Electric Royalties

Electric Royalties is a mining royalty company with 22 royalties diversified across 9 clean energy metals required for the global transition to clean energy. Electric Royalties places a particular emphasis on lithium, a metal which is used in many existing and future battery chemistries.

For investors seeking the clean energy thematic, Electric Royalties offers the upside of a traditional mining company, while minimising exposure to the usual risks associated with operating companies.

With several projects expected to come into production in the coming years, cash flow has the potential to significantly increase year on year.

The company also recently announced the proposed acquisition of 126 lithium properties in Eastern Canada, covering over one million acres. Of these 126 properties, 101 have been optioned to various companies under a royalty prospect-generation model, whereby exploration companies make cash payments to the royalty prospector. Upon completion of this transaction these cash payments would accrue to Electric Royalties' balance sheet, with the underlying royalties providing future upside to the company.

Near-term Production Royalties

The company has a 0.5% Gross Metal Royalty (GMR) on part of the Authier lithium project in Québec, Canada, as well as GMRs (0.5% & 2.0%) on adjacent exploration blocks. Authier is set to become a supplementary feed source for one of only two producing lithium mines in Canada.

The company also has royalties on the Graphmada and Bissett Creek graphite projects, which could enter production over the next few years.

The Seymour Lake lithium royalty is a 1.5% Net Smelter Royalty (NSR) that covers the current Seymour Lake indicated resource of 6.1 million tonnes at 1.25% lithium oxide (Li2O) plus additional inferred using a 0.2% Li2O cut-off in accordance with the JORC code.

The company owns a 2% GMR on the Battery Hill manganese project in New Brunswick on which a Preliminary Economic Assessment (PEA) forecast potential annual gross revenue of US$177 million over for a 47-year mine life. Electric Royalties' 2% GMR entitles it to 2% of those gross revenues which, once in production, could present a source of significant cash flow to the company moving forward.

The Zonia copper royalty is a 0.5% Gross Revenue Royalty (GRR) with an option to increase the royalty to 1% GRR on the Zonia deposit, and 1% GRR on Zonia North. The funding provided by Electric Royalties to the operator is designed to assist in funding the project through final feasibility studies within the next 2 years. The PEA forecasts potential average copper production of approximately 50 million pounds annually. 

The Mont Sorcier vanadium royalty is a 1% GMR. Mont Sorcier is an iron ore-vanadium development project in North America and has Glencore as a partner. A feasibility study is expected in H2 2024. The recent PEA forecasts potential for production of 5 million tonnes annually of iron ore and vanadium concentrate.

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 for any of these projects. In an inflationary environment, the company’s future margins are not being eroded by increasing input costs, but instead, benefit fully from rising metal prices. With CAD$580 million raised by the project owners since early 2021 and invested into the advancement of their projects towards production, Electric Royalties is in a strong position to greatly benefit from its royalty assets 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 increase when considering the amount of near-term producing assets the company has in its portfolio.

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. By way of a simple example, the NAV from the Battery Hill royalty alone should mean Electric Royalties would be trading higher than today.