State of Gold: Passive Investing in Gold Streaming with David Garofalo

This is the Invest Like a Billionaire podcast, where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and interview successful investors. Welcome to the Invest Like a Billionaire podcast. I am your co-host Ben Fraser, joined by fellow co-host Bob Fraser. And today we've got a really awesome guest. It is David Garofalo, and he is going to be talking about gold as an asset class and specifically about gold streaming. And so, um, Bob, I'm gonna give a little context for David's background.

Yeah, well, David is actually a kind of a star in the, in the gold mining world. So 30 years experience in the creation and growth of over 15 multibillion-dollar sustainable mining businesses across multiple continents. So sustainable mining, that's very interesting. We could talk about that a little bit. And has led the largest merger in gold mining industry valued at $32 billion. And that was the sale of of Goldcorp to Newmont, I believe. And now David serves as the chief executive officer, president, chairman of the board of directors of the Gold Royalty Corporation. So amazing experience, amazing, you know, history and track record. So such a pleasure to have you on today.

It's my pleasure. Thank you for having me on.

Yeah.

So, David, give us a little bit of context for your background in this space. You've been in kind of the gold mining industry for pretty much your whole career, and I think especially now as we're seeing higher inflation and investors are wanting to hedge and all the money printing and the liquidity that's just been injected the past couple of years, gold is kind of becoming part of the conversation again. And so I would love just to dive in and start kind of with your background.

Yeah, look, I've spent 32 years as a mine builder and operator, and it's interesting that I've switched gears and now I'm really effectively financing new mine operations, mine development, exploration through running a royalty company which provides capital to the explorers, developers, and operators and takes a royalty back. And I position myself at this point in the cycle in that, uh, that end of the spectrum simply because we are in an inflationary cycle and we've seen dramatic underinvestment in exploration and mine development over the last 6 or 7 years. To the extent that gold reserves in the ground are down 40% from their peak in 2012, there just hasn't been that reinvestment back into exploration and mine development that the industry needs out of existential need over the last 7 or 8 years. And so I want to be exposed to gold. I believe gold as an asset class is going to perform exceedingly well in this inflationary environment. What I don't want is exposure to operating cost inflation. And that's the beauty of the royalty model, is we take a percentage of the top line a fixed percentage of the revenue, and we don't have any exposure to the operating or capital costs at the mine site. So it gives our shareholders optimum leverage to the gold price, leverage to exploration success, because the royalties on not only the existing reserve but any growth in it, but it insulates our shareholders entirely from operating capital cost inflation.

So before we get into that, let's just talk about you. How'd you get started in this? Did you just get a pan and you started, uh, you know, shaking some rocks and then you became CEO. Uh, so how did, how did it actually happen?

Yeah, there were a few steps in between those points, but you know, I look, I started out as a CPA in the 1980s. I worked with Deloitte, one of the biggest accounting firms in the world, and was recruited in a very junior position with a base metal company called Inmet Mining, which was taken over by First Quantum about a decade ago. And I started initially doing the accounting for the mines and then working my way into the mine construction teams on the commercial aspects of construction, both the feasibility work, going out to tender our major contracts. So I integrated myself into the mine building team and learned the business from the ground up. And then look, over the course of time, I left Inmet to become the CFO of Agnico Eagle, one of the biggest gold producers in the world.

I was there for 12 years. Yeah.

And, uh, helped build them from $100 million.

They're a big Canadian mine, right? Yeah.

Yeah. They have multiple mines now across the world. We were $100 million market cap when I started there in 1998. When I left, we were $10 billion market cap. And so we grew, uh, through, through the drill bit and through our construction efforts. And I ran a base metal company called Hudbay Minerals, one of the biggest base metal companies in Canada, for 6 years. And then I ran, ran Goldcorp, which was one of the biggest gold producers in the world. And then we created the biggest gold producer by market cap and production in the world through our merger with Newmont in 2019.

Wow. So came in from the financial side, but really as the operator, as you, as you said, I mean, it's figuring out how to build a great mine, including the trucks and managing diesel and infrastructure and all the, all the dirty, hard, hard stuff. So you figured out really what it takes to build a mine.

Yeah, it's an excellent point. And it's not just me. If you look at the board of management that we've assembled at Gold Royalty, collectively we have over 400 years of mine building and development experience across our board management, which is unique in the royalty space. Quite typically, royalty companies are run by financial engineers, not people that have actually built mines. And so that's a unique value proposition of Gold Royalty because we have a clear-eyed view of the underlying risks of the opportunities, royalty opportunities we're investing in. So we understand how the operators think, we can see through their eyes what the risks are associated with what they're doing, but also given the seniority of our team, um, you know, we've run big major large-cap companies. We have access to virtually anybody in the mining business when we're looking at opportunities on the royalty side.

Yeah.

You know, so, you know, people may not be aware, but Goldcorp was actually, uh, I had actually invested in Goldcorp back in the '80s, I think, or '90s, but it had a kind of a legendary deposit, right? As you said, it would, it was, It was like how many grams per ton of ore? So literally a ton of ore had what, 50 grams? Is that what you said?

50, 60, 70 grams of gold.

So it's just visible, just sitting there.

And, uh, so very, very super high grade, super low cost as a result of that high grade. So that high grade zone at Red Lake was legendary. It was one of the most high grade zones ever discovered in the mining business.

Wow.

It's been exhausted, but really it was huge money maker. Yeah.

Yeah. So yeah, you had one of the lowest costs of production. So that's, that's the way gold mines make money is, you know, the low cost of production. It costs you— I think it was— this is so old, I can't believe I'm wearing this stuff. I believe it was $150 an ounce or somewhere around, around there. And you were, you know, so anything you could sell gold above that, it's all profit. So, you know, it was an incredible deal.

Yeah. And to provide you some perspective about what 50 or 60 grams a ton means, the average grade of worldwide gold mines today is 1 gram per ton. Wow.

Right.

So think about that. That's profitable.

Yeah, that's great. And then you then— so you really helped develop that, build it up into a world-class financial asset and sold it off to Newmont. And then that mine was subsequently sold to an Australian company. And, and now you're running Royal, a royalty streamer, which I want to talk about. But before we get into that, let's talk about gold as an asset class. So, you know, what are the pluses and minuses? And, you know, my personal background, I was, I was a gold bug. I made a lot of money actually investing in gold mines throughout the years. But, but gold, gold has been disappointing, right? I mean, it's, it's, it's been disappointing as an investment for over the last 40 years. Right. You know, it's gone up about 3 times. If you'd have— if you'd invested in gold, you know, in the— in 1980, right, January 1st, 1980, was about $500 an ounce. Well, and after 40 years, it's about $1,500 an ounce. So it hasn't, hasn't necessarily been a great investment. But it continues to be a place, you know, that people want to put money and as an alternative currency, as chaos protection, etc. And, you know, so talk about why gold is a part of a smart portfolio today.

Well, I think it's an accurate barometer of inflation in the economy, and we haven't had inflation in a long time. It's rearing its head now, but for a long, long time, We had high interest rates going back to late '90s and early part of this century, relatively high interest rates, both on a nominal and real basis. And now we've had exceedingly low rates since the last credit crisis, 2008, 2009. And we've seen the printing presses continue on an unrelenting basis throughout that entire period for the last dozen years or so. And now we're seeing the havoc that's wreaked and the excesses that's wreaked in the economy. and we're seeing headline inflation numbers of 7%, which are 40-year highs, but I think significantly understates real inflation. Because if you're putting food in your stomach, fuel in your car, or roof over your head, it ain't 7%. You know, it's well into double-digit territory. And gold is holding its value in the face of that as financial assets actually eat away at your capital. Inflation's insidious. If you leave capital sitting in low interest rate structures, you're seeing your, your capital grow 10, 12, 14% a year, because I think that's where real inflation is today. Um, and gold has preserved value in that environment. Now, if you go back to the 1970s when we last had double-digit inflation and Paul Volcker came in to run the Federal Reserve in 1979 and started to ratchet up nominal interest rates, kind of like we're seeing now with Jerome Powell— he's talking about bringing interest rates up a quarter point here, a quarter point there. I would say in the short to medium term doesn't matter because inflation is going to continue to accelerate after a dozen years of excess money supply and continued increases in money supply. Tapering doesn't mean stopping the increase in money supply, it's slowing down the increase in money supply. So that means what'll happen is it happened in the late '70s and early '80s is gold will continue to run even as nominal rates go up because inflation will continue to accelerate and real interest rates will continue to dive deeper and deeper into negative territory. And so sentiment will turn. And when it does, we're going to see a flight of capital into gold, and we're going to see it achieve what I think will be all-time highs that we saw back in 1981. That was $850 an ounce. In today's dollars, inflation adjusted, that's $3,000 an ounce. So that's what I'm looking for in the short term. And I'm talking about months, not years. And when it happens, it doesn't happen in a nice steady line upwards. It's a violent movement of capital from one asset class to the other. That's typically how it happens. And the best analogy of that is what's happening in the copper space right now. A year and a half ago, copper was a dog. It was plumbing real all-time lows. Today it's at all-time highs because the, the economy and the market has realized, you know what, we need a lot of copper to decarbonize the economy. All those electric vehicles need 3 times the amount of copper that an internal combustion engine does. Where's that copper going to come from? There hasn't been any copper production increases. My supply is going down and there's, there's that squeeze coming on. That kind of squeeze is coming to the gold market.

So what's, you know, what's happened recently in the, let's say, the last 10 years is cryptos have kind of stolen some thunder, right? Stolen some of gold's thunder. And, you know, seems like the gold investors, you know, and, you know, I've got my little, my little my little— you can see the buffalo, you know, and it's just the most beautiful thing here. So gold investors are like me. They're kind of 50s and 60s, you know, you know, and the younger folks, they're, they're super pumped about, you know, this, this is boring to them. You know, they're interested in the cryptos. And, and in truth, the cryptos have some advantages, right? And some gold-like characteristics, including limited supply and, you know, and, and I guess independence of central bank control or any kind of financial engineering. So it does have some similarities. So, so take the other side of this. Why, why, why is gold the smart, the smart way to play hard money versus cryptos?

Well, first off, what I want to say is that digital currencies are here to stay. And I think what's driving that is the fact that blockchain is revolutionized— is revolutionizing the economy. It's driving out transaction costs, friction costs, it's removing the middleman, it's democratizing a lot of the transactions that we need to run our economy. And I think that's extremely important and it really is revolutionizing how we do business. You need digital currencies in order to participate in the blockchain. So digital currencies, you heard us say, I'm not going to diss them, But what I would say is that digital currencies are at exceedingly high levels. There is definitely a momentum play there. And there is no way that the central banks in our universe are going to allow or abdicate responsibility for fiat currencies to the Wild West that the cryptocurrency market is right now. They're going to domesticate cryptocurrencies and digital currencies, which will bring them back down to earth in terms of valuation. So they're here to stay. Uh, but I think, uh, that, you know, you're going to see a rationalization in their valuation, possibly regulation. And, you know, we're seeing that, um, China expelled the whole cryptocurrency market out of China, and that's now arguably the biggest economy in the world. And, and cryptocurrency has a huge environmental footprint. You know, Bitcoin mining consumes just under 1% of global energy supply. That's incredible. So it's a huge carbon footprint. There's going to be a reckoning in that regard as well. But I think inevitably you're going to see the central banks take back responsibility for currencies. And I think they'll basically chase, chase the speculators out of the market. I think that's inevitable. But what's interesting is they have taken our lunch for sure. There's been an allocation of capital into the Bitcoin market and cryptocurrency market writ large. That's really caused us to lose capital in the gold market. And that's because younger investors realize intuitively that their fiat currencies are being undermined and they're looking for ways to preserve their capital. And so they, they have this perspective that there's scarcity value in cryptocurrencies and clearly in Bitcoin there is, there's a finite amount of Bitcoin, but there is really no scarcity value in the cryptocurrency market generally because there's no barriers to entry. Anybody can create a cryptocurrency. And so it becomes then, when that happens, when anybody can create one, then becomes a fiat currency like everything else. And that's why I think there is going to be rationalization. In contrast, gold is very scarce. There's been 200,000 metric tons of gold that has been mined since the beginning of time, over the last 4,000 years. To give you a sense of what that looks like, it only fits in 4 Olympic-sized swimming pools.

That's insane.

It's tiny.

Yeah.

It's tiny. And we mine right now about 4,000 metric tons a year. So we add about 5% to global supply. And if gold went to $3,000 an ounce, you would think, well, any other commodity, there would be a supply side response. There would be an increase in supply in response to the gold price. Reality is that just can't happen because the timeline from discovery the first production is typically 15 to 20 years. And the industry has done a horrible job in the last 7 or 8 years of reinvesting back in exploration and mine development. That's why global gold reserves in the ground are down 40% from their peak in 2012. So even if there was a meaningful discovery made tomorrow, we wouldn't see the benefit of it in our production profiles for a couple of decades.

Right.

And this downward trajectory in reserves and production is irreversible in the short to medium term and even I guess, the medium long term.

Sure.

And so that's why I think that there's going to be a squeeze in the gold market, much like we've seen in the copper market very recently.

Well, and there's an argument that all the biggest deposits have probably been found, right? Because it's easier to find bigger deposits than it is little ones, right? They're, they're bigger. And, and then you add the fact that a lot of the gold deposits are in very inhospitable places, you know, and very difficult to get to. I was reading one, it was a Canadian mine that they were going to spend $1 billion just to build one road. To this, to this mine. It's so remote, you know, you got to, you know, it's nuts. So, yes, supply is not going to come on very rapidly for, for sure. And, and you make a valid point. Now, you can't, you know, all cryptos are different, but in Bitcoin, certainly supply is absolutely limited. But, but yeah, the cryptocurrencies in general, they're not. I mean, there is, there's a, you know, any, any wingnut wants to go start a cryptocurrency can do it. And if you can market it. He, you know, he can. And then there's, there's that, there's the hype factor, right? As you put, as you point out, I mean, how overpriced is it? These really, what is a crypto? It's really, there's, you know, you know, what's the real value there? How much of it's fluff and how much of it is, is substance, right?

Well, it's a good point because it clearly hasn't found its equilibrium pricing yet because of the volatility we see in the market. You know, some days it trades 40-50% volatility. That's not a store of value. Stores of value don't go up and down 40 to 50 in a day. And what that tells you is equilibrium pricing has not been found yet. It will be eventually. And as I said, as it gets domesticated by the central banks, I think you're going to see equilibrium price found and a lot less volatility in that market. And I do think Bitcoin has, has a place in, in the global currency market for sure.

Yeah. So, I mean, Bitcoin is, is easy. I mean, I could sit on my app and buy some, you know, and You know, although, you know, it's going to be reported to the IRS and, you know, all that. But, you know, it's certainly easy and it certainly would appeal to the kind of electronic generation versus, you know, something like this that, that is, you know, so beautiful. But so talk about the different ways to, you know, let's talk about the different ways to own gold. So a lot of people, you know, including our partner Dan, you know, is a big, big gold buff. Well, he's got, You know, he's got storage, you know, in his, in his home with physical metal like this that you can— he can literally pop it, pop it open, look at it, you know, enjoy the beautiful color of it. And there it is. But you've got to, you've got to protect it. You got to store it. It's super difficult to transport, sell, buy. Right. So, but, but it's, it's kind of, you know, we could think of it as a, as a chaos hedge. You talk— we're talking about a financial inflation hedge and what he's really going for is more of a chaos hedge. Hey, let's say, you know, I mean, you know, it's the, you know, he says, yeah, I'm kind of a, I'm kind of a, you know, a prepper a little bit, you know, and I guess there's an appeal to that. You know, there's a little bit of a prepper in all of us, you know, but so the physical gold is one way to own it. You know, it's a chaos hedge, it's unreportable, but it's super expensive. It's super inconvenient. It's risky to own it because, somebody can steal it. It's very painful, um, to, to transport it, et cetera. So, so what are the pluses and minuses from your perspective on just physical gold?

Yeah. So I think you've hit them all. I think, look, uh, you have to line up at a bank, have ID, get the gold, find a place to store it, pay for the cost of storage if you don't have a place in your home. And there's a security issue if you do store it at home and, um, all those things you need to be concerned about. But look, there's room in the portfolio. And I think for everybody to own some physical gold, I own some physical physical gold. I think it's a smart thing to do to preserve wealth in a market with insidious inflation eating away at your capital otherwise. The other way to play it is the ETF. It trades on the New York Stock Exchange, the GLD. It's physically backed. The gold sits in a vault. And it's opened up a whole new universe of buyers, institutional buyers, pension funds, and mutual funds that couldn't own commodities, but they can own the GLD because it's traded on the NYSE. So that's great for Gold is a commodity. There's a much wider array of investors can invest in it. But same thing, you get the economies of scale in the ETF in terms of storage costs, but there's still some costs that eat away a little bit at the value of the gold. It's minute, but still eats away at it. The other way to buy it, to play gold, to get leverage to the gold price is to buy the producers.

And that was the promise, right? That was the promise. And I remember back in those days, right? Well, if you can buy a producer who's producing at $800 an ounce and the gold is at $1,000 an ounce, well, there's $200, $200 margin. But if gold goes up to $2,000 an ounce, well, you've— the margin doesn't just double or triple, it quintuples. And so the idea was it's leverage to the price of gold, but it didn't seem to work out that way, right?

It's an excellent point, and it's exactly why I positioned myself in the royalty space. So You're right. What happens— that assumes that leverage proposition you're talking about, you described it so aptly, assumes that your cost structure is stable, right? That $800 an ounce cost structure stays the same. The reality is it doesn't always work that way because we're in an inflationary cycle. And I'll give you a really tangible example of where that leverage proposition was undermined. So coming out of the credit crisis 10 years ago, Gold went up 140%. The mining equities, the gold equities only went up 66%. Right. Underperforming.

Yeah. What happened? Yeah.

Yeah. It's a great question. So we're in the middle of the Chinese supercycle. Base metals were ripping as well. So what happened is both the base and precious metal companies started to build new mines, uh, and they rushed through the door and they inflated costs dramatically, input costs. So It's cost of equipment, labor, supplies. They all went up dramatically, double-digit inflation. So we saw dynamic cost structures in the industry in a negative way, upwardly dynamic, and that eroded the margins in the industry quite dramatically even as the metal prices going up. So the gold producers underperformed. You know what happened with the streaming companies? Again, gold was up 140%. Streaming companies went up 350%. Because they provided that top line exposure with zero exposure.

You really were able to get true leverage for the price of gold. So yeah, so these producers— so biggest expense is usually diesel fuel, right? So, you know, and labor.

Labor's actually bigger than energy. Labor is—

labor's bigger than—

okay, so there's a big squeeze on labor now.

Yeah, I remember, uh, you know, like one of those tires, the tires are like as big as a house, right? On these mining trucks, you know, what is a tire? What did a tire cost? I'm sure.

I'm sure those tires were like, you know, half a million dollars each.

I mean, a million dollars for a tire.

You know, really ripping. Yeah, they were expensive. Yeah.

And, and these trucks are running. You're running 3 shifts, right? You're running, you know, basically 24/7. You can't afford to have, have these big mining trucks stop. And so it's a giant, big, operation with these exploding costs. And so, so the promise of leverage never really materialized, um, in stocks.

No. And that's why, in spite of the fact that gold has been remarkably stable through the last year or so at around $1,800, $1,850 an ounce, we've seen the, the mining equities, the operators, start to steadily see their valuations erode. They're down 30, 40%. In the last year and a half is because of the overhang of inflation.

Yeah.

It's the concern about what's going to happen to their cost structure, even in the stable gold price environment, and even if the gold price goes up. So I do see a repeat of what that phenomenon we had 10 years ago, uh, where gold prices are going to run. I really do believe they'll go to $3,000 an ounce in a matter of months, but I think cost structures in the business are going to be upwardly dynamic, and that's the concern the market has. And that's why, as I said, I want to be in the royalty and streaming space. Uh, that's where I get that optimum leverage, right? Low price and expiration, but we're completely insulated from cost structure. That mindset.

Let's talk about that next. But before we get there, I want to talk about, you know, a little keyword you said in your bio, which is sustainable mining. I mean, I think most people view mining as, you know, it's dirty, it's ugly, it burns a lot of fossil fuels. You destroy beautiful, pristine land, and it's so primarily destructive. And, you know, you kind of threw Bitcoin under the bus for their energy usage. So, so, but it's really not the reality. Mines are not what people think. So talk about the sustainable components of, of mining and, and how it's done today in, in first world nations in a sustainable and responsible kind of way.

Well, we've made a lot of progress on things like energy consumption at the mine site. When I was running Goldcorp, we built the first all-electric underground mine. So all the equipment was electric. Zero diesel generation or diesel exhaust fumes. That meant lower ventilation costs and lower needs of energy to ventilate the mines because we didn't have diesel to deal with underground. The temperature was lower, so we didn't have to air condition the mine to keep our workers cool in the summertime. And that technology is being rapidly scaled, by the way. You're going to see more and more electrification of both open pit and underground mines. And that's driving down energy consumption dramatically within the industry. The other thing we've been able to do is significantly reduce our water consumption. Recycling rates are way up because there's a new technology called filter tailings. You know, tailings are the waste that we produce at the end of the mine production cycle, and they have to be stored, and there's a lot of water associated with that. We're now able to dehydrate those tailings, stack them in bales, and basically drive down water consumption dramatically. So we're drawing less and less fresh water into our mindset. And wars are fought over water, by the way. The biggest impediment to new mine development is the perception by local communities that you're consuming water that they otherwise would use for their own purposes, whether personal or their own existing industries. So we've done a very good job and we're improving and driving down both energy and water consumption, the biggest impediments in my view to new mine development. So we've done a great job. And the reality is, if you look down the supply chain, You need metals to decarbonize the economy. You need battery metals, you need copper, you need all of these things to be produced in increasing quantities to drive down, uh, uh, you know, uh, carbon in the, in the general atmosphere, uh, in the world. You need metals.

That, that's a great point, you know, and, and so, you know, too, if I'm, if I'm understanding this right, so when you go build a mine, you know, it, you don't just leave it a big giant eyesore. I mean, basically to, to get mines approved today, you have to have a full reclamation plan. So literally to leave that land as if you had never been there. I mean, it's— it looks as beautiful when you're done as it— as it did before you started the mine. And the financing for that reclamation project has to be locked away through bonds and bonding. So you have to put up bonds to make sure that even if the mine fails, you fail as a miner, that that reclamation is actually going to be completed. Is that— is that accurate?

That's absolutely accurate. So those bonds reside with the regulators in the countries that we operate in, and they can draw on those bonds if something happens to the operator, whether they go bankrupt or they just abandon the site. I mean, that rarely happens, but they do have that financial reclamation— financial assurance, I should say— that they'll be able to draw on the capital they need to close the mine. But I'll give you a very tangible example of a sustainable mining operation. I used to run a company called Hudbay Minerals on the copper side. It still exists. Has been around for 100 years and its roots go back to Northern Manitoba in Canada and up in Flin Flon, Manitoba. And they've been operating there since 1915 and they built and closed 28 mines in Northern Manitoba and they still operate a couple of others. I would defy you to fly over Northern Manitoba where our mine sites are and to pick out where those mines are. It's impossible. Right. They've been revegetated, reclaimed, rehabilitated, uh, very, very small environmental footprints, uh, really invisible to the naked eye. And that's an example, a very tangible example of sustainable mining. And the reason that company's been around 100 years is pursued those sustainable mining principles consistently over its entire history.

Right. Great point. And, you know, I think it's, you know, you know, people remember the, you know, maybe the pictures of the hydraulic mining that was done, you know, hundreds of years ago. It was just basically destroy the countryside. It just doesn't happen like that anymore. And, and, you know, no one wants to do that. No one wants to run that kind of a mine. And certainly the regulators are not interested in that. And so it really is, is done very responsibly and very sustainably today, certainly in the first world, you know, maybe not as much in the third world, you know.

Well, increasingly, you know, we're, we're expanding our footprints as Canadian miners further and further afield in the world. We don't pursue any lesser standards. In those developing countries than we do in our own backyard. We apply the best practices regardless of where we are. And, you know, there's a lot of kind of romanticism about artisanal miners locally, but the reality is artisanal mining, when it's done by locals, then tends to be done in a very irresponsible fashion, right? You know, well-capitalized operator to come in, one, provide that financial assurance, engineering, to ensure it's done in a responsible manner. And I think less and less countries are allowing artisanal mining to occur because of those environmental damages that tend to occur when small-scale miners with no money do mining in an irresponsible fashion.

All right, so let's shift to streaming. And so this is, this is a good— this is the business you're in today, and it's, it's a— it's, it has some advantages over some of the other ways we've talked about owning, owning, owning gold. But before we jump into You know, it's performance. What is it? What is it exactly for our people that don't know what's gold streaming? We stream YouTube. So what does it mean to stream gold?

You know, well, it's interchangeably used with royalties. And so what we do is we act almost like a single-purpose bank for the mining industry. We raise capital in the marketplace and then we put it to work with the developers, the explorers, the operators are looking to expand existing operations. We give them the money to help finance the expansion and building of their mines. And rather than look for repayment of that capital like a loan, we take a royalty, perpetual royalty back on the mine or a stream. And the difference between a royalty and a stream is royalty, you get a fixed percentage of the revenue, say, I don't know, 1%, 2%, 3% of the top line. With a stream, you get a fixed percentage of the actual gold production. You physically get the gold.

Gotcha.

Okay.

So, so, so these— So I got a piece of land, I found some gold there, and I'm broke. I've got, you know, did all the— everything I could do with mom and dad and my friends. And so I could come to you potentially, and assuming you like the deal and it was a good deal, etc., you would actually give me perhaps millions of dollars in exchange for a royalty. So you would get the royalty or the stream. So a fixed amount of the top line of the gold coming out of that, or, or a share of a fixed share of the gold, but you expect you, you, you share none of the expenses. So it's just the gold production. Is that right?

Yeah. So if there are any future expansions or, you know, uh, you know, and, and future additions to the deposit, we don't put any more capital and we put that up front and then we've got that royalty or stream in perpetuity. So we have full optionality to the exploration upside. That's the beauty of it. You put that capital up front and that royalty stream becomes permanently adhered to the property. And so we have a lot of upside that our shareholders can enjoy in terms of exploration. So that's why streaming royalty companies get the multiples they do.

So you're— so that mine cannot be sold without your royalty being attached to it?

Exactly.

Kind of a lien. It's like a lien. Interesting.

It is. It's permanently adhered to the mine and again gives our shareholders really infinite optionality to the exploration upside on the property.

So, so diesel prices go up 10 times and tire prices go from half a million to $5 million, you don't care at the end of the day?

No, we really don't. I mean, you care about cost structures in the industry going up, but presumably the reason they're going up is there's inflation in the general economy, which tends to be bullish for gold price, right? So we get the best of all worlds.

So if gold price goes up, you basically capture that because your cost structure is pretty small. I mean, so you're building this billion-dollar, you know, royalty business and you're going to have, I'm sure, under what, 100, 150 people, right, working here. So there's really— we have 6 people.

There you go.

For a, you know, a very large streamer, it just doesn't take a lot of human effort. Or infrastructure to do what you're doing. It's really ability to raise capital in public markets primarily and, and, and do it, manage those investors and then do due diligence on your projects is very small.

That, that, well, that's what I was going to say. The due diligence, quite often we outsource. We have a small group of very strong technical people, geologists, mining engineers, um, financial engineers. We have a former investment banker who ran Merrill Lynch's mining practice in North America. To help to structure the deals. But when we need to do due diligence on an opportunity, we quite often outsource that. There are engineering firms that can offer us subject matter expertise in geology, metallurgy, engineering, and then we do our own environmental assessment of the mine site and the operator's capability in that regard. So we do a lot of due diligence, but a lot of it is outsourced. So we don't need to have a lot of people on staff. So I could run this business with the same 6 people if it were 10 times the size. It's very scalable.

Right. Could you break down just the economics of what a kind of a deal with an operator looks like from kind of say capital outlay and then what kind of percentage of royalties and how that builds up over time and what's kind of the general payback period and those kind of things?

Here's a banker for you.

A little more concrete.

I can give you a very tangible example. Last year we completed a royalty package with an operator in Quebec called Monarch Resources and they're restarting an old mine, and we gave them about $10 million up front, and we got a 2% net smelter royalty or 2% royalty on the mine site. That will generate double-digit rates of return for our shareholders. That mine is actually starting up operation next month.

Okay.

So literally months after we provided the capital, they were just reconditioning some existing infrastructure and getting it up and running very quickly. And so the payback's very, very quick. You're looking at about 3 years with a very high rate of return.

So when you're looking—

so, so when they're— that smelter means that's when the ore is turned into gold. They're going to take 2% of that and they're going to send it to you.

Exactly.

And when you're identifying targets to, to make these loans to, what do you kind of focus on? Is it startups, mines? Is it mines that are looking for growth capital? Is it kind of a mix? And you're looking for like a breakdown as you're kind of high-level due diligence process for who do you look for? And given your background in this space and being an operator, I'm sure you have a unique edge in identifying the most successful operators.

That was an excellent question. We have 191 royalties across the Americas, and they, uh, they cross the entire spectrum of the life cycle of a mine. So we have some early-stage exploration royalties, so early, you know, highly speculative, but they don't waste— they sit on the shelf and they wait for that exploration to be crystallize into something economic. And then we have, at the other end of the spectrum, we have 6 mines that actually produce cash flow today, and we have 11 that are in construction and will be producing cash flow in the next year or two. So, and then we have a lot that are in between feasibility study, pre-feasibility study, uh, PEA or preliminary economic assessment. So really across the entire spectrum, there's a lot of embedded organic growth within our pipeline as a result of how diversified our portfolio is across the life cycle of a mine. So that just gives you a sense of the growth trajectory that we have in our business. In fact, our compounded average growth rate in revenue over the next 3 years is 61% as a result of all of that, all of those mines that are in construction and they're going to be cashing out very shortly. The other way we generate opportunities is generate them organically at the grassroots level. We have a small team in Quebec and a small team in Nevada, and all they do— and they're geologists, or prospectors, they stake exploration claims around existing mines or existing deposits, and they wait. And they wait for the producer or the explorer to say, you know what, I need that piece of real estate, my deposit trends onto it. And we say, okay, great. Uh, we need you to make a capital commitment towards the exploration of this property, and you have to give us a royalty back. So we put no money down other than staking the claim, which is nominal. They do all the work on the exploration side and we just take a royalty back and we just wait. And that's generated the majority of the 191 royalties that we have within our portfolio. And then quite often royalties come available because a prospector hit pay dirt, you know, and he's looking to cash in on his royalty. Quite often he'll have bended his asset into an operator and he's got a royalty and he's looking for ways to cash in. He might be an older prospector and is he may be passed away and his estate's looking away, looking for a way to cash in. And quite often royalty opportunities come that way to us. Quite often base metal companies have, you know, copper deposits or zinc deposits that have a small component of precious metals in them, and they're looking to cash in on the precious metal component because it doesn't really drive the economics of what they're building, and it helps finance their base metal development more cheaply. And I'll give you A very tangible example.

So copper— a copper mine will sell off their gold to you because it's, it's, it's tiny little deal.

And I'll give you a really tangible example where I was involved on the other side. So I was running Hudbay Minerals, uh, back in— this was probably 2012. I had this big copper deposit in Peru, $2 billion ticket to build it, uh, and, uh, we didn't have enough capital to do it. We had a billion on the balance sheet, uh, we knew we could raise some debt in the U.S. bond markets but we still needed about half a billion or more to finance the construction. 5% of the revenue from that copper mine was gold and silver. So I called Wheaton Precious Metals up, one of the biggest companies in the world, ran by Randy Smallwood, who's a personal friend of mine, lives here in Vancouver. I said, Randy, what would you pay me for that 5% component of my revenue? He cut me a check for $750 million, and that financed the construction of what now is the cornerstone asset for Hibe Bay. It produces 150,000 metric tons of copper a year, one of the lowest cost operations in Latin America. And it was because we were able to access that stream capital much more cost effectively than we could have accessed equity in the capital markets.

So, so you actually— but you actually not only get royalties on producing mines, but you go, you go upstream or, uh, to the, uh, this a prospective— you execute a contract, royalty contract agreement on, on a chunk of land that no development or exploration is on. Is that right?

Yeah. You know, and you know what, it, it does—

it's an option, basically. It's a, it's a low-cost option, you know.

It is. It's an infinite option. And it just— you can put it on the shelf and just wait. And that gives me the confidence to say, you know what, we're going to be in business for decades because we have 191 royalties And those are going to provide infinite optionality for shareholders. They're going to support the business for decades. That's why 10 months into our existence, I introduced a dividend. We have a penny per quarter, just under 1% yield on the stock, 10 months into our existence because of the cash flow that we've accumulated as a result of the acquisitions we've done this year. And that upward trajectory in cash flow gives me the confidence to say, you know what, that dividend, it's a start, it's a down payment to our shareholders. That dividend, I think, will go up as our cash flow realizes that upward trajectory that I was talking about a bit earlier on.

So just bring it back to the ways to own gold. So here's, here's a way to own gold that doesn't. So you buy GLD, as you point out, the ETF. Well, there's actually expenses. They have to guard that security and there's operating. And so it ends up kind of always being a little bit worse than owning physical gold because there's expenses and there's no revenues, right? As opposed to a stream, you're actually generating revenues. And as we pointed out, those revenues are actually leveraged to the price of gold and not to the cost of producing. But also, it doesn't cost you money to own, which as an investor, I just don't want to— I don't want to— it's not— is it an investment if it costs you to own it? You know, I mean, it's net revenues or nothing. So, so this is actually a preferable way to own in my book.

David, can you talk a little bit just about your growth goals for Gold Royalty? I mean, you just started this, you said, 10 months ago, but obviously with your background and connections and, you know, you have a lot of royalties already building up. But what are your goals and growth?

Well, look, we've actually realized exponential growth in 10 months because we started out with about 14 royalties in our IPO on development stage assets. It was a very successful IPO, having raised $90 million US and got a post-money valuation of $200 right out of the gate. We use that currency to start to roll up our competitors because, as I said, there's a proliferation of these smaller-cap companies and they're basically dead in the water. They can't raise capital, they're illiquid, and we've been picking them up. We took over one called Ely Gold, which brought us from 14 royalties to 105 royalties and brought us some cash-flowing royalties into the portfolio. Then we took over Abitibi and Golden Valley royalties, which brought in another 85 royalties into the portfolio, brought us to 191 royalties and gave us a royalty on Canada's biggest producing gold mine, Canadian Malartic. Um, and that's going underground with a $1.6 billion investment. Our royalty actually goes up as they get into the deeper material. And so that's a big source of cash flow growth over the medium term. And so we're continuing to look at roll-ups. We launched a bid for another company called Elemental Royalties. They have 9 royalties One of the bigger ones is in Australia, another tier 1 jurisdiction. 75% of our existing business is concentrated in Quebec and Nevada, the 2 best mining jurisdictions in the world for gold miners, for mineral potential, for low regulatory risk and low political risk. These are the 2 of the best gold districts in the world, and we're heavily exposed there. Australia adds another leg to the stool. So that's the advantage of bringing these companies together, and it continues to allow us to achieve scale. Ultimately gets us close to a billion dollars in market cap, and scale begets scale. The bigger you are, the more liquid you are, the lower your cost of capital, and the more competitive you are for new royalty opportunities. It creates a virtuous cycle.

Very cool. So for investors that may want to look more into this, I mean, you guys are publicly traded, and on which exchange, and what's the ticker?

We're on the NYC, GROY, GROY. And if you'd like to learn more about the company, the website is goldroyalty.com. Very easy to remember. Goldroyalty.com.

Okay.

And then the final question, David. So you made a pretty bold statement earlier in the interview and you've kind of given your support for it, but you think gold's going to $3,000 an ounce. Can you just give us the real succinct reasons of why you think gold is on its way, way to that price?

Yeah, we haven't seen inflation like this since the 1970s. And that's when gold started to run. So don't get worried about interest rates going up on a nominal basis. When Jerome Powell says, I'm going to tighten interest rates by a quarter point here, a quarter point there, it doesn't matter because inflation's been unleashed because of the excesses that have been introduced into the system with increased money supply over the last dozen years. We're going to see inflation continue to go up far above the nominal increases in interest rate. That means real interest rates will be going deeper and deeper into negative territory. And gold will protect your capital as your savings accounts get eaten away at a rate of double-digit percentage every year.

All right, there you have it. David, thank you so much for joining, joining us on the podcast. Super interesting. It's been a pleasure talking with you. And for all listeners out there, go check out Gold Royalty.

Thank you. Thanks, Bob Fraser. Thanks for having me on this morning.