Global Inflation And De-Dollarization Will Fuel Asset-Light Royalty Growth

Key Takeaways

• Surpassing production expectations and rapid financial improvement may drive higher returns to shareholders and exceed management's long-term revenue guidance.
  
• Favorable gold market trends and technological advances could boost royalty income, margin expansion, and premium valuation relative to traditional mining peers.
  
• Heavy reliance on concentrated assets, increasing ESG pressures, and competitive acquisition risks could challenge future earnings growth and compromise shareholder value.

Catalysts

A precious metals-focused royalty company, provides financing solutions to the metals and mining industry.

• Analyst consensus expects multiyear production growth from recently ramped-up mines, but with Côté surpassing nameplate capacity months ahead of schedule and Vareš and Borborema progressing at or faster than planned, attributable gold output and revenue could exceed even the upper end of management's current 5-year outlook.
  
• While analysts broadly see operating leverage and profit expansion as production scales, Gold Royalty's strong early free cash flow generation, rapid deleveraging, and warrant conversions suggest it could reach a near net-cash position before 2026, significantly accelerating the return of capital to shareholders and magnifying future earnings per share.
  
• Global shifts toward gold as a de-dollarization hedge and increased sovereign/institutional allocations are set to drive both sustained high gold prices and robust mine development, positioning Gold Royalty for materially higher recurring royalty income streams and further upward revisions to long-term revenue trajectories.
  
• As the market increasingly favors asset-light, inflation-resistant business models, royalty and streaming companies like Gold Royalty stand to benefit from a premium valuation re-rate versus traditional miners, which could lead to multiple expansion and outsized growth in net margins and share price.
  
• Advancements in mining technology, such as AI-driven exploration and resource modeling, will likely unlock further value and new discoveries at existing royalty-linked projects, enhancing project economics and organically lifting earnings growth beyond current projections.

Gold Royalty Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Gold Royalty compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Gold Royalty's revenue will grow by 56.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -14.9% today to 30.5% in 3 years time.
• The bullish analysts expect earnings to reach $14.4 million (and earnings per share of $0.08) by about August 2028, up from $-1.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 89.6x on those 2028 earnings, up from -293.0x today. This future PE is greater than the current PE for the US Metals and Mining industry at 23.3x.
• Analysts expect the number of shares outstanding to grow by 0.82% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.07%, as per the Simply Wall St company report.

Gold Royalty Future Earnings Per Share Growth

Risks

• Secular shifts toward green-energy technologies and broader adoption of digital assets could steadily erode the role of gold as a long-term store of value, leaving Gold Royalty exposed to lower gold prices and constrained royalty revenues projecting into the future.
  
• Gold Royalty's portfolio remains concentrated in a handful of producing assets, with key growth driven by mines like Côté, Borborema, and Vareš; if production ramp-up delays, operator underperformance, or asset-level disruptions occur, company-wide revenue and cash flow growth could be sharply impaired for several years.
  
• The increasing regulatory emphasis on ESG standards and environmental scrutiny in mining jurisdictions worldwide raises the risk of higher operating costs, project delays, or outright production curtailments at mines underlying Gold Royalty's royalty streams, which would compress net margins and reduce predictable royalty income.
  
• The company's ongoing reliance on acquiring near-term, cash-flowing royalties in a highly competitive marketplace could force Gold Royalty to overpay for new assets or settle for lower-return opportunities, undermining long-term earnings power and possibly weakening per-share value if accretive deals become harder to secure.
  
• Potential dilution from the exercise of 20 million outstanding share purchase warrants prior to May 2027 and the risk of additional equity raises to fund acquisitions could reduce per-share earnings growth and restrain the share price even if aggregate revenue grows, negatively impacting shareholder returns.

Valuation

• The assumed bullish price target for Gold Royalty is $6.03, which represents two standard deviations above the consensus price target of $3.91. This valuation is based on what can be assumed as the expectations of Gold Royalty's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $6.25, and the most bearish reporting a price target of just $3.25.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $47.2 million, earnings will come to $14.4 million, and it would be trading on a PE ratio of 89.6x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of $3.17, the bullish analyst price target of $6.03 is 47.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.