Elemental Royalties (ELE) – Classic Royalty Story: Start Small, Grow Big!

Elemental Royalties
  • TSX-V: ELE
  • Shares Outstanding: 754,000
  • Share price C$1.75 (04.08.2020)
  • Market Cap: C$1.32M

Interview with Frederick Bell, Managing Director of Elemental Royalties (TSX-V: ELE).

The management team at Elemental Royalties set out to create a royalty company with “good quality producing assets from day 1.” How has their plan unfolded?

Elemental Royalties is a newly listed gold-focussed royalty company. It is the latest of a new wave of gold royalty juniors to emerge onto the CVE, which have been helped by a soaring gold price, now sitting pretty at US$1,975/oz. It was formed out of a reverse takeover of Fengro Industries by Elemental Royalties. It aims to provide investors with leverage to the exciting gold bull run we are currently on while minimising the risk factor and monetising ‘royalty revenue, future exploration and low operating costs.’

The company aims to secure a portfolio of advanced gold and precious metals assets with seasoned operators in established, secure jurisdictions. Ideally, royalty assets will have exploration upside, optionality, production increased and direct exposure to commodity prices. Bell tries to avoid projects with a high CAPEX, operating costs and excessive in-country management. Elemental Royalties will be sticking to 70-80% precious metals at all times.

This is pretty much the total archetype of a royalty company: start small, grow big. So, why invest in Elemental Royalties over the many other precious-metals focussed royalty players?

Matthew Gordon talks to Frederick Bell, 31st July.

Elemental Royalties has already been trading privately for the last 3 years. In this time, it has acquired a portfolio of 6 royalties spanning across North America, South America, Africa and Australia. Bell saw this 3-year period as something of a proving period to generate a substantive track record. 6 negotiated royalties in 3 years is a solid figure, but now the company has completed its over 2x oversubscribed IPO, to the tune of C$24M, investors will expect the next 12-month period to bear more fruit. The aim is to continue to diversify the portfolio and minimise risk.

The North American market loves a good precious metals royalty story, and this is likely why the UK-based Elemental Royalties chose to list on the CVE rather than AIM; the royalty market is understood to a much more advanced level in Canada and North America. It is now Bell’s responsibility to capitalise on this regional favourability. He’s smart, young (33), ambitious, and he made all the right noises. There may be some question marks posed against his age. He came into mining “by accident.” Numerous internships at junior mining companies captured his interest, and he began his own venture. He led a gold junior onto the AIM with gold assets in Ghana but soon moved on. He recognised that the risk/reward profile, especially for someone of his age, wasn’t desirable in the realm of conventional exploration. That’s when he decided forming a royalty company was the way to go.

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Elemental Royalties has established the team privately and could now be able to hit the ground running publically. There is some technically experienced knowledge within the company, with several key management members possessing specific West African mining experience.

Elemental Royalties has recently agreed to join the much-admired Discovery Group; this is a really positive sign for prospective investors. There are some big institutional names involved already: Haywood Securities, Sprott Capital Partners and Canaccord Genuity, and this comprises 30% of the company’s ownership. The management team still has plenty of skin in the game: c. 26%. The top 20 shareholders own 60-70% of the company. It remains to be seen if liquidity will become an issue, but it is still early days. Let’s hope the brokers don’t dump their stock in the market as soon as they can.

Elemental Royalties can draw on an acquistion facility of up to US$20M from Sprott, and this “compliments really nicely” the company’s ability to offer vendor equity instead of cash.

The only real concern with this story regards the company’s current royalties: they are secondary royalties obtained from companies that are climbing up the growth curve themselves. Royalty companies don’t tend to off-load the good stuff. Bell is confident in them though so we will follow him with interest.

What did you make of Frederick Bell and Elemental Royalties?

Company Page: http://www.elementalroyalties.com/

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