Elemental Royalties: A $290 Million Deal Changes the Game

0:15All right, everybody, welcome back into Mining Stock Daily. There was some big news out of the royalty space heading into the Beaver Creek Precious Metals Summit, and that came from Elemental Royalties. They do trade on the NASDAQ and the TSX with the symbol ELE. A little bit of a transformation going on with Elemental. It's been transformation and Elemental have been going hand in hand here for the last couple of years, but they did announce a$290 million acquisition of royalty and of royalty streaming portfolio from Orion Mind Finance and then a little bit of a shift with the makings of the company as well.

0:57Happy to welcome in Fred Bell, now CEO, once again, of Elemental Realities. Fred, good morning. Good to have you. Hi, Trevor. Good to be here. When you were talking about a transformation, again, I was thinking it reminded me of our earnings which I think we had record earnings for quite a few quarters coming through I think at one stage it was sort of we were asking a question of when we won't have a record quarter of earnings and I think that this these transactions I should say because there's two of them really it does it does really streamline the company going forwards into a pure play royalty and streaming one and and will come on to it i'm sure but i think that that does um it makes the company significantly leaner and and yeah more focused going forwards yeah all right we're gonna kind of dive into that news and also we need to dive into the vslip nuko royalty as well because that's also been a headline the last couple weeks but let's let's start with you fred like you know Well, you founded this company.

2:07You were the CEO for an eight-year stretch. And then with the merger with then EMX, you took a step into the COO president role, but now stepping back into the chief executive officer desk. What does it feel like to step back into that top seat? And what's the mandate now that maybe is a little bit strategically different than it was just a few weeks ago? well look it's it's i think it's royalty streaming companies are known for being pretty lean teams and um on the royalty and on the corporate side you know not nothing really changed with the merger it was actually quite um we were doing much the same thing with being incredibly active i think record in terms of how many transactions we have done and some of that came from you know the work that we had done in the year before in the two years before on some of these deals so they didn't all happen overnight but i think that um we have certainly been uh keeping ourselves very occupied and i think it's you know whether i am coo and president whether i am ceo in in title i don't think the role changes much either way i think we're still you know laser focused on really trying to find good opportunities that can add value for the company and at the same time getting out there and introducing the company to a whole new range of investors now that we are larger nasdaq tsx listed you know 70 times the liquidity it gives us a very good platform then to talk to investors and i think that is the consistency that we've had and in terms of the team working on transactions you know it's the core of that team i think have have been with the company doing this for for years and even with the even with the guys going to carlin east i mean we're going to be uh one of if not the biggest shareholder there we're going to share you know 50 50 interest and you know call it 20 or 30 early stage royalties and option agreements so So I suspect that it will be, we'll sort of streamline the business.

4:18But other than that, I think it'll be very much continuing as we are. Okay. Let's talk about the two massive deals that happened in the last six weeks. And there's basically back-to-back announcements. You closed that Vesla royalty acquisition on September 15th. Six days later, less than a week, you announced that$290 million Ryan portfolio acquisition. so you know i mean quick turnaround here you're being aggressive that's i think that's kind of what people were expecting would happen uh with elemental uh since the you know tether came in as the major shareholder but from the outside it's pretty aggressive what was that timing planned or did these opportunities just kind of come together all at the same time i like i think it was it was We constantly work on, try and work on multiple deals in parallel.

5:10And that's often because along the way, we may kill a deal for, you know, through the due diligence we're doing. Or it may not happen because of, you know, different valuation expectations and other things. So I think we're always working on things in parallel. It was coincidence they happened so close together. You know, I think probably for our sanity, you know, having a week apart gap, at least is nice but look the Wiesler getting that approval from the antitrust in Mexico I think that probably took a we guided that it would be in that time frame but we probably hoped it would be a bit sooner and I think it was good to see it come through and on that note really encouraging to see Discovery Mining get their permits for the Cordero project this week from Mexico.

6:08So that's the fifth mining company in Mexico that have got their permits over the course of this year. And Panuco's, you know, I would say probably number in the sort of next three in terms of if there's a, you know, effectively few of companies waiting for permits. You know, maybe there were nine, five have got their licenses, and there's a couple left, including Panuco. So I think that's really encouraging. But yes, it took us a bit longer to get that sign off from the Antitrust Commission. They had with a royalty transaction similar to ours before, where it was a royalty company being acquired with the only assets in Mexico.

6:47So we worked through that. And then the portfolio acquisition we made from Orion, we initiated that earlier in the year. and it you know it always takes some time for them to put a data room together and um and you know of what they have and and the information and us to go through diligence site visits um negotiate on it um in parallel with others so yes been working on both of them and i can you know one thing i can tell you is we got back from uh beaver creek and denver gold conferences end of last week and uh you know this week as well as closing two transactions we just announced um we are again working on other opportunities that are out there because we continue to see really really good deal flow at the moment are you finding it easier to have these deal opportunities on your desk because of the evolution of elemental your lower cost of capital your access to capital i might say you know fred you and i've been chatting here on this channel for a number of years we've talked about having to be creative with hunting for opportunities has it become less hunting and more you know people wanting to do a deal and bringing them to you you know better lead generation i guess i it's you know it definitely in a sense has become easier to deal and there's a couple of components to that maybe one of the biggest and talking about the cadence of transactions as well so it's not it doesn't even necessarily have to be that they're all the largest deals it might be very good 10 million 20 million dollar transactions and they can sometimes take just as long as a 100 200 million dollar transaction to do but i think what has enabled us to maintain the pace and add the portfolio in the way we have is is number one it's the ip and the experience we accumulated if we came into the royalty space you know a year ago and tried to do this there is no way we would have been able to do it so a lot of these assets we already know we followed we liked we weren't in a position necessarily to do it before and I think that one of the benefits at the time that we espoused with the combination between EMX and elemental artists was that putting the companies together gives us an even stronger, more diversified portfolio.

9:22Um, you know, it gave us a really strong balance sheet as well. Um, and we had that a hundred million dollar, um, investment from Tether at the same time that we did the merger. So we came out of it and we were a larger, more diversified platform. We could afford to look at more things. And crucially, we have also built out our team over the last year. So I could go back a couple of years and there were five people at Elemental. There were eight people at Elemental. Now we've got sort of eight people on our corp dev team. So what it means is that we can be doing two transactions in parallel. We've got a better legal team.

9:58So yeah, when we started the company, I was chief legal officer and I can tell you that slows things down when you have to go through, you know, and negotiate all the legal points at the same time as the technical DD, the commercial DD, the fundraising and everything. So now, you know uh we've got such a good team um across the board and a bigger team that it means that we can we can do more things in parallel so that's part of it and then you know so you've got the it and the knowledge accumulated over time you've now got a bigger platform better capitalized more diversified um and then lastly you've also got a team who can actually we can be doing two or three deals in parallel at the right time.

10:41So those make a big difference. And then specifically on the transactions, there's one or two where, you know, when you are a smaller company, we gave away, you know, we syndicated deals multiple times in the past. And normally when you talk to royalty companies, especially the big guys in the space, you know, the biggest question they get continuously for the mid-tier and majors is deal flow. How are you going to keep growing. You've been so successful. It's a brilliant business model, but how are you going to keep growing? As Elemental, previously, we had the opposite problem. We had more deals than we had access to capital.

11:16And that's why we syndicated. And we syndicated obviously with, you know, between the company and AMX, with Franco-Nevada, with two private equity funds, but we gave away$200 million of deal flow as a result of that. So now we're in a position where over the last year, yeah, we may still choose to syndicate if there was a reason for it. But in the last year we haven't had to and we've been able to do all of those transactions ourselves amazing all right let's let's do open up this orion portfolio acquisition and really what it means uh it comes with a 50 silver stream at ruby hill five percent gold stream at carusa uh pardon my pronunciation very good uh two thank you two just just shooting from the hip there uh two and a half 12 % GRR at La Negra and another 1 % Goldstream from Snowy River and 1 % NSR from the Homestake District in South Dakota, which is quite interesting.

12:15So when you look at these five assets and I see potential like solid way upside potential from a number of these, which one are you most excited about yourself here, Fred? Which one was really your attention grabber so you know the interesting one here was that the origin of us our our sort of reach out and approach um to orion was on the carissa stream at and if you if you look at this portfolio the iat silver stream that's 50 percent and then it sounds 10 and the carissa five percent stream gold those are by value it's order of magnitude 90 % of the portfolio 80-90%. So you know the one that we were initially interested in was Mansa and that is because we already own the royalty on their upcoming development project Digbe and we bought that royalty a year ago now for 16 and a half million dollars up front and you know that royalty in production is probably going to pay us almost the acquisition price on an annual basis and we expect that mansa are going to be in a position to take a financing decision in the coming months and that is a kind of half a billion dollar plus you know 200 000 ounce a year mine um so it's a really significant two two and a half percent royalty we've got there and as a result we are more familiar with the private company mansa i think than other people would be um it's also in the sagari basin in guinea and that is for those who don't know um that is where pdi um have and they recently merged with the adjacent company but they're now 14 million ounces um they've built their first mine at kinero they're working on the permitting to get to build the second one at banken but that is a this is a tier one district and we have been familiar through different routes um with that region and those companies for a while and so we saw this stream on carossa as a really interesting way to get immediate cash flow number one but also the stream is structured to be on the mill and so everything that goes through that mill if mansa continue to grow their land holding and package to the north of pdi everything that they mine in the future and goes through that mill will be to the benefit of the stream so that was our that was our initial um interest and i think it's uh you know it's paying us it will be paying us an order of magnitude sort of 15 million dollars a year um you know so it's a pretty material contributor straight away.

14:50But then the, the, you know, the biggest asset IAT, um, and it's an, it's an unusual one for a couple of reasons. It's unusual because most deposits in Nevada gold deposits don't have a large component of silver. And this is, you know, a very large, uh, I think 20 % of the mine economics order and magnitude of silver. So that that's pretty material. And we have a 50 % stream for the first 1.3 million ounces also and then it drops down to 10 % life of mine and so we did our work on this and actually we have become more excited about it over time and I think a couple of reasons within 24 hours of us announcing the portfolio acquisition IAT put out an update which is part of the 130 ,000 meter Franco Nevada funded drill program that they are doing at Mineral Point and a step-out drilling 300 meters to the east, a kilometer to the north.

15:49I mean, this is already a 8 million ounce gold equivalent resource. And the step-out drilling shows that it is going to grow both to the east, but also a long stripe to the north. And when you look at some of the intercepts, I think one of the intercepts they got was amongst the best I've ever had on the project. I mean, you know, serious intercept. It was the third best intercept reported in the mining market, you know, that week. So to see that and those significantly above the resource grade, I think it's our view as it's a deposit that's going to grow. It's got a lot more exploration to come.

16:26And then on top of it, I think there's some upside in terms of IAT being able to bring that project forward. And they've spoken about it as a flagship asset. And, you know, it's a big project and big capex, but I think they're now funded in a position where they can do that. So they've been talking to the fact that this is going to be the cornerstone for them. So I think that we see upside both in the resource growth there, we see upside in the project being brought forward. But then lastly, the silver recoveries, which is a key component for us with our silver stream. And actually again, IAT, we were relatively conservative on that when we did our DD.

17:09and IAT have publicly now, I think, said that they actually expect to improve on those silver recoveries from what were in the last study. So on all of those, look, Mineral Point will be a top five cornerstone asset for us in Nevada for many years to come and that initial 16-year mine life, it's going to get extended out and I think those two are really exciting ones. maybe I will give an honorable mention to La Negra as well and simply because if you look in our transaction announcement and presentation we have a 2.5 % royalty on it, it's producing today it's in Silverco which is a really impressive management team I mean much better than you would normally see in a full 500 mil market cap company ex-CFO of Wheaton, George Perspydas who sold mag silver to Pan American you know a really good team and um we we modeled we valued out on 2 million ounces silver equivalent production and at the same time we announced a deal they put out their updated study which is actually uh averaging 4 million ounces silver prime in production so that went from 2 million dollar a year royalty um to when it's running at 4 million silver equivalent ounces it'll be about 4 million dollars for us so doubled it um now we normally see improvements or we like to see improvements in royalties after we buy them.

18:39We don't often see it that quickly. Coincident with the announcement. So that's a really good one. And I think both Silverco and IAT coming out with their announcements within 24 hours of us announcing the deal, I think highlighted some of the upside in that portfolio. You've done some significant deals. I mean, and I feel like I I should add the Panuco economics as well. And I think I said in my previous conversation with Visa Silver CEO, Michael Connert, which we recorded and aired during Beaver Creek. I sat in on his presentation at Beaver Creek and I just kind of forgot. I mean, Panuco is obviously incredible, but I like had forgot the numbers with Panuco until he just finally re-shared that in his presentation.

19:37You know,$1.8 billion US NPV, an IRR of 111%. That's at the base case. Yeah. And with only like a fraction of the entire Panuco land package. And so, Fred, like I can ask you about cash flow, but honestly, with these last two deals, the execution of each project's development is really going to be crucial for the next stage of your company right i mean you are i mean that but that is the nature of the royalty business you are beholden to the execution of management teams and their operations but that's why you partner with really good management teams so it seems like your shareholders and i'm one of those I feel confident in that.

20:27But obviously you also have to be overwhelmingly confident that that execution can be reached by your partners. Yeah, it's actually, it was almost understated in our presentation on the Orion portfolio. But the one thing that Orion did really well in acquiring those assets is they were backing effectively management teams who they knew who had a track record. And so if you look at IAT, it's the Richard Young and its CX Taranga team and we actually had that royalty on Wang Yong with Taranga when they built it on time, on budget and in their first year, new mine they outperformed their guidance by about 30 % I think 25-20 % which is very unusual in the mining industry so we've benefited from working with them before if you look at our two Australian royalties Carl Winder and Laverton and we caught up with some of the um genesis people from from laverton uh in in denver gold in australia recently and you know those are two of the best regarded management teams in the gold space in australia at capricorn and and genesis and they have you know to be able to have those guys those teams operating assets for us is is fantastic and carlo linda great example built the mine on time on budget despite covid at the time um they have successfully increased their resources and the reserves they have operated on the sniff of an oily rag you know very low cost operator and they've just successfully executed the expansion at the mine which was fully self-funded and so now they're operating at a higher ramp up and if you look at uh genesis and laverton and i've said this a couple of times and i'll keep saying it but that royalty is going to age like a fine wine it will just get better and better and um it's been underexplored unexplored almost for the best part of 12 years and it's surrounded uh you know by some world-class mines um with with gold fills and anglo gold ashanti in the same belt so i think as genesis do more work on that i think we're going to get some really good updates and um i think then you know again across these assets um even even the smaller ones that we bought from orion here uh if you look at uh um if you look at snowy river new zealand the exec chair there is is jake klein from evolution um if you look at home state district obviously um with dakota gold that's that's bob quarter main lead um i talked a bit to lenegra and i80 if you look at mansa they've brought in quite a few people from x endeavor mining yeah built that into a top 10 producer in west africa so we're it's such a it's such a key part and i can tell you when we did the site visit early this year to sijin's timoc um you know it was it was so impressive seeing what uh how much sijin have invested into building that mine at the same time as you know they're operating it on the upper zone it's so incredible to see how many people they have developing the lower zone exploration at mg which they class as a super major discovery in its own right um so uh we're with it's not an accident i think um it's been deliberate trying to identify really good quality projects and really good management teams and that The last point I'll just touch on is this one around the concept a year ago, 15 months ago, around if you want to build a serious mid-tier royalty company, you need to have serious, high-quality assets as your cornerstone in that portfolio.

24:19And more often than not, those assets are coming with really good management teams, really good companies. and over the last year our top eight assets have gone from an average value of 35 million order of magnitude to I think is it 170 million today? 150 million that sort of order of magnitude so we have seriously upgraded our top 10 assets in that portfolio over the last year and we've got some really good management teams and some excellent projects in there We're going to call this part one of a full kind of rundown corporate update because you and I are slated to actually touch base in London in a couple weeks' time here, Fred.

25:06And so there's a number of questions I didn't get to today that I would like to hold off and re-approach here in the next couple weeks when you and I sit down in person and do that for our annual, Trevor's annual trip to the elemental office and trying to figure out just how to get to that office on that floor. I seem to always get lost every time I open that elevator. But excuse me, I will add one more thing. Excuse me. It talks about working with great management teams. Knowing that that portfolio came from Orion Mine Finance, and that is probably arguably the most reputable, respected team when it comes to mine finance in the entire world.

25:49They are very serious people. I've known them for a number of years now, just with my proximity here in Denver and their technical team. They're great people, but knowing that it's coming from them obviously adds a de-risking aspect to that acquisition because they only do serious things. They spend a lot of time doing their due diligence and they keep it very close to themselves. So I just say, you know, there's not really a question in there, but I do think it just kind of comes with its own little de-risking checkbox when you're doing deals like that with them. Yeah, and look, all of these, back to your original point, I think one of your original questions, Trevor, which was, you know, how have we been able to maintain the pace of doing so many transactions?

26:36and actually maybe one thing i left down is that it has been helped by having a really solid core of of high quality royalties in the portfolio i could tell you you know the vizla deal was 75 equity 25 cash so you know they did a lot of work on our portfolio and what they thought of it and you know you know their view on panuco they want to make sure they're putting it in for equivalent quality assets. Orion, part of the consideration is they're becoming a 5.6 % shareholder. So they would want to do their DD on us and make sure that they're getting good value on the shares that they got as well.

27:16So I think all of these have become easier because if you have a high quality portfolio, people want to have a share in that, people want to be involved and it makes deals where we're offering part equity consideration easier to do. Fred Bell, good to see you. It's been far too long and we're going to do this again here in literally less than two weeks. So I look forward to that conversation. Look forward to that. All right. All the best, Fred. Thanks so much for the update. That's Elemental Royalty again, trading on the NASDAQ and the TSX with the symbol ELE. And we'll have part two follow up here coming down the pipeline by the end of the month.

27:58So stay tuned. Bye, Fred. Thanks so much. Hi. The information presented should not be considered investment advice. Mining Stock Daily Yance affiliates are not responsible for any loss arising from any investment decision in connection with the material presented herein. Please do your own research or speak with a licensed financial representative before making any investment decisions. the wre head to the