Elemental Royalty Corporation (NASDAQ:ELE) Chief Executive Officer David Cole caught up with DirectorsTalk to discuss the merger between Elemental Altus and EMX Royalty, the company’s value-driven strategy, and a global portfolio of over 300 mineral royalty assets.
Q1: David, could you just give us an overview of the company and perhaps some background to the merger of EMX and Elemental Altus to create Elemental Royalty Corporation?
A1: Fundamentally, since I was a young geologist working in the gold fields of Nevada, I’ve been of the opinion that the value of mineral rights over time will augment. That has played out in spades in my lifetime, with the price of gold having gone from $35 an ounce to now $4,235 an ounce, a compounded annual growth rate of nearly 9% for a bar of metal sitting in your vault. It’s rather astonishing. It’s not a dissimilar story with respect to silver, copper, molybdenum. The value of mineral rights over time tend to augment.
I’m clearly of the opinion, based upon some distinct experiences that I had early in my career, that the best way to be exposed to that augmentation of the value of mineral rights is through royalty ownership.
I’ve focused on accumulating royalties in a portfolio through multiple mechanisms for over two decades and this merger is just a further exemplification of us gaining mass and getting to the point where we have a major portfolio of cash flowing royalties.
You asked specifically about the merger, so we’ll just do a quick synopsis on the two entities that have come together in a very synergistic manner. One, EMX Royalty Corporation, of which I’m the Founder and have been CEO for 23 years, and EMX built a portfolio of royalties by doing prospect generation and royalty generation. This is where we actually acquire the prospect of mineral rights, exploration licenses in Sweden or staking mining claims in Nevada, etc., coalesce geological data, illustrate prospectiveness to counterparties, sell that asset on for a combination of commercial terms, including pre-production payments and always a production royalty at the end of the day. This is building assets that are early stage at the base of what we call the pyramid, i.e. things that are in the exploration stage versus things at the top of the pyramid, which are in productions phase.
In addition to that royalty generation, we also buy existing royalties from third parties that have created them and occasionally do royalty financing to gain scale and add cash flowing assets at the top of the pyramid. EMX has done a fantastic job of allocating capital and building a portfolio astutely.
In that process, we became friends with Elemental and Elemental Altus Royalty Corporation, which have approached it with a similar mindset with some early-stage royalty generation as part of their company and a very strong aspect of analysing royalties that are up for sale and finding royalties to buy at reasonable prices. Both Elemental Altus and EMX were value-oriented as opposed to momentum-oriented, which is the case with some of our competitors. Come out with a strong stock price thanks to bloviation and over promotion and then try and backfill value through share issuance. That’s not been our modus operandi. Our modus operandi is to raise money astutely and then allocate it very carefully in a value-oriented manner, to build per share net asset value, and we’ve always focused as the key performance indicator that’s most important to us is our per share net asset value.
The relationship between EMX and Elemental Altus evolved where at one time we had a co-director, we’ve had a similar business model and a similar cultural mindset towards acquisition of royalties. We syndicated an important royalty purchase at Casa Rones in Chile that has panned out very, very nicely for us and had worked on other due diligence exercise that resulted in failure of the asset, which is a healthy thing. We look at a lot of opportunities that come in the door, and we fail them only buy the ones that we most want.
So, we got to know Fred Bell, the founder and CEO of Elemental and had a good working relationship with them as friendly competitors. We agreed that it made sense for us to merge and gain scale to the business because scale is rewarded in the royalty business sector. It’s rewarded through an enhanced PNAV, the ratio of the price per share to the NAV per share and both of us during the tough times of recent years, were trading below a PNAV of one. We believe that we put this together, we should be trading at a PNAV of 1.5. That’s a key part of the mathematical equation as to why you want to accumulate the stock and I’ll boil that down for you in a minute.
Tether came in and bought a significant share ownership in Elemental Altus, led by Juan Sartori, the Chief Investment Officer of Tether Holding. Juan says to Fred, how do we grow this business? Fred says, let’s call Dave Cole, they’ve got a great portfolio, and we’ve already talked about the possibility of merging. I flew to New York, I met with them literally within a couple of days of this all happening and we agreed, yes, it’s time, let’s bring these entities together.
I’m just completely delighted to have the opportunity to work with the Elemental team to bring these portfolio of assets together. The market recognition and kudos that we’ve gotten have been quite strong, both companies had a 99% approval vote in the voting process to consummate the merger.
Q2: Both Elemental and EMX have great track records. What differentiates you from others? What’s the secret sauce?
A2: I’ve had a number of shareholders that have pointed this out saying, Dave, like your track record, a couple of royalties you bought for $200,000 are worth millions or hundreds of millions of dollars. How do you pull this off? Because in many cases we see royalty companies needing to fully or overpay to accumulate royalties because it’s not a secret that royalties are phenomenal financial instruments with immense embedded optionality. So, when they go through a sales process, they sell for top dollar typically.
The secret sauce is to be able to predict what is likely going to happen in the field, at the mine site, into the future. Will production increase? Will there be further discovery? That comes down to astute engineering and geologic talent and our ability to ascertain what’s the likelihood of success or failure in a multivariate risk analysis.
Nearly all of us in the royalty space can do a, I call it, two-dimensional stagnant discounted cash flow analysis based upon reserves and resources today. We can put in whatever copper and gold price that we think is appropriate. We can use whatever discount rate we think is appropriate. We come up with a good model. We can risk adjust it based upon permitting risks, etc, and most people are going to come up with a similar number. Whether or not that actually turns into a 5% internal rate of return or a 55% internal rate of return one or two decades from now boils down to the ability to understand the likelihood of production increase fuelled by discovery increase on the asset, which is predicting the future.
This team, our team, is very good at this. We understand economic geology exceptionally well. We have teams of the top-notch mine engineers, including one of the Senior Vice Presidents of Engineering for Newmont Mining Corporation, who’s now semi-retired and consults to us just as one example, being able to bring together this team and do a very good job of that. A good track record.
Q3: You spoke there about some of the royalties. Could you just highlight some of those royalties, the producing ones, and the development ones?
A3: I can only hit a few, we have over 300 mineral property positions in 20 countries today, as part of the combined entity, 16 of those have production royalty cash flow, and many more have cash flow from pre-production payments. Our analysts right now, consensus analyst prediction or forecast for next year, is $89 million U.S. in top line revenues to the corporation. That’s at substantially lower copper and gold prices than we have today so the actual number, assuming these prices remain in effect, will be higher than that. And probably does not take into account some production increases that we expect to see at a couple of mine sites.
So, 200 royalties around the world and I’ll highlight just four of them that are cornerstone assets and a couple of others that are near cornerstone assets within that portfolio, starting in North America.
We have a 1% royalty on the Leeville mine; that’s a gold mine operated by Nevada Gold Mines in the heart of the Carlin Trend, which is one of the most gold endowed belts in North America. That royalty is paid for many, many years and is currently paying at the rate of about $6 million per annum and we’re very pleased to have that and of course, Nevada Gold Mines, which is now operated by Barrick and a joint venture with Newmont, are top tier counterparties in a top tier jurisdiction of Nevada.
Also in the United States, we have a couple of advancing discoveries. South32’s Peake discovery, which is a lateral extension of the Taylor-Leipzig silver deposit, it zones into a copper deposit on our land. That’s a great example of what I call discovery optionality. I’ll use that one just as an example. Our cost basis on that royalty that we have at Peake is near zero. We sold that license for what we had paid to get it in the early days, there were actually claims that we staked and then subsequently they’ve made a huge discovery. So, it works out to ultimately will be near infinite return on capital when your cost basis is at zero and it turns into a nice cash flowing royalty 10 years or 20 years hence. That’s a phenomenal investment. That’s building value coming back to what I said previously at the base of the pyramid.
Moving to South America, our largest current cash line royalty on a production basis is at Casa Rones, and this is the one we syndicated with Elemental Altus and EMX many years ago. Its panned out very very nicely. That’s copper molybdenum, it’s now operated by Lundin Mining Corporation, and they have put $14 million into exploration in ’24 and $22 million in exploration this calendar year ’25. That’s resulted in some very nice discoveries within the property, within our footprint in addition to the ongoing mining and cashflow that’s coming from the Casa Rones open pit. This calendar year, we’re expecting around $15 million in royalty revenues, analysts have put next year’s number close to $19 million. That is not with current copper price, with current copper price, it will be well over $20 million so we’re very pleased about that and Lundin is also increasing production a little bit and that’s a nice equation for us.
Moving over to Argentina, another example of discovery optionality is our 1% royalty on the AbraSilver deposit at Diablillos in Northern Argentina. Argentina has become a great place to invest in the mining industry; there’s tax incentives to move this deposit and other deposits into production quickly. The resource growth and resource growth on that property has been salient and we’re just delighted.
This is a good example. I bought that royalty for a little over $11 million, it’s already paid close to $7 million in pre-production payments so our net cost on that is fairly low. Yet we have a 1% royalty on an advancing significant, one of the best undeveloped silver-gold deposits in the world today with an in-ground un-discontinued potential cashflow from that deposit as it exists today of $150 million. So, that’s just a great example of why you want to own royalties and royalty portfolios. I keep coming back to this concept of discovery optionality because that’s why you want to own them and Diablillos is a phenomenal example.
Let’s shoot across to the Atlantic and go over to Fennoscandia; Norway, Sweden and Finland, where we’re substantial mineral rights holders in Fennoscandia with a whole host of early-stage assets being drilled and advanced by our counterparts, fully at their expense. The next production royalty that will come into play for us is on the Viscaria mine in northern Sweden, that’s in the Kiruna district and this is a copper-iron-gold deposit. We’re just super pleased to have that one come into production. Another example of an amazing allocation of capital, I paid $200,000 for that royalty, maybe a little less than that, and it will pay millions per year with a very long mine life and coming into production this year.
Now let’s go to into south-eastern Europe, arguably our most valuable royalty in the portfolio and the biggest home run hit, grand slam hit within the portfolio and that is our Timok royalty. We actually own a number of royalties within the Timok magmatic complex. The Timok complex is Europe’s largest historic copper and copper producing region, and the site of one of the most significant copper and gold development stories ongoing in the world today. That is what’s called the Timok deposit, it’s within a licence called Brestovac and its operated by Zijn. Zijn is a multi-billion-dollar international mining company that is partially owned by the Chinese government, and they have a fantastic track record of getting metal out the ground. We’re delighted to have them as the counterparty as they’ve been advancing the deposits there very quickly and I’ll point out they’ve discovered four ore deposits within our royalty footprint. It’s currently cash flowing from the two upper zones that were brought into production first at about $6 million per annum at this point in time. They’re doing the development work to get the lower zone, which is gargantuan into production. The lower zones which has 250 million tonnes of resource added to it last year, it’s 2.5 billion tonnes at nearly 1% copper equivalent, stated mine life of 66 years. So, this is an asset that will just pay for probably a century into the future. In addition to that lower zones, which is one of the larger copper-gold deposits found in my lifetime, there’s also the MG discovery which was just announced last March. The initial resource there was 150 million tonnes at 1.87% copper and 0.61 grams per tonne gold so well ahead of 2% equivalent. A great example, I keep coming back to this, so we’re getting production growth which is current cash flow in addition to discovery growth and that is driving per share net asset value.
We moved to Turkey, we’re got some nice cash flowing assets there as well, and then we moved to West Africa, some gold assets that are paying handsomely and then to Australia where two more of our cornerstone assets are; one being the Laverton royalties that we own in that district, currently not in production but are moving towards production and we have substantial footprint there. We’re very bullish with respect to how that will pan out over time. Karlawinda, which is paying handsomely for us; plus $10 million a year, and the counterparty has been steadily increasing production for years and increasing the resource down dip on that deposit.
So, these nice cornerstone assets are the types of assets you would see in a major royalty company by bringing these two junior companies together, we’re now right smack dab in the mid-tier category. That mid-tier category should command a 1.5 to perhaps even 2 PNAV and our NAV per share is growing thanks to commodity price and discovery within the portfolio that comes at no cost to us. That’s why it’s optionality. So, enhancing NAV per share and enhancing PNAV is a very nice equation.
Q4: You mentioned Tether earlier. How does Tether fit into the equation?
A4: So, Tether is a fascinating company and they’re one of the largest private companies in the world now. They’re currently on track to net approximately $20 billion annually. They are stablecoin issuers, they’re the largest stablecoin company in the world and it’s Tether Holding that owns our stock. That’s the holding company that owns the stablecoin companies.
Very quickly, they make money by issuing a token that’s tied to the value of the USD, tethered to the USD, and in order to accomplish that, they take the $1 that they sell the token for and buy treasury bills. The treasury bill backs the value of the stablecoin, and treasury bills are currently yielding 3-4% and the stablecoins are just stable. They do not pay a dividend, just like a dollar bill in your wallet. Consequently, they reap the benefit of that contango or of that interest rate differential and so it’s highly, highly, highly profitable.
What are they doing with all that money? They are buying physical metal, this is public information, they are currently buying three metric tonnes of gold metal and taking delivery a week. Rather astonishing. The only entity in the world that’s buying more physical gold metal than Tether is the Chinese government. You’ll note that central banks, including the Chinese, have been buying gold consistently for years now and have certainly been a factor in the substantial increase in the price of gold as people become increasingly concerned about the value of fiat currencies.
So, Tether is buying gold copiously and they know they’re contributing to the price of gold going up. What else would they like to own? Of course, they come to the conclusion that they want to own gold royalties and mineral royalties. They clearly understand the value of hard assets in an environment of decreasing fiat currency value. They’re buying farmland, they’re buying physical metal and they’re buying royalty companies. They took a substantial position in Elemental and have an outlook to continue to be a strong supportive shareholder of Elemental for the long term.
Q5: We’re approaching the end of what’s been a really fast paced year for you in the company. What catalysts can investors expect from Elemental Royalty Corporation in the coming years?
A5: Well, putting aside commodity prices, commodity prices have been a catalyst and we’re all subject to the ups and downs of the commodity markets. But what is the alpha? The alpha here is further discovery within our existing portfolio today, enhancing that, come back to that per share net asset value. There’s over $100 million in exploration drill holes going into our properties worldwide by counterparties at no cost to the royalty holder, that’s us. That’s what creates this discovery optionality and some of these are salient material generational discoveries, such as what’s happening at Timok and further discovery on behalf of Lundin at Casa Rones and further discovery at Karlawinda in Australia as another example. There’s others within the portfolio; I could go on and on, that’s just as the portfolio stands today.
All the money that we’re making from the royalty payments, we’re just going out and acquiring and generating more royalties. We have a track record of increasing the number of royalties within the portfolio by scores per year and that will continue. So, we’re just pouring fuel on the fire.
Q6: Were you listed today?
A6: Yes, we just obtained our NASDAQ listing. It was delayed because of the governmental shutdown, we needed SEC approval, but happy to have that in the rear-view mirror. Our liquidity on the NASDAQ has been quite strong, we’re very pleased with that listing.
I think I’ll point out that we also trade on the TSX-V, and we do expect to up list from the TSX-V to the main board TSX in the near future. This is important because now that we have nearly a billion-dollar market cap, $50 million in cash and gold in the bank, no debt, and pushing $90 million in revenues, we certainly will qualify for index inclusion. As of today, we have no shares in any indices in the world. The bankers that are analysing us expect for 10-18% of our issued and outstanding share capital to go into various indices within the next 12 months. So, that is just further impetus for a substantial share price move, in my opinion. We have increasing NAV, increasing PNAV, and shares going into indices. It’s a special situation.
