Elemental Royalty up 113% in past year

Key Concepts

Royalty vs. Streaming: Financial models where a company provides capital to miners in exchange for a percentage of production (royalty) or the right to purchase metal at a fixed price (streaming).
XAUT (Tether Gold): A digital asset backed by physical gold stored in Swiss vaults, used by Elemental Royalty for dividend payments.
Mid-tier Mining Royalty Company: A company with significant scale, cash flow, and a diversified portfolio of mining assets.
Political vs. Technical Risk: The distinction between risks associated with a country’s stability versus risks inherent in geology, engineering, and environmental factors.

1. Corporate Overview and Growth

Elemental Royalty Corporation has experienced significant growth, with its share price doubling over the past year and the company successfully graduating to the TSX main board. The company currently holds interests in approximately 50 cash-flowing or advanced-development mining projects across 22 countries, totaling nearly 300 mineral property assets.

The company was recently formed through a merger between EMX Royalty Corporation and Elemental Altus Royalties. CEO David Cole describes this as a strategic move to create a "mid-tier" entity with greater mass, increased cash flow, and a more robust balance sheet.

2. Business Model: Royalties and Streams

Current Portfolio: To date, the company has focused exclusively on royalties.
Future Strategy: While the current portfolio is royalty-based, the company is actively expanding into streaming deals. Cole noted that the company now has the treasury and credit facilities to pursue both royalty and streaming financings to drive future growth.
Partnerships: The company maintains partnerships with major operators, including Zijin Mining (Serbia) and Lundin Mining (Chile), which serve as cornerstone assets.

3. The Tether Connection

A significant portion of Elemental Royalty (32%) is owned by Tether, the stablecoin issuer.

Strategic Alignment: Tether is highly bullish on precious metals, reportedly purchasing two to three metric tons of physical gold per week for storage in Swiss vaults.
Investment Thesis: Tether views the royalty business model as one of the most effective in the world, second only to their stablecoin business.
Addressing Skepticism: CEO David Cole addressed investor concerns regarding the "crypto" association by distinguishing between speculative digital assets and stablecoins backed by tangible assets like US Treasuries or physical gold (XAUT).

4. Risk Management Philosophy

Cole emphasizes a specific perspective on mining risk:

Valuation of Risk: He argues that "political risk" is often fully priced into the market, whereas "technical risk" (geologic, engineering, and environmental) is frequently undervalued because it is less understood by the general market.
Mitigation: The company mitigates these risks through extreme geographic and asset diversification, ensuring they are not overly reliant on any single jurisdiction or project.

5. Innovation in Shareholder Returns

Elemental Royalty has introduced a novel approach to dividends:

Inaugural Dividend: The company recently announced its first-ever dividend.
XAUT Option: In an industry-first, shareholders have the option to receive their dividend in XAUT (Tether Gold), which is fully convertible into physical gold.

Synthesis and Conclusion

Elemental Royalty has positioned itself as a sophisticated mid-tier player by combining traditional mining royalty models with modern digital asset integration. By leveraging the capital backing of Tether and maintaining a highly diversified global portfolio, the company aims to mitigate technical and political risks. The introduction of a gold-convertible dividend (XAUT) highlights their strategy of aligning the company’s financial instruments with the physical commodity interests of their major stakeholders. Moving forward, the company intends to utilize its strengthened balance sheet to aggressively pursue both royalty and streaming opportunities.