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Elemental Royalties (ELE) - Cashflow Focused & Restructuring Debt

April 13 2021, 07:46 GMT+01:00

Elemental Royalties

  • TSX-V: ELE
  • Shares Outstanding: 35.64M
  • Share price C$1.46 (07.04.2021)
  • Market Cap: C$52M

A newly listed Gold-focused royalty company providing investors with lower risk precious metals exposure, benefiting from ongoing royalty revenue, future exploration upside and low operating costs. Elemental Royalties focus remains on securing royalties over advanced assets with established operators from a robust pipeline of potential royalty acquisitions across geographies.

We recently had the opportunity to speak with Fred Bell again, the managing director at Elemental Royalties. He shared some recent company news regarding the acquisition of the asset-rich South32 portfolio and other items that may be of interest to potential investors.

Company Overview

Elemental Royalties is a newly listed gold royalty company focused on providing low-risk precious metals exposure to investors. As should all good royalty businesses, they seek to do this by benefiting from ongoing royalty revenue, incorporating producing, and advanced Elemental as a company able to secure assets with future exploration upside and maintaining low operating costs.  Elemental Royalties (ELE) - Cashflow Focused & Restructuring Debt

The company has a portfolio of 9 royalties over producing assets in Burkina Faso, Chile, Mexico, Kenya, and Western Australia and elsewhere. Elemental Royalties is listed on the Toronto Stock Exchange (TSX-V:ELE) since going IPO in mid-2020. Bell, himself, lives and operates out of London, UK.

In addition, the firm is continuing to build its quality portfolio with ongoing evaluation of a robust pipeline of royalty acquisitions across the globe.Elemental Royalties (ELE) - Cashflow Focused & Restructuring Debt

The Managing Director’s Perspective

With a concentrated portfolio of royalty-producing assets, Elemental is now in a great position, says Fred Bell: These include 6 in Western Australia (South32, Karlawinda, Laverton, Mt. Pleasant, Panton Sill, and Western Queen), and single assets in in Chile (Amancaya), Kenya (Kwale), Burkina Faso (Wahgnion), and Mexico (Mercedes).

All assets are producers to varying degrees, and that is essential. Furthermore, in the sub-billion-dollar royalty space, Elemental Royalties is now the third highest in overall revenues says Bell, but only seventh or eighth in market cap. With its concentrated portfolio producing royalties, Bell believes that this represents real opportunity for shareholders.Elemental Royalties (ELE) - Cashflow Focused & Restructuring Debt

South 32: A Recent Robust Acquisition

According to Bell, the recent South32 acquisition in February of 2021 was a real game changer for Elemental Royalties. South32 is a Perth, Australia-based global producer with production from mines in Australia, South Africa, and South America.

Bell believes that because of the acquisition, the Elemental is in a very different place than it was a few months ago when it was first listed. The firm was able to close a $12M dollar deal that brings a high-quality gold asset into the fold. Whilst some feel that they over paid for the South32 portfolio, Bell says it was the right investment at the right time, and had the benefit of doubling the size of the revenue stream for Elemental Royalties. It also gives them “The bandwidth and ability to really focus on the marketing”, he said.

Roundtable Remarks by Fred Bell

  •   Buying Low. Elemental is committed to not overpaying for assets, says Bell. He provides a specific example: “If you look back at the deals we’ve done, actually one of the ones that internally we had a lot of debate on the price on was the Wahgnion Royalty that we bought at the start of last year. We actually negotiated for a long time on the price on that and we really tossed it backwards and forwards. If you look at it today, it’s a Royalty that’s probably a 6 or 7-year payback and it’s a Royalty that, with the acquisition of Teranga by Wahgnion, not only does it have a 10-year mine life but it’s also, they’ve just announced a really material exploration program on it for the rest of this year. That is a mine that in our view still will be where it is today in 10-years’ time and still have the mine life ahead of it in 10-years’ time. We’ll be fully repaid in 6 or 7-years”.
  •   Adding Value.  Bell also offer this regarding value hunting: “if you look at Elemental’s history to date, so since we started the company, I think we’ve got the best track record of adding value for shareholders in the acquisitions we’ve done. That is in our presentation; it’s indisputable based on where we’ve got to today. If you look at Kwale, it’s probably 40% plus IRR. I think by the end of next year, 3 of our Royalties will have fully repaid us on the acquisition cost and those are operating mines still going”.
  •   Not Buying Exploration Alone. Another key, indicated Bell, is that the company’s royalties are all in advanced producing stages, as well as having significant upside potential. This has created a portfolio that is significantly de-risked. He goes on to say, “Royalties are not - you look at the portfolio - they’re not exploration Royalties that might come in. Everyone knows the mining space. They might come in 5-years, 10-years”.
  •   But Not Shunning Significant Upside Either. Bell highlighted the Wahgnion asset in particular: “Endeavour announced very recently a $12M exploration spend on Wahgnion for the remainder of 2021. That is the second-highest exploration spend of any of the assets in their portfolio. It gives you an indication of the exploration upside they see in it and for us”.

Gold Equivalent Resources

At the start of the year, Elemental Resources began reporting in gold equivalent ounces, a move that benefits all company stakeholders says Bell.  He continued: “For 2020 we had approximately 2,900 attributable zero-cost Gold equivalent ounces. That’s really important as well. Sometimes if you’re doing a stream, you might be paying 30% or 40% of the cost of an ongoing basis, maybe 20%, but you’re paying something. These are all Royalties so we’re not paying anything for these going forward”.

Stock Price Behavior and Investor Comfort Level

In November of 2020, the shares of Elemental Royalties were valued at $1.79. By mid-March of 2021, they had dropped to $1.39. Mr. Bell was pressed on that stock-price drop, which was fairly erratic one at that.

For sure, gold price has come down a bit since November. In Bell’s opinion, the shares are at a bargain level now, considering the quality of their royalty streams. He continued, “There’s no doubt that we believe where we’re going. About 16% of the company is held by directors and management”. In addition, there are additional royalty streams coming on over the next few months. “You should really see that reflected in our price”, he believes.Elemental Royalties (ELE) - Cashflow Focused & Restructuring Debt

Is Marketing a Problem?

Bell is quite confident that the company’s auditable numbers and the growth potential in the pipeline make for an attractive investment opportunity. He remarks that: “We’ve nearly doubled our revenue every year since we started the company. It’s in our presentation, it’s public, so anyone can audit us on that. We had just over USD$5M of revenue last year so I think that’s in a nutshell what you have to look forward to with Elemental”. In essence, he is suggesting that much of the marketing is in the books already.

To find out more, go to Elemental Royalties Website.


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