In conversation: Creating a scalable, low-risk growth story in the gold space

Elemental Royalties (TSX.V:ELE) listed in July 2020. By year end, the company reported gross revenues of $5.1 million, a 110% increase year-over-year. Company guidance is for an annual growth rate of more than 50% over the next two years.  Supported by Discovery Group, Tembo Capital and an experienced board and advisory panel, Elemental Royalties is purpose built to create scalable lower risk growth in the gold space. We talked with Elemental Royalties CEO Frederick Bell on the blueprint for success in the royalty realm. Part 1 of 3.

Royalties can take several forms, deals can be made at any point from early stage exploration through to production, all commodities are on the table and you’re dealing with an industry that’s cyclical. What’s the blueprint for building a long runway of growth in this space?

Frederick: Our goal was to build a low-risk sustainable growth company. We like gold because it’s underpinned by strong fundamentals in the long-term. Royalties are a low-risk investment tool because there is no cost-burden or operating commitment, it’s a fixed value that can’t be diluted, they’re not anchored to any specific region and they can be tied to gross revenue, mitigating commodity downturns.

Our focus was having cash-flow certainty from the outset: securing royalties on producing or near-producing assets with established operators and counter-parties. To build a platform for growth in our space, you need foundational assets that generate cash flow. However, these are also the most highly desired assets in the royalty space. Everybody loves cashflow. Although we listed last July, we’ve been hard at work as a company since 2017 identifying opportunities and doing our due diligence on hundreds of potential deals. I credit the track record, reputation and network of our board and management team for our dealflow –  people like John Robins (co-founder of Discovery Group) and Peter Williams (founding member of Independence Group Ltd).

We’ve shown from our acquisitions to date that we’ve been disciplined with our strategy. We weren’t sidetracked by trending exploration projects that may have appealed from a marketing standpoint. Immediate cash-flow has given us clear path forward and a great opportunity. It has enabled us to limit dilutive fundraisings for subsequent royalty acquisitions. We believe we have some good quality producing assets that have a great mine life and exploration upside. Ten years from now, our hope is we’ll still be using the cash-flow from these initial royalties to reinvest in new opportunities and continue our growth track. That makes our story a truly sustainable one.

There are multiple attributes that can be considered when assessing a project. What do you attribute to Elemental’s success in identifying high-quality opportunities?

Frederick: Our broad international experience and network certainly opens the door to a larger number of opportunities that we have comfort in digging deeper on. Elemental is split as a team between England, Australia and Canada. If you look at our deals so far, they’ve been very international in nature: Chile Mexico, Burkina Faso, Australia, Kenya and, currently, we’re looking at some in North America. Together with the range of operators associated with our royalties, the geographic mix has created the desired diversity in our portfolio.

In terms of the opportunities we are looking at, we seek to identify good quality projects backed by good operators. Quality can come in a lot of ways and we’re looking to check off many of the boxes. We like late development stage or operating assets with exploration upside, good grade, proven management team and all the necessary de-risking done. And, sometimes, the quality can be in advantageous deal terms.