EMX Royalty Corp (EMX) - A Royalty Company with a Difference?

EMX Royalty Corporation, founded in 2008, operates as a metal mining company, focussing on exploration discovery, royalty generation and acquisition, strategic investment and other related services.

Matthew Gordon talks to David Cole, 17th July 2020

It has chosen to differentiate itself from other royalty companies in a few of ways.

1. Royalty generation keeps them at the shallow end of the pool: rather than trying to work its way up the food chain by increasing the size of each deal that they do to join the mid-tiers, they are happy to occupy the space left by others and less savvy new entrants.

2. Commodity agnostic: areas of focus include gold, copper, polymetallic, geothermal, and base metals. Again, this differentiates themselves from the precious metals focussed royalty companies.

3. Geography agnostic: EMX Royalty has assets across the globe: US, Turkey, Serbia, Sweden Norway, Finland, Chile, Australia, Haiti and Canada.

The company has an extended track record of success when it comes to its areas of focus. This is evidenced by an almost permanently accretive share price since 2010. The team is large and diverse in skillset, ranging from geologists to engineers, to metallurgists, financiers and legal officials. There is a high G&A, US$1.2M PQ, but with this level of expertise working towards adding future value, it is perhaps to be expected.

What are the core business principles? The company operates a "3-pronged approach" with diversification at its heart; the intent being that EMX Royalty can provide its shareholders with numerous upside opportunities while minimising risk and the impact on the company's cash reserves. The company 'organically generates' royalties via low-cost property acquisition and early-stage exploration. Then, EMX Royalty will look for strategic partners to advance the projects with; the company retains a royalty interest and also receives pre-production payments. Is this what would happen if Salazar Resources was a royalty company?

All of the cash flow generated from these royalties, advance royalties and other property payments are then supplemented by returns from strategic investments. EMX Royalty has a self-funding model that allows operating capital to be continually deployed for fresh business initiatives, such as the remediation business, without relying on going to the market, minimising dilution. With c. US$70M in the treasury due to some major "liquidity events," this is a sustainable, smart plan, and the balanced location/commodity diversification means that investors receive exposure to the many exciting positives of mining and commodities with less exposure to the potentially crushing downside. EMX Royalty will continue to look for ways to deploy its capital sensibly, using its same tried and tested business model by deploying its business acumen, creating growth, then bringing in more capital via an additional liquidity event. The company thinks gold projects give it a lot more leverage than gold bullion. Dividends are not in the plan just yet, but a quarterly dividend may be possible once the company has strong recurring positive cash flow from its royalty portfolio. It is unclear as to what that means in terms of timing.

COVID-19 hasn't affected revenues, but it has affected the business in the sense that it has slowed what was a strong appetite for copper and other base metals. However, a significant chunk of EMX Royalty's portfolio it has been greatly augmented and enhanced by the price of precious metals. As a consequence, EMX Royalty has adjusted how it markets itself "towards the appetite that exists today."

The company is beginning to focus a little more on Scandinavia. This is because it's becoming a really good place to invest, courtesy of the 17 major operating mines and 7 smelters in Fennoscandia. Sweden has some of the fastest permitting in the world: from 2 weeks to 2 months. The company has excellent deal flow from its portfolio there because its investors are waking up to the value proposition offered by the jurisdiction, and EMX Royalty is one of the largest mineral rights holders in Fennoscandia.

The only royalty company with a similar business model to EMX is Altius, but it is not yet involved with precious metals. The 3-pronged approach is what Cole is hoping will set the company apart from the swathe of royalty companies who are after investors' money. He states an inflection point is on the near horizon for this undervalued company. Do you agree?

Cole has continued to buy stock from the open market for the last 6 to 7 years, and he has regularly purchased stock during dips.

What did you make of David Cole?

Company Website: https://www.emxroyalty.com/