Executive Summary / Key Takeaways

• Gold Royalty Corp. ($GROY) has achieved a significant inflection point, reporting positive free cash flow and record revenues, adjusted EBITDA, and operating cash flow in the second quarter of 2025.
• The company is poised for substantial organic growth, projecting 23,000 to 28,000 gold equivalent ounces (GEOs) by 2029, representing an over 360% increase from its 2024 GEOs, driven by the ramp-up of key assets like Côté, Vareš, and Borborema.
• A disciplined capital allocation strategy prioritizes debt reduction, with management aiming for an essentially net debt-free position by the end of 2026, supported by growing free cash flow and the expected conversion of convertible debentures and warrants.
• Gold Royalty's unique royalty generator model provides a low-cost source of long-term growth and exploration upside, enhancing its competitive moat in the precious metals royalty sector.
• The current strong gold price environment, coupled with accelerating industry consolidation, creates a favorable backdrop for Gold Royalty's strategic ambition to evolve into a prominent mid-tier consolidator.

A New Era for Gold Royalty Corp.: Setting the Stage

Gold Royalty Corp. ($GROY), established in 2020 and headquartered in Vancouver, Canada, has rapidly carved out a niche in the precious metals royalty sector. The company's core business model revolves around providing financing solutions to the metals and mining industry by acquiring royalties, streams, or similar interests across various stages of the mine life cycle. This strategy aims to deliver near, medium, and longer-term returns for its investors. Historically, Gold Royalty pursued an aggressive mergers and acquisitions (M&A) strategy in 2021, leveraging a strong market currency to build a foundational portfolio of royalties on large-scale, long-life mines that were in late development, near production, or actively ramping up operations.

This capital-light business model is a key differentiator for Gold Royalty, particularly through its royalty generator program, primarily active in Nevada. This innovative approach allows the company to create early exploration stage royalties at effectively no cost, contrasting with traditional acquisitions that demand significant upfront capital. The tangible benefits are substantial: it significantly reduces capital expenditure for acquiring early-stage assets, enhances portfolio diversification without diluting capital, and provides "free exploration optionality" as operating partners invest over $200 million annually in brownfield exploration on underlying deposits. This strategy has already expanded Gold Royalty's resource exposure from 30 million ounces at its initial public offering to over 130 million ounces. The company aims to generate a couple of new royalties per quarter through this program, demonstrating a continuous, organic pipeline of future value. For investors, this model is a critical component of Gold Royalty's competitive moat, driving capital efficiency, supporting long-term margin expansion, and offering significant upside potential from exploration success without direct operational risk or cost.

In the broader competitive landscape, Gold Royalty operates alongside established players such as Royal Gold, Inc. (RGLD), Franco-Nevada Corporation (FNV), Wheaton Precious Metals Corp. (WPM), and Osisko Gold Royalties Ltd. (OR). As a newer entrant, Gold Royalty is still building its scale and financial maturity compared to these larger, more diversified peers. While its TTM Gross Profit Margin of 69.19% reflects the inherent profitability of the royalty model, its TTM Operating Profit Margin of -30.73% and Net Profit Margin of -31.45% indicate that the company is in a significant growth phase, with substantial operating expenses relative to its current revenue base. This contrasts with the implied profitability of its more mature competitors, as suggested by their positive P/E ratios. Gold Royalty's specialized focus on gold royalties in the Americas and its unique royalty generator model provide distinct advantages in regional expertise and efficient deal sourcing, allowing it to target niche opportunities that might be less attractive to larger, globally diversified players. The company's strategic ambition is to become a consolidator itself, aiming to create a mid-tier royalty company with sufficient organic growth and scale to attract global institutional equity investors. This ambition is set against a backdrop of accelerating consolidation within the royalty sector, with new strategic capital entering the space and an estimated $50 million to $75 million of excess general and administrative (G&A) costs among smaller players, signaling significant synergy potential.

The Engine of Growth: Portfolio Performance and Operational Milestones

The year 2024 marked a pivotal period for Gold Royalty, demonstrating the built-in growth of its portfolio. The company reported record total revenue, land agreement proceeds, and interest of $12.8 million for the full year, a 146% increase over 2023. This growth translated into its first full year of positive operating cash flows, reaching $2.5 million, alongside a positive adjusted EBITDA of $4.8 million. This momentum continued into 2025, with the first quarter achieving a record operating cash flow of $2.5 million, an increase of over 180% from the previous quarter, and adjusted EBITDA of $1.7 million, up over 30%.

The second quarter of 2025 solidified Gold Royalty's "inflection point," as the company achieved positive free cash flow for the first time. This quarter also saw new records for quarterly revenue, adjusted EBITDA, and operating cash flow. Total revenue, land agreement proceeds, and interest reached $4.4 million, translating into 1,346 gold equivalent ounces (GEOs). Adjusted EBITDA surged to $2.4 million, a nearly 50% increase quarter-over-quarter. These robust results were primarily driven by the successful ramp-ups of the Vareš and Côté Gold Mines, strong gold prices averaging $3,279 per ounce during the quarter, and relatively flat G&A costs of $1.8 million.

Several key assets are at the forefront of this operational success:

• Côté Gold Mine: Gold Royalty holds a 0.7% Net Smelter Return (NSR) royalty over the southern portion of the pit. The mine achieved its nameplate throughput of 36,000 tonnes per day over 30 consecutive days by June 21, 2025, ahead of its Q4 2025 target. Revenue from Côté was strong, exceeding $1 million in Q2 2025, and further improvements are expected with the installation of a second cone crusher later in 2025.
• Vareš Mine: The company holds a 100% copper stream on Vareš, which achieved commercial production on July 1, 2025. While Adriatic Metals , the operator, reduced its full-year 2025 guidance for ore milled, Gold Royalty maintains its overall 2025 GEO guidance, expecting the shortfall to be offset by other assets. Gold Royalty anticipates receiving approximately $1.2 million from Vareš in Q4 2025, contingent on copper prices and ramp-up, with an estimated three-month lag between production and payment.
• Borborema Project: Gold Royalty holds a 2% NSR royalty and a Gold-Linked loan. The project, which achieved first production in late March 2025, contributed a meaningful $1.2 million in revenue in Q2 2025 from preproduction payments of 250 ounces of gold per quarter. Aura Minerals (AURA), the operator, expects commercial production later in 2025 and has maintained its 2025 guidance of 33,000 to 40,000 ounces of gold produced.
• Canadian Malartic / Odyssey Mine: Gold Royalty holds a 3% NSR royalty over a portion of this asset. Revenue in Q2 2025 was $18,000, viewed as a temporary issue of mine sequencing. The Odyssey underground project holds significant long-term potential, with Agnico Eagle (AEM) planning a study in 2026 for a second shaft, as the mine is expected to become fully underground by 2028.

Financial Transformation: From Investment to Cash Generation

Gold Royalty's growing cash flows and revenues are steadily strengthening its balance sheet. The company's capital allocation strategy now prioritizes debt reduction, while also considering capital returns to shareholders and strategic growth opportunities. Management anticipates achieving an "essentially net debt-free position by the end of 2026," a goal supported by increasing free cash flow and the expected conversion of deeply in-the-money convertible debentures and outstanding common share warrants. As of June 30, 2025, approximately 20 million outstanding share purchase warrants were exercisable at USD 2.25 per share, expiring May 31, 2027.

The company plans to utilize excess cash, including proceeds from warrant exercises, to opportunistically repay the $27.3 million outstanding on its revolving credit facility. As EBITDA continues to grow, Gold Royalty expects to delever quickly, aiming to be effectively debt-free by the end of 2026. The company targets a cash balance, inclusive of its undrawn revolver capacity, above $5 million. This disciplined approach to debt management is a cornerstone of its financial strategy, with management explicitly stating that paying down the revolving credit facility to effectively nil is a priority before considering returns of capital to shareholders. While the company may not carry zero debt indefinitely, the focus is on maintaining low leverage and having capital available for future non-dilutive acquisitions.

Strategic Vision and Future Outlook: A Path to Mid-Tier Leadership

Gold Royalty reiterates its 2025 and five-year outlooks, signaling a period of pronounced growth. For 2025, the company expects to receive between 5,700 and 7,000 GEOs. This guidance assumes a gold price of $2,668 per ounce and a copper price of $4.23 per pound, and includes an anticipated $1.6 million in Land Agreement Proceeds, equivalent to approximately 600 GEOs. Management adopts a conservative approach to guidance, often using the lower end of operator estimates for assets still in ramp-up phases, such as Côté, Vareš, and Borborema. This provides a buffer against potential operational delays, while still allowing for upside. The first quarter of 2025 was the lightest, with a "good catch-up" expected in Q2 and a stronger second half of the year.

The inaugural five-year outlook is even more ambitious, projecting 23,000 to 28,000 GEOs by 2029, an impressive over 360% increase from its 2024 GEOs. This longer-term outlook is "fully bought and paid for" and is derived from assets already held in the portfolio, based on public forecasts and disclosures by experienced, well-funded operators. Key assets contributing to this growth include Odyssey, Vareš, Côté, Borborema, REN, Granite Creek, and South Railroad. The five-year outlook assumes a gold price of $2,212 per ounce and a copper price of $4.24 per pound. While a slight downtick in growth is anticipated around 2029 due to the stabilization of Canadian Malartic underground production and the Côté royalty trailing off after approximately six years of mining, potential upside exists from developments like the Borborema highway relocation and mill expansion, which are not yet fully credited in consensus estimates.

Gold Royalty's strategic vision extends beyond organic growth. The company aims to become a consolidator in the royalty sector, aspiring to create a mid-tier player with sufficient scale and liquidity to attract generalist equity investors. This ambition is supported by the expectation that its operating cost structure will remain relatively stable as revenues and production volumes grow, leading to higher future operating margins and increased cash reserves. Once the company achieves its debt reduction targets and enters a "very steady and long-term free cash flow generating phase," it will be in a position to consider returning capital to shareholders through various forms, including share buybacks or dividends.

Mitigating Risks and Unlocking Value

Despite its compelling growth trajectory, Gold Royalty faces inherent risks. The successful execution of ramp-ups at key assets like Vareš, Côté, and Borborema is crucial, as any delays or underperformance could impact guidance. For instance, Vareš experienced Q1 2025 mill output 38% below budget due to weather and operational issues, and Adriatic Metals (ADT) subsequently reduced its full-year 2025 guidance. Geopolitical and operational risks, such as the Q3 2024 railway damage in Bosnia affecting Vareš concentrate shipments, also highlight external vulnerabilities. Furthermore, the company's royalty coverage at assets like Canadian Malartic is not always comprehensive, leading to estimation challenges.

In the competitive landscape, the market for acquiring cash-flowing or near-cash-flowing royalties is "increasingly competitive," requiring Gold Royalty to maintain discipline with its cost of capital. However, Gold Royalty's focused portfolio on gold royalties in the Americas, combined with its royalty generator model, provides a distinct competitive advantage. This approach allows for efficient deal sourcing and a continuous pipeline of low-cost, long-dated assets, differentiating it from larger, more broadly diversified competitors.

Management acknowledges that the company's current market valuation has been "frustrating" and trades at a discount relative to many peers on a price to net asset value basis. However, they express strong conviction that the "peer-leading revenue and cash flow growth" expected in 2025, coupled with the realization of its 2029 outlook, will be the catalyst for a re-rating of its share price. The company's strategy of harvesting returns from its existing, fully paid-for assets, combined with the "free exploration upside" provided by its operating partners, underpins this long-term value proposition.

Conclusion

Gold Royalty Corp. stands at a pivotal moment, having successfully transitioned to a positive free cash flow generating entity in Q2 2025. This achievement marks the culmination of a strategic journey that began with aggressive portfolio building and is now focused on disciplined capital allocation and organic growth. The company's robust pipeline of high-quality, long-life assets, including the rapidly ramping-up Côté, Vareš, and Borborema mines, underpins a projected 360% increase in GEOs by 2029. This significant growth, coupled with a commitment to deleveraging and a unique royalty generator model that provides low-cost, long-term optionality, positions Gold Royalty for substantial value creation.

While the company acknowledges its current market valuation discount and the competitive nature of the royalty sector, its strategic focus on becoming a mid-tier consolidator, supported by a strong gold price environment and a scalable business model, presents a compelling investment thesis. As Gold Royalty continues to execute on its guidance, reduce debt, and demonstrate the full potential of its diversified portfolio, the market is likely to re-evaluate its intrinsic value, offering significant upside for discerning investors.