Ellie gold Volti. And now you're merging with Abitibi royalty. And, uh, tell us about that new deal. So it's actually a through a merger between Abitibi royalties, golden valley mines and royalties and ourselves, uh, gold royalty Corp.
And it creates a company with a combined market cap of three quarters of a billion dollars us NYC listing. So the deep liquid. Combined basis. We'll have almost 200 royalties, uh, seven of them in production and other eight of them in the construction stage. And so we have quite a significant upward trajectory and our cash flows over the next five years.
What does this change in terms of demographics and geographies of your, uh, of your. Well, it actually continues to skew it to the two best jurisdictions in the world. Come back in Nevada. Um, 54% of our portfolio will be in those two jurisdictions as rated by the Fraser Institute, both for mineral potential and low political risk and, and irrational regulatory framework to get new mind development done.
And so that's been a deliberate part of our strategy works exclusively Americas focused, um, both in north and south America. And. Entirely, almost entirely focused on gold and precious metals. So about 90% of our exposures, the precious metals investors might ask you while being the two best, highly rated jurisdictions in the world, they might command an extremely high premium when it comes to acquisitions and deals was that with.
Look, I think we paid a fair value and we're offering a fair value for golden valley and Abitibi, but we see tremendous rerate potential within this larger portfolio golden valley. And Abitibi, we're very much focused on the Canadian Malartic mine, which is the largest gold mine in Canada. And we're going to have a royalty on that.
That's going to be a foundational asset for us, but that's complimenting a portfolio of over 190 other royalties across the America. So it creates scale and scale, but gets high. Both which begets a lower cost of capital, which allows us to continue to grow and add more royalties, much more cost effective with a much higher rate of return.
Does this change your portfolio of metals? Are you still focused? Primarily on gold. It'll be entirely focused on precious metals with a small component of byproducts and copper and, and whatnot. But you know, 90% of our exposure is precious metals and we're likely to stay in that. Area for the foreseeable future.
Why is that? I mean, there there's a lot of shifts going on in the marketplace. People are producing and then exploiting more on the base metal side, but you're playing to stay for the foreseeable. Look, I, I would say that, uh, focus companies attract a certain class of investors are looking for focus both geographically.
Uh, they're looking for focus in terms of low political risk, but also in terms of metal exposure. And it's been demonstrated time again, that precious metal focused companies get the best multiples. Okay. Interesting. Now, uh, in terms of your future growth, are you planning? Well, you don't have to be specific, but are you planning more acquisitions?
Are you planning to expand your current portfolio? Are you planning to get some of your projects online into production? What is your plan here? It's really all of the Bob. We have a lot of organic growth. As I said, we have seven cashflowing royalties on our port form a basis after this merger is complete.
Eden the development stage. So there are actively under construction, so that'll provide meaningful cashflow growth for the foreseeable future. And then we have a broad spectrum of royalties, 180 other royalties from early stage exploration to feasibility study, which will provide meaningful cashflow growth for the foreseeable future.
And we also have a generative platform in. In Nevada. And we also have a digital platform, uh, where we have terabytes of information that generates us royalty opportunities, um, uh, you know, out of our, out of our computer systems that provides a meaningful pipeline of growth without us having to do any acquisitions going forward for a very, very long period of time.
I I'd be lying if I didn't say there's scope for consolidation among the royalty players. There's been a proliferation of these royalty companies that come into the sector over the last half, half a decade or so. And many of them are zombies because they can't raise money. They're too illiquid. They're too small.
And if they can't raise money, they can't deploy capital. They can be. And so they're just stuck. And so I think there, the music has started and we've started the music and I think the chairs are diminishing in number. And I think you're going to see less and less than these royalty companies because critical mass matters.
Tell us about the financing of this deal in the merger. How was it financed? It's a share per share exchange and, and really, uh, when we talked to the big shareholders of Abitibi and golden valley, that's what they wanted. They didn't want to cash out. They wanted to trade into a bigger vehicle. For the potential for a double bump, we've offered them a meaningful premium upfront.
In the case of, of Abitibi, it was almost 30% in the case of golden valley, almost 90%, but also they see the potential to see their assets rerated within this bigger portfolio, help us achieve a higher multiple. And there participate in that as shareholders, how as a management team could be consolidated well, we're going to add the adding Glen Mullen onto the board.
Glen is the, uh, the founder of both golden valley and Abbott Tibby. And he's a very. Prospector and the Quebec region. So he provides that organic generative model for us in Quebec that will continue to feed our pipeline for the foreseeable future. Really, beyond that, it's a very, very small group and that's the beauty of our businesses.
Very scalable. You know, we have a half a dozen, uh, full-time employees. We could build a business 10 times the size with the same human. We don't need the scale up and you'll be retaining your role as chairman and CEO. That's right. Okay. I'm just reading the press release here. Combined. You'll have an expected $47 million in cash.
What do you plan to do with that cash and no debt I would add. So we have lots of debt capacity given the cashflow that we have. So that means we'll be able to continue to deploy capital and meaningful growth opportunities. And most recently, We put capital directly to work with Monarch resources or which are restarting the bowl for mining in the Abitibi region, the Quebec, and we're helping to start a restart, you know, and then that's really what royalty companies are designed to do is provide a source of capital for developers and explorers.
So they can de-risk their projects, bring them into production and we get a royalty back on these, these opportunities. Tell us about the value additive investing in a royalty company like yourself and investor might ask, why don't we just buy anything? Well, why don't I just pick these companies directly myself and make my own basket look, you know, there's a few ways to play gold.
You can buy the physical and the ETF is a proxy for that. Uh, you can buy the gold producers. Local produce, provide leverage to the gold price and leverage to expiration success, but they have a lot of risk associated with, uh, input cost inflation. And I think that's starting to re. Again, we're seeing that against a backdrop of inflation in the general economy, but given the significant amount of under investment, we've seen in the space over the last half a dozen years or so, there's going to be a meaningful amount of capital deployed into new mind development, which will drive input costs up dramatically.
We're starting to see the evidence of that. And in selected projects, we're going to see broad-based inflation. The best of all worlds is the royalty business because it provides you leverage the exploration upside leverage of the gold price is top-line exposure without any exposure to the underlying input costs.
Inflation I'll note that the gold voltage Corp stock has outperformed the GDX J uh, ETF, the v-neck junior gold mining ETF. You had a date, am I correct in saying that it is? And, and the reason that is, is because of the rewrite that I've been talking about, we actually saw a 40% rate in our stock as a result of the Eley acquisition.
And that's on a relative basis because the sector was down 15% over that period while we consummated that deal and our stock held value and actually went up. So that's a 40% outperformance. We not only preserve value for shareholders, but deliberate, a reread on this. We see the same sort of rerate potential within the acquisition of golden valley creativity as well.
Investor might ask, well, how is this outperform? Well, you talked about it right now, but is it also due to the fact that you're, do you pick superior products versus let's say, um, a gold mining ETF that is a select basket of different miners, but maybe. More stringent selection process when picking something in your portfolio?
Well, it is a quality proposition. I talked about our political, uh, our political focus or geopolitical focus in the Americas and low political risk jurisdictions with solid operators, but also very, very solid assets that have been acquired. Eli. A very broad portfolio of both cash flowing assets and early stage opportunities that vastly increased the scale of our portfolio and get NEDA melodic provides us exposure to the Canada's biggest school mine and arguably the best jurisdiction in the world and come back.
Interesting. So you're obviously very bullish on gold because you're 90% plus and gold. Now tell us about what, how this is about your outlook and while you're. Well, I mean, just look at headline inflation numbers, they severely under estimate and under. What inflation is it right now? Um, you know, the headline numbers are five, six, 7%.
Uh, you know, anybody who's bought a house or has to buy food or fuel is paying well above that in terms of real inflation. So that's going to underpin Gold's performance for the foreseeable future. The other factor of course, is continue to quantitative easing, which is driving that inflation low interest rates, which is driving that inflation.
Those factors are here to stay for the foreseeable. Yeah. And I think gold goes to 3000 in that environment. And I didn't just pick that number out of my hat. Gold's all-time peak in real terms was actually achieved in 1981. When the nominal gold purse was eight 50 announced, right. That would be $3,000 an ounce in 20 and $21.
That's what I think I see in this. And the reason you want to be in royalty companies with that kind of pronounced increase in the gold price versus the producers is we protect you from cost inflation. We provide you that top line exposure to the gold price without the exposure to the input cost inflation, which I think is inevitable against that backdrop of general inflation.
How are you able to do that? Because that is a concern from investors. I've talked with the conference margin squeeze. Yeah, we don't, we don't worry about margin because we take a percentage of the top line. We take a percentage of revenue. Okay. Um, $3,000 gold. So last year, now, lot of people were bullish.
Bullishing gold. During, uh, during the run, the rally we saw, in fact, bank of America was bullish. They even put out a $3,000 gold target if I remember correctly. And, uh, so it's good to see large wall street firms being bullish and gold. Of course, everyone. Missed estimates last year, because gold didn't go to $3,000 yet.
So what's different this year versus last year. Well, I think the fact that we're seeing headline inflation numbers really pick up dramatically, right? I think people are, pre-ordering really worried about preserving their wealth in that type of environment. And to an extent they've been doing that through the equity markets, the equity markets continue to achieve new highs every day, but also they've been looking at cryptocurrencies and I would say cryptocurrencies have stolen some of our market share, but we expect the cloth, some of that back in the gold sector in my view, because there's just too much volatility in the cryptocurrency market to be seen as a preserved.
Of wealth, observer of capital gold is much more stable. Um, it's, it's finite and quantity. That's certainly not the case for cryptocurrencies. Uh, there's infinite, it's a FIA currency. Like any. Uh, there's been a proliferation of new cryptocurrencies have been introduced to the market to compete with Bitcoin.
And so there's an illusion of scarcity, but that's not the fact, uh, with cryptocurrencies, we expect, uh, that, uh, as, as new cryptocurrencies are introducing the market, as central banks get into the game and actually introduced digital currencies of their own, the recapture, it just becomes a theater currency like anything else.
Right? Gold is very finite in quantity. In fact is a remarkable inelasticity of supply to price. As the gold price has been going up over the last. Supply is actually plateaued and started to go down. And so we can't build mines fast enough in response to accelerate a gold price appreciation. That's true.
There are an infinite number of coins you could possibly make, but, uh, uh, for cryptocurrencies, but a bullish people who are, you know, invested in cryptocurrencies would argue that. Yes. Well, David look at the tens of thousands of all coins that have already been created. It has. Significantly deterred Bitcoin from climate to new all time highs.
How would you respond to that? Well, I say it's inevitable that the central banks will try to repatriate their control over currencies. And I would say then it just becomes a FIA currency, like everything else and this lowest common. Um, and now you're going to see a lot of air come out of that market because again, it's an illusion.
The scarcity is an illusion and cryptocurrency market is just an illusion. Whereas gold is as physical quantity. If physical properties, it's very, very finance. There's 200,000 tons of gold. That's been produced as the beginning of. Um, if it's we only add 4,000 tons a year to supply, so 5% of supply per annum, and it's going down in terms of the supply we're adding.
So there is true scarcity and gold, and that's certainly not the case with cryptocurrency. There will be, uh, uh, coming, uh, you know, uh, coming out of, of the cryptocurrencies, a reduction of volatility. The reduction, I think evaluation quite dramatic reduction evaluation. As people realize that these currencies are being increased volume, uh, without any, any controls whatsoever, is that capital necessarily gonna flow into gold?
I think it'll flow into hard assets, generally speaking, golden particular, because people are looking to preserve their capital and gold is the one currency that's been around since we're really formulate. And is finite and quantity, and that's not true for any FIA currency in the world right now.
Interesting. Uh, how do you see the U S dollar performing over the next year and a half? Look, I think the us dollar is still going to be a reserve currency of choice. It's still 60% of global central bank reserves. Um, I see actually, um, other currencies collapsing against the us dollar as there's a flight out of FIA currencies into hard assets.
So you don't think central bank digital currencies will present a major challenge to traditional currencies like the U S dollar? No, again, as, as the central banks start to digitize those currencies. Uh, Andrew's digitize, currencies have their own. I think they're just going to capture market share from the Bitcoin.
I have to ask you this question for fun. Would you ever consider mining cryptocurrencies? I wouldn't even know where to start and take your $47 million in makeup. Make a rig. No, I know what I know. And I don't know cryptocurrencies. You could say, well, look, people could say, well, David, you're diversified now.
You've got the best of both. No, no. W we'll stay focused on my look. If you look at our board of management, if they come from an office. And development background. It's what they know. It's, it's their subject matter expertise and we're leveraging that expertise to grow our business meaningfully. And it's been very successful up to this point doing just that.
Okay. Best of luck with the new venture and the merger and the David we'll catch up again soon and talk about the markets. Thank you very much for coming on the show. Good seeing you. And thank you for watching kick news. We'll have more for you from Denver. Kitco news. Special coverage of the Denver gold forum is brought to you by new Pacific metals.