Royalty Knockout #8
Gold Royalty Corp
GROY is down more than 50 percent in the precious metals correction. Oversold on the weekly stochastic. The $2.20 area should be last support. After that, the $1.50 level could open up.
Top asset right now is Pedra Branca. Generating close to 15 percent yield on their purchase price. It’s about 25 percent of current revenue. The top four properties, including Pedra, are about 75 percent of income.
GROY forecasts 7,500 to 9,300 gold-equivalent ounces in 2026.
Out to 2030, it projects 28,000 to 34,00 ounces. Using conservative price forecasts for gold and copper, GROY estimates a little more than $100 million in revenue for 2030, or about 10 times the present run rate from Q1 2026. In even a mildly bullish scenario where gold makes new highs, it might be closer to double the income.
At a current market cap of $650 million, that is 6.5x 2030 revenue. It is 65x 2026 revenue and closer to 300x earnings. These are not how the stock is valued, but they’re also not irrelevant numbers. It speaks to investor optimism, particularly when one considers these numbers were double back in January.
The real strikes against the firm.
G&A is a massive share of revenue. They’ve diluted shareholders by more than one-third between 2024 and 2026. They eliminated the dividend to fund acquisitions. I can get behind that strategy, but it doesn’t look great alongside G&A. It does make sense considering with the dilution, their old dividend policy would eat 100 percent of revenue this year.
Bottom line: maybe a 4x from here if all goes well in a bull market.
Black Stone Minerals
BSM own mineral rights on gas and oil properties. It operates sort of like a prospect generator in mining, who find properties and then sell them off for royalties, but with the difference being they hold the land package as this is a different industry. By revenue it is about 50-50 oil and gas at this time and is moving more towards gas.
Look at the portfolio alone by backing out dividends. An image we see all across this space from firms working back to old highs or setting up large multi-year bases.
The company has a $3 billion market cap. The company trades at about 11x the dividend. The dividend is covered by profit. There is debt, but only $154 million net.
Energy is in the unique position where higher interest rates probably accompany higher energy prices. Their debt is small enough to where their enterprise value will rise faster. The big risk is a collapse in energy prices.
How low can natgas go though?
The firm uses conservative estimates of $4 gas and $65 oil to arrive at the potential for $500 million in revenue and $2 in distributions by 2030, which would bump the yield on an investment today above 13 percent.
BSM takes slightly less royalties in exchange for minimum drilling, somewhat lessening downside risk.
BSM doesn’t pay consistent income. The stock has maintained a yield near 10 percent, whether it be at $4 or 14 per share. Latest cuts came as the firm increased debt to acquire more land that is not yet accretive for earnings. They are heavily exposures to Haynesville and Shelby Trough in Texas.
BSM is heavily hedged. It will not benefit from upside in energy until those hedges fall off over the coming two years.
Back of the envelope scenarios from ChatGPT:
In the upside scenario, the yield on the current price could be closer to 25 percent annual. The the downside scenario, income evaporates and the price tumbles.
The main knock on BSM would be the same as GROY: the valuation is already substantial.
What earns BSM the pass is that GROY’s path to a 4x or 5x looks more like an outlier scenario at the moment versus BSM’s existing resource base that stands to benefit in a world where we’ve seen $120 oil this year thanks to geopolitical risk. The natural gas story is more interesting though because it’s the nation’s marginal fuel for ramping up demand. Data centers are relying on natural gas. A world of onshoring and domestic development will require more natural gas too, while increased exports are pulling the price up towards the global market.
If one can acquire a stock like BSM at a discount in a commodity-panic linked to a recession, then the numbers can approach 10x territory if the bull scenario remains for the 2030s.
The ratio of crude to natgas remains historically elevated.
