Electric Royalties (ELEC) - Zinc & Tin Royalty Cash Flow plus Lithium Soon!

Electric Royalties Ltd. is a mining royalty company that aims to take advantage of the worldwide transition to clean energy by buying royalties on the mines which supply clean energy commodities. Energy commodities include metals such as lithium, vanadium, manganese, tin, graphite, cobalt, nickel and copper, which saw increases of up to 400% depending on the commodity in 2022.

The company on the 24^th of January 2023 announced that it had closed the acquisition of a 0.75% gross revenue royalty on the producing Penouta tin-tantalum mine in Spain with Strategic Minerals Europe Corp. The acquisition consisted of a cash payment of CAD$ 1 million and the issuing of 500,000 common shares of Electric Royalties Ltd. The company has the option to acquire an additional 0.75% gross revenue royalty within 7 months of closing the acquisition for a further cash payment of CAD$ 1.25 million. The company believes that its exposure to tin and the multiple uses of this metal in the production of electronics will prove valuable.

Electric Royalties Ltd. at the start of February 2023 provided an update of its current royalty portfolio to the market. The lithium portion of the company’s royalty portfolio is set to grow in 2023, with the Authier lithium project in which the company holds a 0.5% gross metal royalty set to recommence production in Q1 2023. The Seymour Lake lithium project, in which the company holds a 1.5% NSR, has received permission for a bulk sampling program and has shown positive metallurgical test work results.

Portfolio

Electric Royalties Ltd. has an asset portfolio consisting of 21 royalties. The first producing royalty in the company’s portfolio is the Middle Tennessee Zinc mine, owned and operated by the Trafigura Group Pte Ltd.  The operation has been intermittently in production for more than 50 years and serves as the first producing royalty in the portfolio of Electric Royalties Ltd. Brendan Yurik, one of the company’s founders and the CEO of Electric Royalties Ltd. explains the first operating royalty of the company is strategically located, as it feeds into the only primary zinc producer in the US.

“Our first producing royalty is on a zinc mine in the US. It has operated intermittently for over 50 years and produced over 2 billion pounds of zinc. The operator is Trafigura. They're a very well-established group with lots of capital. They took that over from Nyrstar in around 2019. It's a fantastic mine, it is actually vertically integrated with the Carcel Smelter, which is the only primary zinc producer in the US.”

The Middle Tennessee Zinc mine royalty produces CAD$ 500,000 in income for Electric Royalties Ltd. and has the option to be increased to double its original size, which will lead to an income of CAD$ 1 million per annum for the company.  

“CAD$ 500,000 and we actually do have an option that will come in August of this year, whereby we could actually double our royalty interest in that. That would push it up to about CAD$ 1 million a year, so that's coming due in August of this year, but right now it's about CAD$ 500.000.”

Yurik explains that the advantage the company has is the time to evaluate the potential of a royalty it holds on an operation before expanding its position.

“With the options, the nice thing is that you have some time and so you can see how things work out. Ultimately, a lot of that will have to do with where our valuation is, does it make sense from a relative standpoint? I would like to. If we were properly valued, I'd definitely do it. That being said, I think that we're able to deploy capital potentially a little bit more efficiently and do some new deals, just like we recently did on Penouta.”

Penouta tin-tantalum mine acquisition

The company on the 24^th of January 2023 announced that it had closed the acquisition of a 0.75% gross revenue royalty on the producing Penouta tin-tantalum mine in Spain with Strategic Minerals Europe Corp. The acquisition consisted of a cash payment of CAD$ 1 million and the issuing of 500,000 common shares of Electric Royalties Ltd. The company has the option to acquire an additional 0.75% gross revenue royalty within 7 months of closing the acquisition for a further cash payment of CAD$ 1.25 million. The company believes that its exposure to tin and the multiple uses of the metal in the production of electronics will prove valuable. Yurik explains the acquisition is significant as the Penouta tin-tantalum mine is the largest producer of tin in Europe.

“It's the largest tin producer in Europe. Fantastic operating team; that was one of the big things that was important for me. If you're going into a small mining situation where they need capital, which is a perfect place for a royalty company to come in and provide some non-dilutive capital, you really want to make sure you have a good operations team. These guys are a group that I was very comfortable with. They put several small mines into production in Colombia”

The allure of issuing a royalty on an operation for an operation is, according to Yurik, that it is a form of non-dilutive capital. The capital markets have not been kind in recent times towards raising funds and have as such led to the unnecessary dilution of various metal companies and their shares.

“It only cost us CAD$ 1 million cash, and then some shares in royalties of a nominal amount. That's a situation where these guys are going to ramp up, they need CAD$ 1 million and if you try to go to the equity markets and raise equity at that time, the bankers are going to kill you; it would be CAD$ 0.05 c, a full warrant for it. Having somebody like us step in, you always need a little bit more capital when you're just bootstrapping things, so it's just a win-win for both parties”

The capital obtained from the royalty will be implemented by the Penouta tin-tantalum mine towards exporting high-grade mineralisation stockpiled on-site, which will provide additional income streams. Yurik believes that the Tin space is set for a value-multiplication event and believes that the acquired royalty will enable Electric Royalties Ltd. to be well-positioned for this.

“I think there's going to be a consolidation, especially in the tin space. It is ripe for it and we'd like to be the group that's there to help with that consolidation and help these groups to grow.”

Company finances

Electric Royalties Ltd. has low general and administrative (G&A) expenses per month, with Yurik explaining that the company will now after investigating what the best marketing avenue has been in 2022, be able to further decrease its G&A.

“Our G&A is very low. I think that in the last year, we're at about CAD$ 1.5 million. We were heavy on marketing last year, so we spent over CAD$ 500,000 on marketing, trying a lot of different things out, mainly because we felt we were so undervalued. I think we have now figured out what works, and what doesn't, and we could definitely be shaving that down.”

Electric Royalties Ltd. announced on the 12th of May 2022, that it had concluded with a marketed public offering. The offering consisted of the issuing of 11.5 million units of the company at CAD$ 0.30 per unit for total gross proceeds of CAD$ 3.45 million to the company. The company was able to draw down a CAD$ 1 million convertible credit facility from a CAD$ 2 million credit facility it holds with Gleason and Sons LLC. The drawdown enabled the acquisition of the Penouta tin-tantalum mine.

“CAD$ 3.4 million, yes. That was in March, just as Putin kicked things off in Ukraine and the markets were pretty tough. We wanted to bring in some capital. We had our Zonia copper deal to get done. We used a lot of the cash, actually, to close that deal. Then we recently put in place a further limited facility, a convertible facility with one of our largest shareholders, they own over 70% of the company, and it's very favourable. There are no early payback terms. There's no interest, everything is capitalised until the end. It's a 3-year term.”

Royalty Portfolio Update

Electric Royalties Ltd. at the start of February 2023 provided an update of its current royalty portfolio to the market. The lithium portion of the company’s royalty portfolio is set to grow in 2023, with the Authier lithium project on which the company holds a 0.5% gross metal royalty set to recommence production in Q1 2023.

“When we acquired it, the operator Sayona Mining, I think they had about a USD$ 6 million market cap. Lithium and spodumene prices were about USD$ 400 per ton, fast forward to today and they are over $5,000 per ton. Sayona had a USD$ 2 billion market cap the last time I checked. They're fully funded to go into good production.”

Yurik explains that the Authier project royalty is an exciting prospect for the company, as it is set to produce a third of the Cancet lithium mine’s feedstock. The current lithium prices will be significant regarding the finances of the company in the coming year, according to Yurik.

“They have about 180,000 tons of lithium cost trade per year at the Cancet Lithium mine, of which about 33% of that ore it was going to come from Authier, so about 60,000 tons per year we expect to come from the project that we have a royalty on. It's going to be the largest-producing lithium mine in Canada next year. At these lithium prices, it is going to make a lot more money than we expected when we acquired it, and we're excited.”

The Seymour Lake lithium project, in which the company holds a 1.5% NSR, has received permission for a bulk sampling program and has shown positive metallurgical test work results.

Value catalysts

Electric Royalties Ltd. believes that the coming year will play a pivotal role in its market value, with various potential catalysts existing which will increase the value of the company.  Yurik explains that the Authier lithium project as well as the option to increase the size of its royalties on the Penouta tin-tantalum mine and the Middle Tennessee Zinc mine will be some of the biggest catalysts in the coming year.

“We'd love to get to a proper valuation. I think a lot of the catalysts in the near term are going to come from Authier coming into production. Will start to come in from Penouta. We have options on both Penouta and our Middle Tennessee zinc royalty to increase them this year. That'll make us cash flow positive - that is our expectation. I think that's a big catalyst for our company.”

Yurik states that the true value of Electric Royalties Ltd. is the management teams of its projects. He tongue-in-cheek refers to it as the good life, due to the company having to spend the initial capital and conduct the due diligence, from where, if done right the company awaits the return on its investment. The battery space will continue to serve this royalty company well as long as it continues to identify and acquire quality royalties at discounted prices on quality near-term production assets as it has done thus far.

“It's easy for us because there are management teams out there working on our assets every day and we have no extra costs, we just sit back, let these develop and go acquire new assets. Life is good as a royalty company and definitely in the battery metals space.”

To find out more, go to the Electric Royalties website