Empress Royalty: Chairman Bullish on Company's Potential to Deliver Significant Growth

• Empress Royalty's revenue reached $5.4M in Q3 2024, with a target of $6M for the full year and over $10M projected for 2025.
• The company's key assets Tahuehueto (Mexico) and Galaxy (South Africa) are ramping up production which will boost revenue.
• Empress is cash flow positive with a $20M credit facility available to acquire new royalty/streaming assets and further grow revenue.
• Despite revenue growth and strong fundamentals, Empress has a market cap of only $35M, well below peer valuations of 10-25x cash flow.
• The company creates bespoke royalties/streams by investing in near-production assets where it can add value and receive gold/silver streams in return.

Empress Royalty Corp (TSXV:EMPR) is a relatively new entrant in the precious metals royalty and streaming space. With a market capitalization of approximately C$35 million, Empress is notably smaller than many of its peers. However, the company has been reporting strong revenue growth and is building a diversified portfolio of gold and silver assets across several jurisdictions, including Mexico, Mozambique, and South Africa.

Proven Business Model Driving Revenue Growth 

Empress Royalty has a straightforward business model, as explained by Executive Chairman David Rhodes, 

We create royalties and streams by investing in companies to add value, and they give us a stream of gold and silver in return to reward us for that. 

The company's strategy involves creating bespoke royalties and streams by providing financing to producing, or near-production mining projects. In return, Empress receives a percentage of the gold or silver produced by these mines over the life of the project. This business model has allowed Empress to rapidly grow its revenue despite its relatively small size.

Empress reported revenue of US$5.4 million in Q3 2024 alone, nearly double of 2023 annual revenue. The company expects 2024 revenue to exceed the target US$6 million and 2025 revenue to surpass US$10 million based solely on its existing assets. Two-thirds of their revenue comes from gold and one-third from silver.

Empress is already cash flow positive and has US$20 million in credit available to make additional investments and further expand its revenue base.

Portfolio of Cash-Flowing and Ramping-Up Assets 

Empress' revenue growth is underpinned by a portfolio of producing and developing precious metals assets in the Americas and Africa. The portfolio's cornerstone asset is the Tahuehueto project in Mexico, on which Empress holds a silver stream. Tahuehueto is currently ramping up throughput and is expected to reach commercial production in Q4 2024, providing a step-change in revenue to Empress.

Two other core assets, the Manica gold mine in Mozambique and Sierra Antapite gold mine in Peru, are already in full production. Tahuehueto in particular is a significant cash-flowing asset for Empress. A fourth key asset, the Galaxy gold mine in South Africa, is in the process of doubling production by expanding underground development to fill its underutilized mill. This expansion will reduce costs and increase revenue to Empress, which holds a gold stream on the mine.

Beyond these flagship assets, Empress is actively looking to acquire new royalties and streams. The company is currently evaluating several well-advanced opportunities that would further diversify and grow its revenue base. With cash flow from operations and available credit, Empress is well positioned to continue making accretive investments.

Relative Valuation and Growth Potential 

Empress Royalty's current market valuation is notably lower than many of its royalty and streaming peers. The company’s market capitalization is currently US$28.6 million. In comparison, many larger and more established companies in the precious metals royalty space trade at significantly higher valuations.

However, it's important to note that Empress Royalty is a relatively new entrant in the space and is still in the early stages of building its portfolio and revenue base. In the interview, Chairman David Rhodes highlighted, 

If you look at us making 12 million next year in cash flow from my existing assets, without any new assets being added, you can see we're undervalued. That's where the opportunity comes - it's a great opportunity to get into a company which is now performing, showing the market its strategy works.

Interview with Executive Chairman David Rhodes

Experienced Team with Partnerships

Empress benefits from a highly experienced management team and board with a track record of creating shareholder value in the royalty and streaming space. The company's Chairman, David Rhodes, has over 30 years of experience in the mining industry, while its CEO and Director, Alexandra Woodyer Sherron, has two decades of experience in structuring and financing mining projects globally.

The company's strategic partnerships also provide a competitive advantage. Empress' investment advisor is Endeavour Financial, a leading financial advisor in the mining industry. This relationship provides a strong pipeline of potential investment opportunities. As Rhodes notes, 

Endeavour sees many transactions flowing through their network, so any deals from $25 million and above in gold and silver streams - those opportunities are presented to Empress through our investment manager partnership.

The Investment Thesis for Empress Royalty:

• Strong revenue growth from producing/ramping up gold & silver assets, with clear path to $10M+ annual revenue
• Significantly undervalued at only $35M market cap vs. peer average of 25x cash flow.
• Cash flow positive with capital available to make accretive acquisitions and further expand revenue base
• Portfolio of diversified assets in mining-friendly jurisdictions in the Americas and Africa
• Experienced management team and strategic partnerships provide competitive advantages
• Compelling risk/reward: significant upside potential with valuation re-rating toward peers, downside protection from cash-flowing assets
• Unique exposure to rising gold/silver prices via an emerging royalty company at an attractive entry point for long-term investors

Macro Thematic Analysis: 

The current macroeconomic environment is highly supportive of gold and silver prices. High global inflation, geopolitical tensions, and fears of an economic slowdown are all driving safe haven demand for precious metals. Central banks are also accumulating gold reserves at a rapid pace, providing additional long-term support. In this context, royalty and streaming companies provide an attractive way to gain exposure to rising metals prices with a lower risk profile than mining operators.

For royalty companies, higher metals prices drive increased revenue with no associated increase in costs. Furthermore, the diversification of a royalty portfolio mitigates operational and jurisdictional risks. As investors increasingly turn to gold and silver as portfolio hedges, the entire precious metals sector is likely to benefit, but royalty and streaming companies are especially well positioned. Their business model provides robust upside leverage to rising prices while limiting downside risks.

As Chairman David Rhodes highlights, the opportunity lies in finding undervalued royalty companies with strong growth prospects: 

If you look across the streaming royalty industry, average cash flow multiples are around 25 times. Even if you discount that conservatively to 10 times - and we're doing at least $10 million revenue next year - you can do the math on what our market cap should be.