Elemental Royalty | David Cole and Jimmy Connor

Elemental Royalty: Merger, NASDAQ Listing, and Growth Strategy – A Detailed Summary

Key Concepts:

• Royalty Companies: Businesses that hold rights to a percentage of revenue generated from mining projects, providing exposure to mineral wealth without the operational costs of mining.
• Net Asset Value (NAV): The estimated value of a company’s assets, often used to assess the fair value of royalty companies.
• P/NAV Ratio: Price-to-Net Asset Value ratio, a key valuation metric for royalty companies, indicating market perception of value relative to underlying assets.
• Discovery Optionality: The potential for significant value increases through exploration success on properties subject to royalties.
• Stablecoins: Cryptocurrencies designed to maintain a stable value, often pegged to a fiat currency like the US dollar.
• Metallogenic Belt: A geological region characterized by a concentration of valuable mineral deposits.
• Refractory Ores: Ores that are difficult to process and extract valuable metals from.
• Block Caving: A large-scale underground mining method.

1. Merger and Company Formation

Elemental Royalty Corporation was formed through the merger of EMX Royalty Corporation and Elemental Altus Royalties. The primary drivers for this merger were synergistic benefits stemming from the complementary skillsets of the two teams: EMX possessing strong technical expertise in geology and engineering, and Elemental Altus bringing financial acumen and banking experience within the mining sector. The merger was catalyzed by a significant investment from Tether, led by Juan Sartorii, who saw the potential for scale in the royalty business. Tether invested an initial stake in Elemental and subsequently contributed an additional $100 million USD into the merged company, bringing the market capitalization to approximately $1 billion USD. Franco Nevada, a key shareholder in EMX, supported the transaction and remains a shareholder, maintaining a joint venture for new royalty financing. The combined company has no debt and holds nearly $50 million USD in cash and gold. A larger credit facility, expected to increase by 50% or more from the pre-merger $85 million, is currently being established.

2. Tether’s Investment and Strategy

Tether, the world’s largest provider of stablecoins, is strategically investing in gold royalties. Tether’s business model involves purchasing US Treasury bills to back its USD-pegged stablecoin (USDT), profiting from the interest rate differential. Currently, Tether generates approximately $20 billion USD in annual profits and is actively seeking avenues for reallocation, with gold royalties being a key focus. Tether is purchasing approximately three metric tons of physical gold per week, storing it in secure bunkers, including those guarded by the Swiss army. This gold serves two purposes: as a store of value and as backing for a new “stable gold coin” pegged to the price of gold, intended to disrupt traditional banking. The investment in Elemental is seen as a confluence of the crypto and hard asset worlds.

3. NASDAQ Listing and Market Exposure

Elemental Royalty is now trading on the NASDAQ under the ticker symbol “ELE” (and “EL” on the Toronto Stock Exchange). This listing is expected to significantly increase exposure to US investors and improve liquidity. The company anticipates potential inclusion in various stock indices, which could drive further demand for its shares.

4. Key Assets and Growth Drivers

Elemental’s portfolio is anchored by four cornerstone assets: T-Mo (Serbia), Caseronus (Chile), Carlo Winda (Australia), and Leverton (Australia).

• T-Mo (Serbia): A copper-gold mine operated by Zasten, within Europe’s largest historic copper-gold producing region. The upper zones are currently producing at a rate of 15,000 tons per day, generating approximately $6 million USD per quarter. The lower zone, with a disclosed resource of 2.5 billion tons at close to 1% copper equivalent, is under development with plans to ramp up to 125,000 tons per day, potentially supporting a 66-year mine life. A new discovery, the MG zone (150 million tons at 1.87% copper and 61 g/t gold), further enhances the asset’s potential. The original cost of the royalty was $200,000 Canadian, and it has already generated over $18.4 million USD in revenue.
• Caseronus (Chile): A copper-molybdenum porphyry deposit operated by Lundin Mining. Lundin is investing heavily in exploration, discovering high-grade breccia zones and delineating a new porphyry system (Enhelica) within a large royalty footprint.
• Carlo Winda (Australia): A gold mine with ongoing production increases and continued exploration. It is expected to remain a productive asset for decades.
• Leverton (Australia): A newly acquired gold royalty covering a substantial district with over 100 million ounces of historic production. Production is expected to commence in the near future.

5. Discovery Optionality and Exploration Spending

A key advantage of Elemental’s business model is “discovery optionality” – the potential for significant value increases through exploration success. The company benefits from the exploration spending of its partners, which currently exceeds $100 million USD annually across its 200 royalties in 20 countries, without incurring any direct exploration costs. This allows Elemental to capitalize on discoveries made by others. The T-Mo example illustrates this perfectly: a $200,000 royalty investment has already yielded over $18.4 million USD in revenue, with significant upside potential from ongoing exploration.

6. Valuation and Future Outlook

Elemental Royalty currently trades at a P/NAV ratio below its peers (Franco Nevada, Wheaton Precious Metals), despite its increasing NAV and growing scale. The company aims to close this valuation gap by demonstrating continued NAV growth, leveraging its increased size, and achieving inclusion in major stock indices. The company expects solid returns from existing operations, driven by higher commodity prices, and plans to actively pursue new royalty acquisitions and financings.

7. Key Quote:

“Our net asset value per share is going up and our PNAV is increasing because now we’re a bigger company so we’ve gained that scale so we’re deserving of a higher PNAV.” – David Cole, CEO of Elemental Royalty.

8. Synthesis/Conclusion

Elemental Royalty is positioned for significant growth, underpinned by a diversified portfolio of high-quality royalties, a strong financial backing from Tether and Franco Nevada, and a skilled management team. The company’s focus on discovery optionality, combined with its increasing scale and NASDAQ listing, presents a compelling investment opportunity. The strategic partnership with Tether provides a unique source of capital and access to innovative financial strategies, while the company’s commitment to NAV growth and value creation should drive long-term shareholder returns.