Precious Metal Royalties Offer Leveraged Option for Investors Seeking Commodities Exposure

• Elemental Altus Royalties is a rapidly growing precious metal-focused royalty company with 10 producing royalties currently.
• The company generates strong cash flow from core royalty assets like the Caserones copper mine in Chile operated by Lundin Mining.
• Elemental Altus aims to deploy capital into high-quality development assets to get accretion and uplift over time.
• The company sees further consolidation as necessary in the royalty sector and is open to evaluating deals.
• Key growth drivers for Elemental Altus in 2024 are increased production from royalty assets.

Precious Metal Royalties: An Attractive Option for Returns

Royalty and streaming companies have seen surging interest in recent years from investors looking for leveraged exposure to rising commodity prices paired with reduced operating risks. As an alternative to traditional mining finance and investment, royalties offer some unique characteristics that can enhance the upside when deployed judiciously.

Elemental Altus Royalties, a rapidly growing precious metal-focused royalty company, illustrates the potential opportunities. “We have revenue so we haven't put out guidance for next year but our consensus revenue for next year is $22-$23 million,” highlights David Baker, CFO of Elemental Altus Royalties. With a solid base of cash flow funding further deals, Elemental Altus believes it is positioned as a valuable financing partner, especially when capital markets tighten

Interview with Chief Financial Officer, David Baker

Diversified Portfolio Reduces Volatility

A diversified portfolio helps reduce risk exposure by limiting concentration in any single commodity or geography. Elemental Altus holds approximately 90 royalties globally across gold, copper, and other metals. About 70% of revenue is from gold assets currently. The company struck an updated transformational royalty deal on the Caserones copper mine in Chile last year. Operated by leading miner Lundin, Caserones delivers steady cash flow. “We turned Libor plus 9% interest into Libor plus 3% interest, so automatically saving a $1.5 million a year with the major banks,” highlights Baker. Concentrated positions in top-tier mines help balance more developmental stage royalties.

Disciplined Capital Allocation Critical

Royalty & Streaming companies live or die based on their capital allocation decisions when acquiring royalties and streams. Paying too much can severely hamper achieving acceptable returns. Yet, hesitating when the right opportunity appears could also backfire. Elemental Altus targets creative deals on quality development assets rather than early-stage exploration plays. “The Cactus Mine deal that we did with RCF is a classic type of deal that we're looking for to build out that pipeline,” explains Baker. The Arizona Sonoran’s Cactus project offers mine development upside. Royalties on the project could deliver strong returns if brought into production.

Consolidation Offers Growth Avenues

Further consolidation makes strategic sense in the royalty sector in the eyes of Elemental Altus management. The company itself faced a hostile takeover attempt previously as larger players aimed to roll up smaller vehicles. However, Baker believes successful consolidation requires bringing together the right complementary assets and management teams. “It thinks about as like what does the combined portfolio look like and don't be too precious about valuation,” he suggests. Savvy structuring and positioning can help smaller royalty companies partner while maintaining the upside.

Increased Production on Deck

A key tenet underlying the bullish case for royalty companies emphasizes that they avoid operational risks while benefitting from production growth. Elemental Altus has several catalysts in its pipeline from portfolio assets. Notably, Allied Gold has committed to expanded development on royalty-covered deposits in Africa. “We have a royalty on Bonikro which is also Allied Gold, they’re now in the main pit which is covered by the royalty we’re going to see a full run rate this year,” indicates Baker. With establishment operators on board, royalty revenue has potential upside if miners execute efficiently.

The Investment Thesis for Elemental Altus Royalties

• A compelling portfolio of 90 royalties provides upside exposure while reducing concentration risk with diversification
• Operator execution risk minimized by focus on established miners and experienced development teams
• Strong cash flow funds creative deals on quality assets rather than high-priced auction situations
• Supportive broader thematic backdrop for precious metals and mining reinforces long-term royalty potential
• Near-term catalysts from portfolio assets expand production and royalty revenue

Elemental Altus Royalties offers investors interested in the mining sector royalty exposure a disciplined vehicle positioned to capitalize on supportive tailwinds benefitting the precious metal space. Leveraged returns potential combines with risk mitigation from portfolio diversification. Hence, investors seeking commodities exposure may find an attractive asymmetry in Elemental Altus Royalties relative to traditional mining equities or physical metals.

“The way we always think about it is relative contribution', so what does each side bring to the table? If we're bringing revenue, then the other side would need to be bringing high-quality development assets it's Portfolio Theory, so what are we building in,” suggests Baker on effective consolidation.

His insight summarizes the opportunity royalty companies enjoy currently from the distress in mining sector equity valuations relative to strong underlying commodity pricing. Royalty vehicles have become the partner of choice for mid-tier and junior miners requiring alternative finance rather than dilutive equity issuances. Combining cash-flowing royalties with developmental upside royalties offers subsector participants a mechanism to expand rapidly when market conditions align favorably. The agility relative to traditional mining majors with extensive operational exposure enhances the appeal of well-structured royalty enterprises. Hence, the prevailing environment offers a moment for adroit royalty entities to structure deals accretive to the portfolios of producers and developers alike if appropriate strategic diligence applies.