About Electric Royalties
Electric Royalties is a mining royalty company with 20 royalties diversified across 9 clean energy metals required for the global transition to clean energy. They have one cash-flowing royalty with several royalties expected to come into production over the next 18 months. The Company owns a large lithium royalty portfolio.
Electric Royalties have been making investments into projects typically 2-4 years from production.
Over $400 million has been raised by 3rd parties in the past 18 months in which Electric Royalties has royalties on, at no cost to the company. If Electric Royalties were to do nothing from here, the portfolio value has the potential to increase over the next 3-5 years.
A recent takeover of Nomad Royalties by Sandstorm could be seen as an indicator of the potential of Electric Royalties as a value and growth investment opportunity. At the time of acquisition, Nomad owned 20 royalties and streams, with its last quarterly revenue of US$12.7 million reported, it was acquired for C$775 million.
For investors seeking the clean energy thematic, Electric Royalties offers the upside of a traditional mining company, whilst minimising exposure to the usual risks associated with operating companies.
Cash flow expectations for 2022 are approximately C$500,000 from its cash-flowing Mid Tennessee Zinc royalty, and with several projects expected to come into production in the coming years, cash flow has the potential to significantly increase year on year.
Near-term Production Royalties
Electric Royalties' current cash-flowing royalty is the Mid Tennessee Zinc royalty, which is the only primary zinc producer in the US. Electric Royalties holds an option to double its royalty interest in the mine which opens up in August 2023.
The Authier lithium royalty will be the primary source of material for the only producing lithium mine in Canada by Q1/23. The Company’s 0.5% royalty covers about 50% of the current deposit but they also own a 2% gross revenue royalties on the adjacent exploration blocks.
The Seymour Lake lithium royalty is a 1.5% Net Smelter Royalty (NSR) that covers the current Seymour Lake lithium resource of 9.9 million tonnes at 1.04% lithium oxide. An economic study is still due, but the resource looks nearly identical to the reserves used in the Authier 2019 DFS which outlined an operation to produce over 110,000 tonnes of lithium spodumene concentrate annually over an initial 14-year life of mine (lithium spodumene prices have recently gone over US$7,500 per ton).
The Battery Hill manganese royalty is a 2% gross revenue royalty covering the only district in North America developing a manganese mine. The PEA outlined a 47-year life of mine, 2% of annual gross revenues upon achieving commercial production would equate to US$3.5 million per year in royalty revenues based on the low-end pricing estimates.
The Zonia copper royalty is a 0.5% gross revenue royalty with an option to increase the royalty to 1%. The funding provided by Electric Royalties to the operator will fund the asset through final feasibility studies within the next 2 years. The PEA outlines an average copper production of approximately 50 million pounds annually.
The Mont Sorcier vanadium royalty is a 1% gross revenue royalty. It is an iron ore development project in North America and has Glencore as a partner. Feasibility study is due in 2023. The recent PEA indicates production of 5 million tonnes annually of iron ore and vanadium concentrate.
The Company also has royalties on the Graphmada and Bissett Creek graphite projects, which could enter production over the next 12 to 24 months.
Funded by Third Parties and Cheap Relative to Market Comparables
Electric Royalties is not responsible for funding any of the development costs, construction or operating costs. In an inflationary environment, the Company’s future margins are not being eaten by increasing input costs, but instead, benefit fully from rising metal prices.
With $400 million, raised by 3 parties over 18 months, being invested into Electric Royalties’ assets moving them forward to production, the company is and will be benefiting from the royalty business model over the next several years.
Major royalty companies trade at 15x to 25x revenues, even junior royalty companies average around 10x. In a world where everything goes right, Electric Royalties valuation has the potential to go up when considering the amount of near-term producing assets the Company has royalties on.
From a Net Asset Value (NAV) valuation standpoint, junior royalty companies trade on average over 1x with major royalty groups trading up to 2.5x NAV. To keep it simple, the NAV from the Battery Hill royalty alone should mean Electric Royalties is trading higher than today.
- Competition in the sector - for assets that require large amounts of capital, and with a shorter timespan to production, there is a vast amount of competition, especially across bigger known clean energy metals like copper, lithium and nickel. Electric Royalties has focused outside of this niche timeframe on projects that are 12-36 months out from cash flow where little competition exists.
- Lack of operation control - as a royalty company, Electric Royalties is not directly in control of the development of the projects on which the company holds royalties on. This can be a risk as management of the operating companies must be relied upon to ensure development is executed properly.
- Commodity prices & negative market sentiment - commodity price is always a risk in the mining space. However, Electric Royalties has targeted a sector in clean energy metals that over the medium and long term has very thin pipelines of supply, exponential demand growth forecasts for the next decade and with global inventory stocks at reduced levels.
- Jurisdictional risk.