Elemental Altus Royalties Poised for Growth with Quality Assets & Flush with Cash

• Elemental Altus Royalties achieved record revenues of $17.8M in 2023, its 6th consecutive year of record revenues, exceeding guidance
• The company has over $30M in available liquidity to deploy into new royalty and streaming deals, with a focus on gold and copper
• Elemental Altus looks for quality assets, strong management teams, and creative deal structures to acquire royalties at a discount to NAV
• Key royalties are on long-life mines like Karlawinda (Capricorn Metals) and Caserones (JX Nippon), providing stable cash flow with exploration upside
• With an attractive growth profile but a depressed valuation, Elemental Altus is focused on accretive capital deployment and open to consolidation opportunities

Poised for Growth with Quality Assets and Flush with Cash

Despite a challenging market environment for mining companies, Elemental Altus Royalties (ELE) recently reported record revenues of $17.8 million for 2023, marking its 6th consecutive year of record results and exceeding its own guidance. CFO David Baker sat down to discuss the company's enviable position and plans to continue creating value for shareholders.

Interview with Elemental Altus Royalties CFO David Baker

A Quality Portfolio Underpins

Altus' strong performance is underpinned by a portfolio of royalties on high-quality, long-life mining assets operated by proven management teams. Leading the list is the company's flagship royalty on the Karlawinda gold mine in Australia.

"If you look at the underlying assets, really what you're investing in is a very high quality royalty on Karlawinda operated by Capricorn Metals," explained Baker. "These are an incredible Australian management team already demonstrating reserve replacement from their exploration. This is going to be a very, very long-life mine with very, very high-quality operators."

The same holds true for the Caserones copper mine in Chile on which Elemental Altus also holds a royalty. The asset is operated by JX Nippon, a large Japanese firm which recently paid a significant sum to increase its ownership to 50%, paving the way for expanded exploration and development. Assets like these not only deliver stable cash flows from production today, but also provide significant upside potential through near-mine exploration and expansion. Baker noted that even five years from now, Elemental Altus expects its key royalties to have similar mine lives remaining, thanks to the potential for reserve growth.

Cashed Up and Ready to Deal

While many junior miners are struggling to raise capital, Elemental Altus is flushed with cash and ready to put it to work. The company ended 2023 with over $11 million in the bank and an additional $20 million available under its revolving credit facility.

"We are looking to deploy that capital," Baker emphasized. "Next year, we're looking at materially higher revenue from a couple new royalties coming online and our shareholders want us to redeploy that capital."

When combined with the substantial free cash flow generated each quarter, Elemental Altus has north of $30 million at its disposal to acquire new royalties and streams and noted that after three consecutive years of difficult markets for mining equities, the company is seeing more acquisition opportunities than ever.

Flexible Approach to Deals

One of Elemental Altus' key advantages is its willingness to consider royalties at any stage, from early exploration to production. While cash flowing assets are always preferable, the company's strong balance sheet means it doesn't have to pay up for near-term income.

"We look at everything," said Baker. "We will look all the way down to explorers, developers – obviously we would have a preference for cash flow, but again, if we've had more than $17 million of revenue this year, we don't need to overpay for that. We don't need to chase that."

By being selective and creative with its deals, Elemental Altus has demonstrated an ability to acquire royalties at a significant discount to net asset value (NAV). As those assets are advanced and de-risked by strong operators, much of that value should ultimately accrue to Elemental Altus shareholders.

Positioned for Re-Rate and Open to M&A

Despite its strong underlying fundamentals and growth profile, Elemental Altus has not been immune to the broad multiple compression that has impacted the junior royalty sector. Baker acknowledged the need to demonstrate both continued revenue growth and expanded operating cash flow to drive a re-rating of the shares.

Elemental Altus' 2023 acquisition of a royalty on the Cactus/Parks Salyer project in Arizona is an example of the type of deal that should close the valuation gap over time. At the same time, Baker signaled that Elemental Altus is open to participating in long-overdue consolidation in the royalty space. He noted there are too many sub-scale companies with duplicative overhead and highlighted Elemental Altus' willingness to evaluate M&A opportunities where synergies can be realized.

Key Takeaways

With a portfolio of high-quality cash-flowing royalties, over $30 million of liquidity to deploy into accretive new deals, and a depressed valuation, Elemental Altus appears well-positioned for both continued growth and a potential re-rating. Investors should watch for the company to execute its capital deployment strategy while also remaining alert to potential M&A as the royalty sector matures.

The Investment Thesis for Elemental Altus Royalties:

• Revenue growth: 6 consecutive years of record revenue with further increases expected in 2024 as new royalties come online
• Cash flow: $17.8M in 2023 revenue from high-quality assets provides organic funding for new deals; $30M+ of immediate liquidity available
• Discount to NAV: Opportunity to acquire royalties at attractive valuations in the current market environment and realize NAV uplift over time
• Asset quality: Royalties on large, long-life mines like Karlawinda and Caserones operated by top-tier management teams
• Growth pipeline: Over $30M available to acquire new royalties and streams across the project development spectrum
• Consolidation potential: Depressed valuation, strong balance sheet and supportive shareholder base make Elemental Altus an attractive M&A partner

Summary

Elemental Altus presents a compelling investment case for those seeking exposure to precious metals and copper through a cash-flowing royalty vehicle. The company's high-quality portfolio and strong revenue growth profile are complemented by a rock-solid balance sheet and over $30 million in liquidity to fund new deals. With a proven track record of acquiring royalties at a discount to NAV and a willingness to pursue sector consolidation, Elemental Altus appears well-positioned to create shareholder value in 2024 and beyond.