Elemental Altus Royalties (TSXV:ELE) - Consolidating Cash-Flowing Gold Royalty Portfolio

Oct 18, 2024

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Interview with David Baker, CFO of Elemental Altus Royalties Corp.

Our previous interview: https://www.cruxinvestor.com/posts/elemental-altus-royalties-tsxvele-poised-for-growth-and-flush-with-cash-5014

Recording date: 17th October 2024

Elemental Altus Royalties, a precious metals royalty company, has announced a strategic $28 million all-equity deal that significantly expands its portfolio and is expected to boost its revenue by 25% year-over-year. This transaction focused on consolidating royalties on the Bonikro mine and acquiring interests in 21 other exploration and development royalties, positions the company for substantial growth in the coming years.

The deal's centerpiece is the increase of Elemental's royalty on the Bonikro mine from 2.25% to 4.5%, effectively doubling the quarterly payments from $1 million to $2 million. This consolidation of existing interests, coupled with the addition of new royalties, is projected to generate $6 million in revenue next year and $5 million annually over the next five years, based on consensus pricing. David Baker, CFO of Elemental Altus Royalties, emphasized the immediate impact of this acquisition, stating, "We're estimating it on consensus pricing, $6 million next year and then $5 million over the next five years just on consensus pricing. Obviously, fair bit lower than spot, so we've got full exposure to high gold price."

The company now expects to generate over $30 million in revenue next year, marking a significant milestone in its growth trajectory. This revenue increase is particularly noteworthy given the current market conditions, where many junior miners are struggling to access capital. Elemental's ability to acquire royalties from cash-strapped juniors at attractive valuations presents a unique opportunity for growth.

Investors should note that Elemental's portfolio is underpinned by high-quality, long-life assets. Nearly half of the company's revenue comes from two key royalties: Karlawinda, a large Australian gold mine, and Caserones, a significant copper mine in Chile. These assets provide a stable base of cash flow, supporting the company's growth initiatives and potential future acquisitions.

The royalty business model offers investors exposure to precious metals with a lower risk profile compared to direct mining investments. Elemental's focus on gold and copper aligns well with current macro trends, including ongoing economic uncertainties driving interest in gold as a safe-haven asset and the global push towards clean energy and electrification supporting copper demand.

Looking ahead, Elemental is well-positioned to leverage its growing cash flow for future acquisitions. The company's management has indicated openness to exploring streaming deals as it grows, potentially broadening its range of financing options for mining companies.

From a valuation perspective, Baker suggests that the company may be undervalued based on projected cash flows: "If that translates to $20 million of recurring free cash flow, then you've got a precious metal royalty company trading at 10% free cash flow yield, which I feel like is a fair way off historical norms."

For investors, Elemental Altus Royalties presents an opportunity to gain exposure to the precious metals sector through a company with a diversified portfolio, strong growth prospects, and a business model that benefits from market dislocations. However, as with any investment in the mining sector, investors should remain mindful of commodity price volatility and jurisdiction-specific risks associated with the company's royalty interests.

As Elemental continues to execute its growth strategy and potentially explores new financing models, it could attract increased attention from both investors and larger players in a consolidating royalty sector, potentially offering additional value creation opportunities for shareholders.

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View Elemental Altus Royalties' company profile: https://www.cruxinvestor.com/companies/elemental-altus-royalties