Evolve Royalties CEO on Building a Copper-Focused Portfolio

0:14Good morning. Welcome back to Mining Stock Daily. Ian Wagner here with a corporate introduction to a royalty company that we're looking forward to introducing you to. Evolve Royalties is a copper-focused royalty company that is listed on the CSE under the symbol EVR and also trades on the OTCQX under the symbol EVRYF, built by the team that founded and sold Nomad Royalty. Joining me is Joseph de La Plante, president and CEO. Joseph, thanks for being here. Welcome to the podcast. Thanks, Ian. Thanks for having me. Pleasure to be on the show today. Yeah, absolutely. And, you know, I mentioned off air that you are the, you know, the first royalty company that I've had the opportunity to interview.

1:01So I want to maybe just start a little basic, you know, why royalties? What type of exposure does that give you guys? And maybe why Copper? Yeah, look, so I've been doing royalties for the better part of 15 years now. Evolve is actually the third royalty company that we're launching. Talk about Nomad. Nomad was a company that myself and my business partner, Vincent Metcalf, had started in 2020. Before that, I was part of the Cisco team. I was part of the crew at Cisco Royalties that started OR and was there for a long time. So it's a business model we know well. It's a business model we like. It creates tons of value for shareholders.

1:43It operates differently, obviously, than a typical mining investment. We can run it with a really small team. We can build a diversified portfolio that gives all kind of unique risk-reward advantages over typical mining investments. And it's one that, over longer periods of time, we do think shareholders should closely consider as part of their portfolios. If you're interested in mining, you should think about having one or two royalty names as part of your portfolio. And copper, I think, is a really interesting new frontier for royalties. We've seen lots of royalty companies in the gold space.

2:18Fewer ones have tried their hand at base metals. And I think copper is at such a unique inflection point right now that it is the right time to be building a portfolio around copper. And there's lots of interest around the commodity in particular when you combine it with this business model. A couple of things to unpack there. Why, I guess, why do you think it hasn't been tried as much with copper? And then what can you leverage and what is your sort of unique kind of value proposition in that? Are you just, do you have access to better projects? Is it your funding structure? Maybe talk about that and kind of how you guys are attacking this.

2:59Yeah, so copper, obviously it's not the first time someone's tried structuring royalties and streams around copper. There are a few out in the sector already. What's unique about our platform is we're anchoring ourselves to this commodity. So whereas some companies have that exposure in their portfolio in a smaller way, we want to make that the main attraction as part of our portfolio. um copper for the last 10-15 years has not necessarily been viewed as a premium commodity in the sector versus i think today there's so much interest for this commodity it is a premium product and what you're really looking for in a royalty platform is something to appeals that's something that appeals to a broad audience and as we sit here today i think the audience for copper is huge everyone's looking for copper um i think that makes right now the right moment to be trying to do uh this kind of strategy and really i think the interest here as with most businesses is taking a non-business model and applying it to different you know to a different setting and the skill set that we've accumulated over the years doing these deals in gold are directly transferable to copper.

4:22I think the unique moment in time here is that as we see surging interest for copper and surging copper price, we're going to see a whole lot of new projects come to market that need capital. Ones that had not necessarily been incentivized to do so over the past 10 years because the prices were low. All of a sudden, there's a lot more activity and all of that activity needs capital. And that's what we're trying to address here. And again, I think it really comes down to the team, the track record, our ability to find the deals, structure the deals, finance the deals, all things that we've become quite accustomed to as part of the royalty model.

5:05Let's break that down a little bit further. Walk me through how you guys source or look for a royalty, how you guys sort of structure it and what appeals to you. And maybe the layer, the other layer of that is like, you know, people was, we, people know Franco Nevada, you guys are targeting different, different royalties. You are offering different things. Like again, sort of what is your, what is your little niche? I guess, if that makes sense. And kind of how to, what's, what, what, you know, without giving me all the secret sauce, just kind of like walk me through what you guys are looking for and how you kind of structure it.

5:44Yeah, for sure. So there's many ways that we find opportunities. I'd say I describe them generally as two kind of paths. One is we're acquiring existing royalties that have been out there for a while. It's simply a question of transacting to acquire those, to bring those into the portfolio. We did a deal earlier this week on a small portfolio that we acquired from a Quebec prospector, seven royalties, main one in their royalty on portions of gasbed copper, Cisco metals project in Quebec. These are deals that we source from our network, that we source from our, I guess from our experience being in the sector, people know us, what we're trying to achieve.

6:28And when someone raises their hand and says, you know, we have something for sale, that And that makes its way down to us because, you know, because we are generally seen as the best buyer for those types of assets. And then on the other hand, we do financing transactions where we're providing capital to companies. And so that's a totally different part of our business. It's the one that I like the best, to be honest, because you can find good projects associated with good teams, truly act as a partner. you know when you're investing in a royalty you're holding it for the duration of the mind life so you're you're committing to being invested in that company that team that project for as long as they are so in a lot of ways we're really great partners to those assets and uh you know and then what's the edge the edge is really around finding ways to make that product compelling to companies, right?

7:27There's a whole bunch of different sources of capital in the sector. To a certain extent, all of those are competing against us. Why does a CFO wake up in the morning and say, I'd rather do a transaction with Evolve over raising debt or running equity markets? Well, I think part of that is the business model itself. Part of that is the approach, how we structure our contracts, trying to innovate, trying to find unique features around a situation that make that particular role to your stream much more appealing versus other options. and it oftentimes comes down to sometimes simple details around structuring, details around the property, what the company sees in their future around potential expansions or resource expansions, making sure that the contracts are not too greedy in terms of participating and all that upside.

8:24So there's a lot of ways that we can make it appealing, but I'd say the main thing is treating these investments as relationships. and building on that. And usually once we invest once in a company, we continue to invest and those become some of our best sources of transactions for the future. Yeah, I want to drill down a little even more on some of those creative financings because I do think that's kind of where you can be kind of interesting. And just looking at your portfolio, right, you have, people know what an NSR royalty is. Not everybody maybe knows an NPI. And then even looking at McGovernal Bay, it's 75 cents per ton or mind.

9:06Like, how do you get in there and sort of be like this is and and some of these, right, are royalties on non producing assets or non cash flowing assets. Right. So how do you value that stuff? Like, what is how do you think about that? Is there is it truly case by case or do you kind of come in with like, you know, a vision and you work back from that? Well, the vision that we have is around the platform and the business that we're building. All right. So when a shareholder meets with us, what we try and convey to them is that we have portions of our portfolio that are tangible value. You can put in a spreadsheet and say, this deposit is advancing.

9:48There's a timeline where we're going to start paying. Here's what we think the mine life is. And that makes up, I'd say, the bulk of the NAV in our platform. What we're also trying to do is similar to when you're investing in a junior mining company and you're thinking about new resource discoveries and expansion, we're trying to offer some of that also within our portfolio. And it's the reason why we have assets like HVC, which is a longstanding mine that's been cash flowing. But then we also have interests in gas-baked copper and sunny sides, areas where there's actual exploration happening.

10:25And those deposits or targets are, you know, there's something being discovered every day. and so when we take that back into our conversations with operators really we're trying to think about investments that add to that portrait so a lot of our time is spent on structuring deals that have more tangible value you can think about project financing streaming and and how royalties and streams play into that but then we also love to find these up and coming deposits or properties where there's good teams doing good work and we can support those teams. Those transactions are harder to value, obviously, because you don't have necessarily a model.

11:11It really comes down to an appreciation for the geology and what the potential is there. And the beautiful thing about the royalty model and Evolve is we have a portfolio. So we can allocate a percentage of our portfolio to those types of investments. it doesn't skew the overall mix of the portfolio. But if one of those hits and becomes what we think they can become, then any one of those can become a cornerstone asset for us down the road. So that's how we think about it. One term that's thrown around a bit in the royalty space is lottery tickets. We don't necessarily view these as lottery tickets because we have an ability to diligence them and have a view on the potential there.

11:55But yeah, but we do really like that part of the business. And I think when you're looking at commodities like copper, it's important to be thinking about what are the next copper deposits that are going to become major parts of the mining business. Yeah. Yeah. There was a couple of things there. I mean, that you said, I mean, on the round, the lottery ticket, it's a, it's almost like I think of it, right. Maybe a higher, is it higher floor, lower ceiling than say like a traditional lottery ticket? Or is that not the way to think about it? Like you guys do have significant leverage, significant upside, but you're not necessarily pouring in, you know, you don't have to go raise money if you drill the wrong hole or that kind of thing?

12:36How should one think about the risk reward? Well, you have to understand the nature of royalties in your portfolio. One, you can get diluted, right? If you own a 1 % NSR, it's going to be a 1 % NSR today and a 1 % NSR in 25 years. And what that means is that when the company spends money on exploration or expansion, All of that activity adds value to our investment. And if there's a discovery, they'll continue to invest. So the nature of the returns are such that they can be perceived as uncapped on most royalty investments. So you do have that high upside potential. The downside, obviously, is larger than a lottery ticket.

13:24Most people play the lottery every week and pay a couple of bucks for their tickets. We can spend a couple million dollars on these Rollsies at the earlier stage and they can be zeros too. So the downside is not zero. But if you have the right view on the teams behind it and the geology in the area, we think we can mitigate that risk. and we're not going to invest in 45 different exploration projects. Like right now, within our portfolio, we have a royalty on Gas Bay. We have a royalty on a Cisco Critical Minerals new project in New Brunswick called Redbrook, one where they haven't drilled yet, but they've raised a ton of money.

14:06They're going to start drilling once they close that transaction. We have a royalty on a great property in Arizona called Sunnyside owned by Arizona Standard where George Ogilvie's come in in the chair position there. right next to Hermosa. Every single one of these projects has something about it that we think highly improves the odds of success. And those are the situations we try and tie ourselves to. Okay. Yeah. I want to get into the portfolio and then also into the news, but I guess one last quick question. I mean, and this is probably, you know, Captain Obvious, but like when you're structuring these, or not structuring, but just this business model requires you to have kind of a outlook on the commodity, right?

14:52Like even in that sense of, you know, choosing copper versus silver versus, well, right now one maybe wants to do tungsten or whatnot. But like, how does one express their view on the copper market through the royalties, I guess? And is that just kind of, that's what you're doing? You're choosing coppers that is cash funding now and then things that that you think will be cash flowing in five years when copper is where it's at or higher? Is that kind of the thinking? Generally the thinking, as I mentioned earlier, we invest, like these royalties have exposure to deposits that have a mine life usually that are in the multiple decades.

15:33So you're structuring this to give exposure to not just one commodity cycle, possibly multiple commodity cycles. and when you look at the performance of royalty companies over the mining sector what you see is that outperformance over yes five years but material outperformance over 10 years and plus and that's really our job the way we view it is we're trying to get exposure to the copper price as much as possible and to the different commodities that we have in the portfolio and of course us deciding to build our business around copper is probably the main decision point around that. Some of that is also driven by just the fact that we think that we can deliver higher return transactions in base metals generally than we could in gold and silver where there's lots of competition.

16:24But yeah, I mean, we're not valuing our investments based on some crazy view on the copper price in the future. The goal is that we can do smart deals in the context of today's market and we think that there's lots of elements around the copper market that give us high confidence in the future and that if we have kind of irons in the fire and on multiple different projects uh then our portfolio will benefit from that and then our shareholders will benefit in turn yeah yeah no i didn't quite fully think about that beforehand isn't in the sense of like yeah these copper projects are decades versus say, you know, a silver mine that might have a seven year mine life.

17:06Right. And so it's just fundamentally a different investment and it's a little bit less sensitive to what that commodity might do for six months or 18 months. Um, okay. Let's jump into your portfolio. You, you touched on a little, um, there's a, there's obviously, I think it looks like you guys have 15 royalties. I should say you're at about$107 million market cap right now. You're split across, um british columbia's uh uh saskatchewan i think uh namibia like highland valley that's the the tech project uh hvc as you mentioned that you have a 0.51 npi royalty on there i mean is that kind of your flagship do you want to like list out for us kind of what you know what you think are your strongest assets and kind of break those down for us absolutely so we have um so we started the company in 2024, we've done a number of transactions to get to the portfolio that we have today.

18:02Within the portfolio, so with the transaction we announced on Monday, we now, once we close, we'll have 22 royalties up from Dean, which we had previous to that. Within that, the core of the portfolio is really our copper royalties. We have three copper royalties on Canadian copper mines. The main one being HVC. It's a mine owned by Tech. It's been producing since the 60s. Very mature asset. It's gone through four mine life extensions. There's one currently being carried out right now, which will extend the life to 2045 and rethink well beyond that, given the mineral inventory outside of the mine plant right now.

18:43So wonderful asset to own. It's cash flowing. It has a history of paying pretty steadily and will continue to do so within our portfolio. We also have a realtor, Michael Van Der Beek. Can I interrupt real fast? Just because I just want to ask like, and just your genuine question, some news at Highland Valley yesterday, right? So, you know, tech reported a strike notice. Obviously out of your guys' hands, sort of as a royalty holder, how do you think about that? How do you process that when you see news like that? Is it kind of a wait and see? Is it just kind of, you know, I don't know. How do you, what do you do when you see that?

19:22Well, look, I mean, one of the things that we evaluate when we make investments is who are our partners, who are the operators of these minds, right? And it's the biggest way that we mitigate risk is having teams that are qualified that have significant experience naturally goes without saying tech, a wonderful operator and best practices across the board. so while I can't necessarily comment on the specific situation we have confidence in that team and we can certainly you know we'll follow the developments but keep in mind we're invested there for many decades so along the way we can expect these types of situations to arise but if we have the right partners in terms of operators on the royalties then we have confidence they can be resolved Yeah.

20:16Okay. So, and I think you were going to move on from there to... Yeah. So moving on, McLevina Bay. This is a royalty required late last year. It's a suite of royalties actually covering the entire land package. McLevina Bay is a great example of what's happening in the copper space. This deposit was around for a long time. It was finally pushed forward by Forend. They did a wonderful job of raising the money, building the mine, led to the successful acquisition by Eldorado. Eldorado's now stepped in there. They're talking about expanding the mill. They're talking about further exploration. So very fortunate to have this as part of the portfolio.

20:58We have a net tonnage royalty on the main deposits there. And then we have NSRs covering kind of some of the new areas of growth that we think are going to come into play over the longer period of time. And these are the types of camps, I think, that when you look at what you have today, it's only going to be a fraction of what's going to be there in five years. They're typically these VMS camps. There's a lot more than meets the eye on day one. And this is really the benefit of the royalty model. We get cash flow today is the mines expected to reach commercial production for the end of the year.

21:34and then all this extra value that's going to come from, again, a great operator, well capitalized. What are they going to do? They just acquired this project. They're going to find ways to make it more valuable. So they've unlocked exploration budgets on some of the targets where we own royalties. They're thinking about expansions. I think, yeah, time here will be our friend on this royalty and in a few years this is going to be a much bigger asset in our portfolio. we have a smaller royalty on copper mountain uh copper mountain and his own introduction major canadian copper mine on bay bay the my the royalty covers not the entire mine it covers the north pit area where they're currently mining right now so the royalty is actually cash flowing because of the structure of the deal we did when we acquired it there's an earn out that needed to be kind of earned through before we start accruing our payments.

22:30But we think our first payments will come here before the end of the year. And then we'll have a shorter duration royalty, but one where the payments are higher just because it's a 5 % NSR on the zones where they're mining. So that can contribute nicely to our portfolio over the next few years. Those are the main, I'd say, attraction within our portfolio. and every day we're looking to add more copper to the portfolio. And outside of copper, we are also looking at other commodities too. We want to stay dominantly copper, but the thing about base metal royalties is that the pool of buyers is much smaller than what you find in gold.

23:12And so the returns are very attractive. And a great example of that, we have a royalty in the portfolio on a mine in Namibia called Rees. It's a tin mine. Wiese was restarted in 2022 with financing from Orion. Wonderful property, very, very long mine life. So what we see there is at the current production rates, a mine life in excess of 50 years, just based on the current resource. They're also drilling that could extend even further than that. We are en route to collecting about$4 million a year from that royalty. And we think a very attractive valuation on that. If this were a gold asset, probably the purchase price would have been at least double.

24:03Just because of demand and competition and premium? Just because, yeah, there's fewer companies looking to add tin to their portfolio. We like tin. We think tin's a great commodity. It fits really well with copper. There's tons of applications for tin that are driven by some of the similar demand drivers for copper so they tend to move together uh tins perform extremely well since we acquired the asset since we acquired the royalty so for sure as part of our strategy if we can if we can get a royalty on a mine that will potentially produce for 100 years hypothetically if they you know if what we think is there is there at you know a double digit IRR those are deals we'll do every day yeah and naturally we don't want to skew the portfolio too far away from copper but this is a really great contribution to the portfolio it's allowed us to go and get this credit facility we have with BMO which is now going to be the main source of capital that we use for new acquisitions so in terms of us building the platform, these types of royalties can play an important role for us.

25:14Outside of tin, we look also in a smaller way at some battery metals. We have a lithium royalty in the portfolio. We like this one a lot. It's a brine in Salta in Argentina called Lithuangelis. The project's fully permitted. The operator's waiting for a riggy approval. We think construction could start soon. Lots of signs that the company is moving in that direction. They're hiring a big team for the site. The risk return profile for us in these commodities is quite different than it will be in copper and tin, for example. So this royalty required for$5 million once they reach the first phase of production.

25:56So they're permitted to build a 30 ,000 ton carbonate plant. They're going to start with the first phase, 10 ,000 tons. At that first phase level, we would get paid about$5 million per year from the royalties. So we paid five and then we'll get paid five per year just based on phase one. And if they reach phase three, then it's triple that number. So those are the types of returns we're looking for when we go into more volatile commodities like lithium, at the very least until that market develops like we think it will. But for the time being, we expect still a lot of volatility in lithium. And we'll look for the same type of dynamics if we go into other battery metals as well.

26:34we're not looking to overly skew ourselves to those commodities but if we can do good deals at good valuations yeah we will look to do those okay so yeah cross cross commodity cross continent um cross royalty type um that's that's that's great um i guess joseph one last question for you i mean this has been a great overview of what you guys do why you do it how you do it where you do it. We talked about how you go and, you know, seek out your investments for someone who is thinking about investing in a royalty company. Why, how do they build that into their portfolio? And then why, why you guys, you know, why not go to Franco, Nevada?

27:19Look, I think that what a royalty investment can offer to your portfolio is, you know, something that you buy and hold and can deliver value, you know, more quietly within your portfolio over longer periods of time. When you buy a royalty company, you're buying into a team. Yes, you're buying a portfolio, that portfolio will deliver catalysts and growth on its own. And it's a big part of the value proposition. But one of the real reasons you're looking to buy into a royalty company is the team is constantly looking across the globe at opportunities. And we do tons of diligence and we eliminate a lot of potential investments and end up giving our investors exposure to really unique deposits in a really unique risk reward profile.

28:16And I think that's the real benefit we can offer. Lots of diversification. and of course I think investing in the mining space is fun, I'm an investor as well looking at all these different names but on top of your own diligence and research into the market when you add a realty company, you're adding our team's entire experience in the mining space, looking at assets and the history within our team and our network and all that so they're quite valuable platforms on their own. And I think what's unique about Evolve right now, we haven't even been listed for a year. So we're a new company. We're working to get the name out there, get the brand out there.

29:04Obviously, we've done this before. So we know what we're doing in terms of building the portfolio. But I think there's lots of value, meat on the bone in terms of the value in our shares today. And I have no doubt, fast forward two, three, four years, Evolve will be much more substantial and trade the way some of the better peers in our sector trade. So I think there's the near-term valuation attraction with our shares, but also just the fact that we know this sector extremely well. It's an established business model and a new commodity. And I think there's going to be tons of opportunities for us to grow on really exciting assets in this space.

29:44And yeah, we're confident that our shareholders are going to be rewarded handsomely for being part of the story. That's what we're all here to do. Well, listen, Joseph, thank you so much for your time and coming by and letting everybody know about what you guys are doing there at Evolve. It's an absolute pleasure. Thanks for having me. That's Joseph de La Plante, CEO and president of Evolve Royalties. They trade on the Canadian Securities Exchange under the symbol EVR and on the OTCQX under the symbol EVRYF.

30:32or speak with a licensed financial representative before making any investment decisions.