Overlooked Royalty Company Offers Leveraged Upside to the Battery Metals Boom

• Electric Royalties owns a portfolio of 22 royalty assets across 9 clean energy metals like lithium, tin, graphite, and manganese.
• The royalties have the potential to generate around $700 million in cash flows over their lifespan for Electric Royalties.
• The company expects to be cash flow positive by 2024, purely from existing royalties, even if they acquire no new assets. By 2026, existing assets could generate $40 million per year.
• Electric Royalties has acquired over 100 lithium-focused properties in Ontario, providing near-term cash flows from third-party deals of $1.7-2.7 million over the next three years.
• With a market capitalization of only $20 million, the company believes it is significantly undervalued, trading at only 10% of its net asset value.

Electric Royalties is a recently established royalty company focused exclusively on battery and clean energy metals. As the global transition to electric vehicles and renewable energy accelerates, demand for these metals is projected to surge over the coming decades. Electric Royalties aims to capitalize on this trend by accumulating royalties that will generate revenues as projects advance into production.

Existing Royalty Portfolio Offers a Significant Upside

Electric Royalties currently holds a portfolio of 22 royalties covering assets across 9 key battery metals - lithium, tin, manganese, zinc, iron ore, nickel, copper and graphite. Many of these projects are located in safe, mining-friendly jurisdictions like Canada and the US. The company’s operating partners have already invested over $550 million to advance these projects.

The existing royalty portfolio alone has the potential to deliver outsized returns for investors. If Electric Royalties acquired no new assets over the next 5-6 years, the projects could generate around $40 million in annual royalty payments by 2026. And that excludes any potential expansions or additional discoveries. In total, the lifetime cash flows from the current royalties could exceed $700 million - over 35x Electric Royalties’ current market valuation - should the assets reach their estimated potential.

Several royalties stand out for their potential to transform the cash flow profile

• The Middle Tennessee Zinc royalty has already been paying for 2 years and could deliver $0.5 million annually. More upside is possible when production restarts in 2023.
• The Penouta Tin Mine royalty is also expected to pay Electric Royalties a $0.5 million yearly royalty, with the potential to double to $1 million with a modest $15 million investment by the owners.
• Once in production, the Bissett Creek graphite royalty could pay up to $4.5 million annually for decades due to its large resource base.
• The Battery Hill manganese royalty alone could pay $7.5 million yearly for nearly 50 years. At a 1.5% royalty rate, it offers tremendous leverage to rising manganese demand.

The company's royalties are currently valued at only 10% of its net asset value. As these assets advance and the potential cash flows become de-risked, Electric Royalties could expect to see significant valuation expansion. The stock currently trades at only 3x potential 2026 royalty income, representing a substantial upside.

Strategic Expansion into Lithium Royalties

In November 2023, Electric Royalties announced the acquisition of a portfolio of over 100 lithium-focused properties in Ontario, Canada. The area is seeing a staking rush, with major mineralization discoveries like the Frontier Lithium project attracting investments of hundreds of millions of dollars.

Electric Royalties’ newly acquired properties are being quickly advanced by third-party partners. Over the next three years, the company expects to receive $1.7 million in 2024, rising to $2.7 million by 2026, from property options and buyouts. With additional properties still available, additional deal flow upside is possible.

The strategic move into lithium royalties enhances Electric Royalties’ leverage to surging battery metal demand. It also provides crucial near-term cash flows while the existing royalty portfolio advances towards production.

Significant Undervaluation Compared to Royalty Peers

Trading at only a $20 million market capitalization, Electric Royalties could see a dramatic upside as investors gain greater awareness of its royalty portfolio. The company is targeting royalty companies typically trading around 1x net asset value, implying a valuation of 10x the current level.

Backed by supportive long-term institutional shareholders, debt financing in place, and insiders holding 15%, the foundation is strong for substantial growth. As the clean energy transition accelerates, Electric Royalties has positioned itself to generate outstanding returns through potential royalty income. This opportunity appears overlooked and under-appreciated currently, but the upside for investors joining at this early stage is enormous in our opinion.

The Investment Thesis for Electric Royalties

• Massive leverage to forecast exponential growth in battery metals like lithium, manganese, and graphite
• Near-term cash flows from lithium property deal flow help derisk existing portfolio
• Potential $40+ million per year in royalties by 2026
• Trading at 10% of net asset value offers 10x upside potential
• Tight share structure and supportive institutional shareholder base

Electric Royalties has accumulated an impressive portfolio of battery and clean energy metal royalty assets that are projected to deliver outstanding cash flow growth as the global energy transition accelerates. With near-term cash flows incoming from lithium property acquisitions, investors can gain leveraged upside exposure to surging metal demand, underpinned by tangible value. Significant undervaluation compared to royalty peers offers a dramatic upside from current levels.