Fast-Growing Royalty Company Positions Itself for Long-Term Success

Elemental Royalties recently merged with Altus Strategies, creating a fast-growing royalty company well-positioned for long-term success. With a diversified portfolio of producing assets and significant near-term organic growth, the new company, now called Elemental Altus Royalties. offers investors an attractive investment opportunity.

Merger Creates Leading Mid-Tier Royalty Company

The merger of Elemental Royalties and Altus Strategies in June 2022 formed Elemental Altus Royalties, a leading mid-tier royalty company. The combined company has 11 producing royalties and streams across 13 jurisdictions. According to CEO Frederick Bell, this establishes Elemental Altus as the second largest royalty company in the sub $1 billion market segment.

With its increased size and scale, Elemental Altus expects to benefit from margin expansion as fixed costs are spread across a larger revenue base. Bell estimates that for every $1 million in added revenue, approximately 90% will flow through as free cash flow. This margin expansion is a key driver of shareholder value creation.

Revenue Growth to Unlock Free Cash Flow

A major appeal for investors is Elemental Altus' impressive near-term growth outlook. The company is guiding for revenue of $19 million in 2022 and $24 million in 2023, more than doubling from $10 million in 2021.

Four new royalties and streams are expected to begin contributing revenue in 2022, including the Mercedes mine in Mexico and the Ballarat and top-tier. As this top-line revenue comes online, Bell expects a significant inflection point where the bulk will convert into free cash flow. Lowering the cost of capital will also support cash flow and make Elemental Altus more competitive on acquisitions.

Attractive Pipeline Supports Future Growth

In addition to its producing assets, Elemental Altus has exposure to a large portfolio of royalties and streams at various stages of development. While still early stage, Bell notes these assets have the potential for significant value creation as they advance towards production. Streamlining some royalty generation assets could help demonstrate this value to the market.

The development portfolio provides Elemental Altus with embedded organic growth. As these royalties move up the value curve towards production, they will fuel further revenue, cash flow, and valuation growth for shareholders.

Strong Shareholder Base Validates Strategy

The merger received strong shareholder support, validating the strategic rationale. Three to four large institutional investors held major positions in both Elemental Royalties and Altus Strategies, facilitating productive conversations around the deal.

Leading natural resources investor La Mancha is the largest shareholder of Elemental Altus post-merger with approximately 24% ownership. La Mancha has an impressive track record of value creation with investments like Endeavour Mining and Evolution Mining. Their extensive industry expertise and relationships should benefit Elemental Altus in technical due diligence and acquisitions.

Attractive Entry Point for Investors

Despite the strengths of the merger, Elemental Altus shares have lagged in recent months alongside the broader market downturn. However, CEO Frederick Bell sees this as an opportunity for investors looking to buy a high-quality royalty company at an attractive valuation.

With its current sub-$200 million enterprise value, Elemental Altus offers investors a unique entry point for a company with top tier production and growth. As the company executes operationally and the market recognizes its fundamental value, significant upside potential remains. Elemental Altus appears positioned for success through market cycles.

In summary, the merger that created Elemental Altus Royalties positions the company for reduced costs, improved free cash flow, and significant near-term organic growth. Support from major institutional shareholders validates the strategy and management team. At current valuations, Elemental Altus offers investors an appealing opportunity for exposure to the fast-growing royalty and streaming sector.

Investment Thesis for Elemental Altus Royalties for Investors

Growth Potential - The merger and robust development pipeline provide significant near-term growth, with revenue expected to more than double from 2021 to 2023. As new royalties come online, cash flow should accelerate as well.

Attractive Valuation - Despite the strong fundamentals, Elemental Altus shares trade at a discounted valuation relative to peers. The current sub-$200M enterprise value offers an attractive entry point.

Margin Expansion - Increased scale from the merger allows Elemental Altus to leverage costs over a larger revenue base. This margin expansion directly benefits free cash flow as the company grows.

Reduced Cost of Capital - Growing revenue and diversification should strengthen Elemental Altus' balance sheet and allow the refinancing of credit facilities at lower interest rates. A cheaper cost of capital is a competitive advantage.

Strong Institutional Backing - Large shareholders like La Mancha provide validation of the business strategy and management's ability to execute. Their expertise adds value to acquisitions.

Royalties as an Asset Class - Royalties provide leverage to underlying mining assets without exposure to cost inflation or operational risks. The royalty model offers attractive risk-return for commodity exposure.

In summary, Elemental Altus offers an optimal mix of growth, value, robust cash flow, strong stakeholders, and an advantageous royalty business model. For investors seeking commodities and mining exposure, Elemental Altus checks many of the boxes.