Elemental Royalties: A Leaner, More Profitable Future

0:18Trevor Hall: All right, everybody, welcome back to Mining Stock Daily here in London covering the LME week festivities and I'm back yes for my inaugural trip into the Elemental Royalties office found the floor right time right floor this year actually so it's good but I'm sitting down here again with CEO Frederick Bell one note Elemental does trade on the NASDAQ and the TSX with the symbol ELE I'm also a shareholder of the company and this is a well part two of our conversation part one which was recorded a couple weeks ago, recorded just after Beaver Creek. Fred took us through that busy few weeks and those transformative deals that were announced almost back to back.

1:03Trevor Hall: Elemental closed that Visa royalty deal that brought in the Panucca royalty. Then it announced a$290 million royalty and streaming portfolio acquisition from Orion Mine Finance that was anchored by the mineral point silver stream from i80 gold but today we are covering what we didn't get to last time that includes the spin out of the project generation business into and what it means for elemental as a pure play royalty company so fred it's uh always a pleasure to see you during this time lme week it's a busy time uh are you noticing a lot of inbound traffic into the office am i just one of dozens I hope?

1:43It's nice to have a conference in London with a lot of people coming through and it's interesting LME week is usually more downstream it tends to be the traders, off takers, a lot of that side of the market and some of the majors so we haven't traditionally been directly I suppose as involved in LME week but I think increasingly now more companies come through because others are in town yeah and it almost becomes not a centralized event but decentralized lots of events with different companies different banks around london yeah so

2:19Trevor Hall: it actually um it does become more relevant well full disclosure i come for lme week but i've never been to a specific lme event i'm always running around town but have you noticed as the company has evolved and grown for the last number of years. Is this week getting busier and busier for you? Definitely. And I think that going forwards, the likelihood that we now have more streams in our portfolio, where we are receiving the physical metal credits, that may mean that there's some more relevance for us there. But also just, I think, a function of being larger and working with more banks. And we probably have more counterparties on the operator side.

3:02So we have a few of the majors, a few of the mid-tiers who do sometimes come to our new week who we have royalties or streams on. And so that can be helpful because it's a great opportunity for us to catch up with them and get the latest as well. Okay.

3:15Trevor Hall: Well, let's jump right into where we left off just a couple of weeks ago, Fred. You described the move for the spin-out rationale, the streamlining elemental into a pure play royalty and streaming company. so why spin out the project generation now let's talk about the timing of this rather than keep it as you know an organic source of royalties the way emx had run that playbook uh for so many years look it's it's a good question and i think um both before the merger with emx which we did in september of 2025 i think emx had had this internal conversation as well which was does the generation the tail of royalties ends up wagging the dog and 90 percent 95 percent of the value in emx is in the royalties and you know at that stage does it make sense to spin out the generation company and almost do that again and i think that was something that emx were actively they were talking about before we did the the merger in 2025 and then that continued through and i think there were two schools of thought one which was keeping the prospect generating within the company as the company grows it will become a smaller part and so that might work and the other school of thought was that as a company gets bigger the generation becomes less and less as a percentage of the nav and the value and so again that other side doesn't make sense and i think over the course of the sort of um you know probably six to nine months post merger we worked through it and we announced a number of deals on the project generation side but the reality was we didn't announce them all and the deals we did announce not everyone you know sort of understood how it worked and so the institutional investors who are in mining who are well versed in mining they understand and they get it some of the other investors don't really necessarily not as familiar with the generation model and so i think it always required some explaining and then the other side of it was it is a very um it's quite a management intensive business model so it takes quite a lot of work because we have people on the ground at different projects doing early stage exploration um helping companies with licenses and so that is then competing with time with you know royalty or streaming acquisitions on the other side and it's also it's a very it's the cost is up front and the optionality is uncertain intangible and long dated and so you've got a mismatch where you're sort of taking what would be perceived as negatives of the cost and time up front and the potential value of the optionality in early stage we already have over 100 early stage forties in the portfolio that don't really get any value so adding another one of those you know it's not going to make a difference in terms of the look-through value that anyone would give us and i think that over the next five years we're still going to have a lot of those projects gradually working their way through early stage exploration a lot of them you know don't work as is a model but some of them may and i think that the view came to came to a point that we we sort of said look it probably now is the right time where we streamline elemental as a royalty and streaming company and then the prospect generating going in its own vehicle, which has a different risk reward profile.

6:45And the investors, you know, we have some investors who like that and would like continued exposure, and we have others who would just like the royalty and streaming. And so that also helps. Yeah.

6:54Trevor Hall: So let's talk about the mechanics of this spin out. And because you still have, it seems like you still have one foot into the bucket here on the generation side, right? It's a 50-50 split. But you will be the biggest shareholder. Elemental will be the biggest shareholder in the new Carlin East. And you keep interest in some of those early stage royalties with an option agreement. So there's a lot of moving parts in this deal. And so it's curious, why spin it out but yet kind of keep one hand on the pulse of this thing? Why not just completely break ties from that type of business strategy and give Carl and Nese 100 % control of it?

7:40Well, I think there's two things. And it's just important to clarify, it's not technically a spin out. It is a sale of the business where we are retaining, we are taking as consideration equity predominantly. So we are getting$8.5 million in equity, and there's about a million and a half prox to be in cash. and then we will work out alongside an external fundraise they are doing as a bigger shareholder in that. As to why we're doing it and the structure, so we have 55 wholly owned projects, most of those in the US, 30 or so, 20 in Canada, a couple elsewhere. So those are going wholly to Carlin East and then we have 13 option agreements that if they go through to completion will crystallize in a royalty but as we know not all do now those 13 option agreements some of those we are actively involved in so under the original option agreements we provide services to those companies we help renew the licenses we help maintain them so there is ongoing work with those and on those 13 option agreements and they're all you know very early stage you know pre-drilling um you know that kind of stage some of them are drilling now um but on those um we uh we will have 50 50 interest in any royalty that crystallizes and carlin east will be doing the work so we will not lose any exposure to any of our existing royalties any of our option agreements um but what we will do is effectively outsource the ongoing work required and i think as we said in our press release you know the total cost of generation we said we'll save six seven million a year in gna i think cumulatively it will be more than that that's sort of the upfront cost um and i think so that is there is a real cost in in managing and running all of those in terms of people time external cost um and and then on the other side we have about 20 early stage royalties that are associated with some of the generation business and then And again, those will be split 50-50.

9:49But what it will mean is that on those early stage option agreements and royalties that are related to generation business, elemental will not have to be managing them and running them going forward. And that can be a lot of time, running early stage royalties. And maybe half of those will crystallize in a project that goes forward. So a royalty and half of them may be dropped or relinquished along the way. And then in years down the line, some of those may work. some may not um but for us it gives us an elegant um i think a neat solution where we maintain our exposure to everything we don't like to give away optionality um but we are outsourcing the cost in return for part of that optionality um and then we are also getting indirect exposure through colonies so if we were a 19.9 shareholder as an example um and we had 50 of the royalty directly our direct and indirect exposure is about 60 % to any of it through our 20 % shareholding.

10:52And I think Carl and East, the guys who are doing it, obviously we've worked in the last year together and worked on a lot before that. Syndicating deals, I think, look, they have done this model for a long time. They know the generation game. And I think that our view is that they will be able to add value through that and we will benefit from that as a shareholder as well.

11:12Trevor Hall: So what does a now leaner elemental look like on your cash cost per gold equivalent ounce basis moving forward? Look, I think if you think about our G &A going down sort of order of magnitude 30 % at the same time that we should be having record revenues going forward. You already have record revenues. Yes, continuing record revenues. That is going to put us in a spot where, just if you use as an example, we will end up post a sale of generation business with not 45 employees, but roughly 20 and a revenue base of roughly speaking$100 million, depending on commodity prices. So all of a sudden then you can have a look through there where on a top-line revenue basis, we're getting order of magnitude 5 million per employee.

12:14And there is some tax on that and there's some costs. But it materially simplifies, streamlines a business. It will improve our margins. And I think for next year, when we put out our guidance, we will be able to demonstrate some of that improved margins. And if you look at recent investor days for Wheaton, as an example or franco they do a very good job of highlighting revenue per employee margin per employee and and just how strong that that margin is at their size and scale and the great thing about this is we're getting to a point now where we've got that margin and it's going to be improving significantly from last year to this year to next year both as a result of the revenue growth but also as a result of lower gna okay you know i i guess maybe it's important to maybe

13:09Trevor Hall: let listeners kind of understand uh with a leaner elemental who stayed uh what was important for this new era of elemental what did you need positions to fill to keep growing um because that you know be reminiscent to say a few of my denver colleagues are here in this london office now So what part of that combined group actually stayed with the new Elemental? And what was most important to fill that? So in terms of the finance, legal, corp, dev, nothing changed. Everyone is staying from there. So I think that the generation team, look, we have an exploration team in Turkey that worked on some of the projects there.

13:55And we had a team in Arizona that did that. And that was relatively siloed. So that did not really cross over much in practice with the royalty side. Mainly everyone's, you know, we've been very active and busy on both sides of the company. And so it was relatively siloed in that front. And then I think the two guys who did cross over a bit were, or more or less, was Dave Johnson, who ran the Generation Arm. and also obviously Dave Cole, who was sort of across both sides. So I think those are the two who were more involved, but I would say the rest of the team that's going to Carlin East was very much focused on that generation side of the business.

14:44And then there have been one or two people who have finished up with us as of this deal. And we may do some consulting with them going forwards, but they're not sort of directly in one camp. So I think that's sort of how we have ended up structuring it.

15:03Trevor Hall: You know, I've known this company for a number of years, knew the EMX team for a number of years, kind of cut my teeth with them, you know, for more than 10 years, actually. You know, you and Dave Cole come from two different types of generations, and you had a year to work with him. What did you learn from Mr. Cole in that time about the business? And what are your big takeaways of what you're going to take with Elemental moving forward that may be underappreciated before his position? So it's always, there's normally a prelude to a merger that not everyone sees. And that was the case here. So we announced it in September 2025.

15:43There was more than a year of discussions prior to that. and I would have been in their office probably 15 months prior to that. So I think we have known and worked with some of the team for a long time and actually one of our former business development guys is going to work with Carl Iniste on the generation side. So he actually used to work for us as well. So it's an even smaller world of people interacting and working. um look i think um i think dave uh he he came from a newmont geologist background um and i think a strong knowledge experience in turkey and eastern europe particular and um i think dave had a he had a very strong vision from the outset i think you'll see it with carlin east um in terms of the strategy and how they wanted to build the company and what they were focused on And one of the reasons we got on, and I think we originally put the deal together, was because we both very much had a value over growth for growth sakes approach.

16:55So it's not that we didn't recognize that by getting bigger, you get a scale, you get better margins, you get these things. But fundamentally, we only wanted to be doing deals at Elemental if we thought they had real value. They were really going to be accretive. these are assets that we're going to grow and the best value you always get in the royalty model is the exploration optionality and that is absolutely the school of thought that emx had been built on and they had come at it from a slightly different angle so they came at it from the early stage exploration angle and basically trying to find royalty opportunities through that and we had come at it from a almost looking at non-core assets for some of the majors or mid-tiers or companies that didn't really value or appreciate a royalty.

17:37So we were both looking for the same thing from different routes. And I think that was something that we, I think, very much shared a view on. And it was the reason why we had approximately 20 % mutual shareholders at the time we did the merger, is because those shareholders also liked that approach and that view. Yeah, very good.

17:56Trevor Hall: Okay. Let's talk about your major shareholders, actually. Tether, the largest shareholder by a country mile, obviously. But with this new deal with Orion Mine Finance, Orion comes in as a 5.5 % shareholder as well. Talk about the makeup of what that caps, the makeup of your shareholder base here. Do you see an opportunity for more diversification? You have a lot of big shareholders that take big positions. Where does that leave your retail float for schmucks like me? it's it's a really interesting question because there has definitely been um as a function of the combination between emx and elemental the acquisition of vizsla that was 70 percent 75 percent in equity so introduce new shareholders through that um the addition of some index inclusion over the course of the year which brings a different type of investor um to the register passive investor that comes through those indexes so i think the makeup of the um the shareholder base over the last year has changed a lot through acquisitions and through index.

19:05Interestingly, we haven't done an external fundraise. We had a fundraise at the time of the merger with Tether,

19:11Trevor Hall: but we haven't actually done an external fundraise to new investors, retail or institutional, since. And so I think that's an area that, you know, if we get to that point, that again will probably introduce some new names on the register but we also have the advantage now that our liquidity has been such that it is a lot easier for new investors and institutions to enter on the register than it would have been previously and from an individual perspective and i can talk to this being in london it's an awful lot easier to buy shares in a company through an online broker that is NASDAQ and TSX listed versus TSXV and OTC.

19:56So I think it is benefits for private shareholders, for institutional shareholders alike, and the liquidity and now the dividend as well. And although the dividend may be small on a yield absolute basis, it is once you tick that box, you can also then talk to a different type of investor, a different type of investor who in funds who often need some sort of a yield to be able to talk to them so i think that the the pool of people we can speak to has expanded dramatically over the course of the last 15 months um and um i think uh even where we are today um a few weeks on from announcing the two transactions um is probably a step a step change from where we were before right right so one last question regarding tether

20:48Trevor Hall: how active do they remain as your largest shareholder and do they have is there a standing commitment for them to help fund even further growth i mean you're coming off more deals but you did tell me a couple weeks ago that you know you're not done there's a lot of opportunities on the table but that is going to take a lot of commitment from your shareholders obviously including you know the biggest look they've been i can repeat what they say publicly which is that um they're very supportive of elemental as the royalty vehicle they are backing and if the company needs funding um or would like to raise money at any point they will they will be there um they do have some restrictions uh given they're they're sort of they were a plus 30 percent with the transactions they'll be 27 pro forma so there are some restrictions on when they can buy how much they can buy i think from mid-november so the year anniversary of the merger closing with emx they are allowed to buy in the market again in elemental which was a that's a regulatory restriction because they put money at the time of the merger basically for a year they weren't allowed to buy on the market so they they will be allowed to buy again from sort of mid November onwards on that basis.

22:02And I think nothing has changed in terms of their desire to increase their exposure in the royalty space and particularly the precious metals royalty space. Okay.

22:15Trevor Hall: One last question before I let you leave, you know, answering the call of, you know, what the movement in the share price here, Fred, from those, you know,$30 Canadian highs that just a couple of months ago, down roughly 25%, give or take, maybe a little bit more than that. Is this just more sentiment in the gold space, or is it something more mechanical happening in the background? I think it's a combination of the gold price coming off sort of circa 10%. And we have tended this year to be more volatile in our trading, both to the upside and the downside. and that's partly a function of a growing royalty company it's also a function that i think our margin was with the growth going to grow dramatically but was not so material now and so obviously we are more sensitive to the gold price in terms of our margin i think the benefit we have is that we have a lot of relative copper revenue in our portfolio so at the moment despite casarones this quarter having a bad quarter because of weather and and downgrade.

23:26Ordinarily, actually, copper is, if you're talking$6 copper, going to be a lot more material than we anticipated at the beginning of the year. I think the other specific event alongside the bigger picture gold price and market movements is also, I think, that Carl and East raising money for the company there. I think that most of the investors there are existing elemental shareholders and so i think that you know we anticipated that um some of our shareholders will probably who have done very well over the last couple of years if you're an elemental or any next shareholder um you know have done very well the last period so i think a number of our shareholders who are going to be shareholders in carlin east going forwards and so probably took some off the table in elemental um at near record prices for elemental um to put into carlin east So I think combination of we had some selling from that to go into Cal and East alongside the gold price.

24:26Trevor Hall: Any sort of signs that maybe that's come to an end or concluding? Yeah, look, I don't have perfect visibility into it. I just know from the Cal and East team that, you know, I think probably 70%, 80 % of their shareholders are elemental shareholders. And we will have very big crossover in terms of mutual shareholders as well as some of the management and former management. who will be splitting their investment across both. So I think there's probably some that comes through that. And yeah, that's pretty much it. All right, Fred, thanks so much for your time. Appreciate you always giving me the invitation to come into the office and sit down here, you know, one-on-one in person.

25:11Trevor Hall: I look forward to doing this every time we have and celebrate and cover the LME week. and we'll be touching base further this fall and into the winter before year end. But thanks so much for your time and congratulations on a very active fall and we'll see what the rest of 2026 has in store for you. Much appreciate it. Thanks, Trevor. Elemental Royalty Corp. does trade on the NASDAQ and the TSX with the symbol ELE. Stay tuned. We have more coming here from Mining Stock Daily. The information presented should not be considered investment advice. Mining Stock Daily Yen's affiliates are not responsible for any loss arising from any investment decision in connection with the material presented herein.

25:54Trevor Hall: Please do your own research or speak with a licensed financial representative before making any investment decisions.