Royalty resource model providing investors with lower risk exposure to gold
Elemental Royalties Corp. continues to double annual revenues, year over year
Is there a better way for investors to gain exposure to gold? Frederick Bell believes the royalty resource model provides just that. As the young chief executive officer of Elemental Royalties Corp. [TSX-V: ELE, OTCQX: ELEMF], he oversees a company that has doubled its revenues year after year since he founded it in 2016.
“We spent our first years as a private company putting all the right elements in place, so that we offered a welldeveloped portfolio that provided revenue and diversified cash flow from day one as a publicly-traded company,” says Bell. “That provides investors with an opportunity for gold resource exposure without the risks associated with investing in typical junior exploration mining companies.”
Bell likes the royalty model because it allows Elemental to seek exposure to credible companies involved in gold mining projects across the globe through royalty agreements, under which it collects a percentage of gross revenue each year for the life of the project. It’s a business model that initially impressed him as a University of Edinburgh history student placed on work experience with a junior mining company.
“Historically, royalty companies have financially outperformed the mining industry and associated indexes as a whole,” he says. “If we are earning royalties from a gold mining operation, we get that exposure to the rising price of gold, but few of the risks associated with the cycles of the mining industry, and no Capex, operating costs, exploration funding or wage inflation. We can also be diversified within the precious metals space across operators and across jurisdictions.”
And whereas COVID-19 temporarily depressed gold production at one mine in the company’s portfolio, Bell notes that the costs of the pandemic were borne by the operator, while Elemental’s royalties were only temporarily deferred.
Bell has already logged plenty of experience in the mining space. He was general manager of an Asx-listed uranium company at the age of 25. As managing director of gold exploration company Goldcrest Resources plc, he assembled a portfolio of gold licences in northeast Ghana to take to the London Stock Exchange’s AIM. He received the “Young Rising Star” Award at the Mines & Money conference in 2018, and is a member of the Committee of Young Mining Professionals in London.
Elemental is based in Vancouver, but it’s very much a global company. Bell and a young and energetic management team work out of London, England. The company’s board of directors and advisors includes experts in both Canada and Australia.
They’re bolstered by the wisdom and experience of some industry veterans including director John Robins, founder of Discovery Group, which has produced success stories such as Great Bear Resources (TSX:GBR) and Kaminak Gold, which was acquired for $520 million.
If purchasing royalty rights to top-performing gold mining properties with excellent cash flow looks easy, Bell will assure you that it isn’t. Elemental’s team reviews hundreds of opportunities and performs due diligence to ensure that only the best-managed gold projects with the greatest potential for productivity, longevity and exemplary ESG are selected.
Among key projects in the company portfolio are Endeavour Mining’s Wahgnion project in Burkina Faso, which came online in 2019 and is substantially increasing gold production over what is already more than 10 years of mine life. Austral Gold’s Amancaya gold-silver mine in Chile represents a 2.25 per cent royalty, which provided US$1.9 million in gross revenue to Elemental in 2020 alone.
Bell also likes the efficiency with which a royalty company can scale up. Mining companies might typically require 10 years to produce significant revenue. In February, Elemental acquired three precious metal royalties from South32 Limited, including Capricorn Metal’s Karlawinda mine in Australia, expected to produce first gold in Q2 2021. The acquisition could see the company double its royalty revenue from mid-2021 onwards from a project with an expected 10-plus year life and significant exploration potential.
South32 in turn became Elemental’s single largest shareholder and led to the appointment of its chief development officer, Simon Collins, to the Elemental board of directors.
“Developing regular recurring royalties from the outset was the hardest part of building this company,” says Bell. “Having done that, Elemental can now look to building out a portfolio pipeline that includes royalties on longer-term exploration and development projects where we see a lot of upside that will contribute to our long-term growth profile. That’s the power of the royalty model.”
For more information visit: www.elementalroyalties.com.
If we are earning royalties from a gold mining operation, we get that exposure to the rising price of gold, but few of the risks associated with the cycles of the mining industry