A Diamond in the Rough: Huge Upside Potential in Overlooked Royalty Company

• Star Royalties is a precious metals and carbon credit royalty company with a focus on their Green Star Royalties carbon credit business.
• They have partnered with major mining company Agnico Eagle (26% ownership) and energy company Cenovus Energy (26% ownership) to operate Green Star.
• The $21 million investment by Cenovus values Green Star at $82 million, representing a significant upside for Star Royalties based on their current market valuation.
• They potentially plan to eventually IPO Green Star to access growth capital and give it a standalone public listing.
• The royalty business model provides stable cash flows, high margins, and leveraged exposure to rising commodity prices.

About Star Royalties

Star Royalties is an innovative royalty company with attractive exposure to both precious metals and the high-growth carbon credit market. As governments and corporations around the world commit to ambitious decarbonization targets over the next few decades, investing in carbon credit creation could prove highly lucrative. Star Royalties is well positioned to capitalize through its Green Star Royalties subsidiary, which accounts for over 60% of their current valuation based on a recent strategic investment.

Interview with Chief Executive Officer, Alex Pernin & Chief Investment Officer, Kevin MacLean

Green Star Valuation Disconnect

In December 2023, Cenovus Energy invested $21.2 million for a 25.9% stake in Green Star, valuing the business at $82 million. With Star Royalties retaining 45.9% ownership of Green Star, their portion equates to $37.5 million, sixty percent higher than Star's overall current market capitalization of around $25 million. This disconnect presents significant upside potential if the market value rises to match Green Star's fundamental value.

Major mining company Agnico Eagle owns the remaining 26% after making an earlier investment under identical terms to Cenovus. These strategic partners provide crucial validation of Green Star’s business model and future growth potential. As CEO Alex Pernin explained, "We have two major corporates that have both supported this business model...All the diligence has been done over a 10-month period their diligence team was arguably larger than our own team."

Exposure to High-Quality Carbon Credits

Green Star focuses on creating "high-quality, high-integrity carbon credits" in tier-one jurisdictions like Canada and the United States. They target agriculture, forestry, and clean technology projects with strong regional ties to partners like Agnico Eagle and Cenovus. As Pernin stated, "That's a huge selling feature for for a large emitter."

With long investment horizons and established connections in key sectors, Green Star seems poised for steady growth as demand increases for offsets from corporate and government net zero efforts. Pernin explained, “We’re dealing with more opportunities, better returns, higher quality counterparties...and what we do in the carbon space there's nobody doing that.” This first-mover advantage across North America solidifies Green Star's leadership position.

Additionally, Green Star’s low-cost origination model provides outstanding profit margins even if market carbon prices decline substantially from current levels near $50 per ton.

Precious Metals Exposure And Coming Spin-Out

Star Royalties also retains precious metals exposure through royalties on the advanced exploration assets Copperstone, operated by Saber Gold Mines and Elk Gold, operated by Gold Mountain Mining Corp. However, the company plans to fully separate these holdings in the future as they streamline towards purely carbon credit investments. Per Chief Investment Officer Kevin MacLean, “The true value of those assets will come into play...the counterparties to those discussions will be coming in and looking at our gold inventory."

While precious metals royalties provide asset backing and additional option value, the core investment thesis lies with Green Star’s high-growth carbon strategy.

Investment Highlights

• Attractive valuation disconnect - Hidden value in Green Star represents a near-term re-rating potential
• Strategic partners validate business model - Agnico Eagle and Cenovus bring expertise, relationships
• Leveraged to growing carbon credit demand - Exposure to high-quality, tier-one jurisdiction projects
• Significant performance upside from rising carbon prices
• Proven and experienced management team
• Potential IPO, spinout or monetisation of gold royalties unlocks further growth capital

Star Royalties offers investors a unique combination of commodities leverage plus a high-growth carbon credit pure-play currently trading at a substantial discount to fair value. As global decarbonization accelerates, Green Star looks primed to capitalize through its first-mover advantage and strategic partnerships in the rapidly developing carbon offset market.

For investors seeking commodities exposure with an ESG focus, Star Royalties delivers an intriguing risk/reward opportunity.