Tether Acquires Controlling Stake in Elemental Altus, Signaling Major Crypto Capital Entry into Mining

• Tether, the company behind USDT stablecoin, acquired a 37.8% stake in Elemental Altus Royalties Corp through the purchase of shares from La Mancha Investments at $1.55 per share.
• Tether generates over $5 billion annually in cash flow from its $100+ billion in deposits, which are invested in U.S. treasuries yielding 4-5%, creating substantial capital for hard asset investments.
• This represents Tether's expansion from U.S. treasury investments into hard assets, consistent with their existing gold-backed stablecoin operations and anti-fiat currency philosophy.
• The investment has driven Elemental's stock price from $1.55 to $1.80, with potential for broader rerating of mid-tier royalty companies as crypto capital enters the mining sector.
• This marks the potential beginning of significant cryptocurrency-derived capital flows into mining royalties, with possible crossover appeal between crypto investors and traditional gold investors.

The mining royalty sector has experienced a significant development that may signal a new source of capital entering the space. Derek Mcpherson (Executive Chair) and Sam Pelaez (President, CEO, and CIO) of Olive Resource Capital, discussed Tether's acquisition of a significant stake in Elemental Altus Royalties Corp. This transaction represents a potentially transformative moment for the mining industry, as it brings substantial cryptocurrency-derived capital into the traditional mining royalty space.

The Transaction Details

Acquisition Structure

Tether acquired approximately 37.8% of Elemental Altus Royalties Corp through the purchase of shares from existing shareholders: La Mancha and another entity from which Elemental had previously purchased a stream. The transaction was executed at $1.55 per share and Tether has gained the right to acquire 51.8% of the company. According to Derek, the market initially showed limited reaction to the announcement, allowing Olive Resource Capital to purchase shares at the same $1.55 price point.

The speed of execution proved notable, with the timeline compressed from initial contact in May to completion by mid-June. As Derek noted from his conversation with Elemental's management:

"The first conversation happened in May, so from May till the middle of June, Tether was able to move very quickly and execute on moving two very large blocks of stock."

Board Transition & Management Continuity

Following the acquisition, Tether implemented board changes while maintaining operational continuity. Importantly, the company retained Frederick Bell as CEO and David Baker as CFO, the executives who built the company to its current position. Derek explained: 

"They kept Fred Bell and David Baker, the current CEO and the current CFO, the guys who built the company and I think that was something that also gave us [investors] comfort."

Compass, Episode 20

Understanding Tether's Financial Position

Revenue Scale & Business Model

Tether's financial capabilities far exceed typical mining industry participants. The company holds over $100 billion in deposits, which are invested in U.S. treasuries currently yielding 4-5%. Crucially, Tether does not pay interest on these deposits, as users exchange U.S. dollars for USDT stablecoins used in cryptocurrency transactions. This structure generates over $5 billion annually in cash flow for the company.

To contextualize this scale, Sam noted:

"Franco Nevada has a revenue of $1 billion, so just think about context here - it's five times larger an entity." 

This financial capacity positions Tether as a potentially transformative force in mining sector capital allocation.

Hard Asset Philosophy

Tether's investment strategy aligns with a broader hard asset philosophy. The company already operates a gold-backed stablecoin and holds approximately seven tons of physical gold. As Derek observed:

"if you read their disclosure, they're hard asset guys...In the definition of they don't believe in fiat currencies."

This philosophical alignment with precious metals and tangible assets makes the mining royalty sector a logical expansion area for Tether's investment activities.

Strategic Implications for Elemental Altus

Management Perspective on Growth Strategy

Through direct communication with Elemental's management, Olive Resource Capital gained insights into Tether's approach to the investment. When asked about potential acceleration of acquisition activity, CEO Frederick Bell indicated that Tether maintains a disciplined approach. 

This suggests Tether intends to support fundamental value creation rather than pursue growth at any cost, which provides reassurance for existing shareholders concerned about capital allocation discipline.

New Investor Interest

The Tether investment has generated interest from different investor categories. Bell reported receiving inquiries from hedge funds and other investors not traditionally focused on the mining royalty space. This development supports the thesis that cryptocurrency-related capital may begin flowing into mining investments.

Market Response & Valuation Impact

Stock Performance

Following the announcement, Elemental's stock price increased from $1.55 to approximately $1.80, representing a 16% gain. While this initial response was relatively modest, the fundamental change in the company's backing suggests potential for further appreciation as the market better understands the implications.

Potential for Broader Sector Impact

The investment professionals see potential for broader rerating across mid-tier royalty companies. Companies with strong shareholder bases and management teams may benefit from increased attention as cryptocurrency capital seeks similar opportunities. Sam specifically mentioned Sailfish Royalty and Triple Flag as examples of companies in comparable situations with strong existing shareholders.

Industry-Wide Implications

Capital Flow Transformation

The entry of Tether represents a potential paradigm shift in mining sector capital sources. Sam emphasized the significance: 

"We frequently complain about the lack of new liquidity and capital moving into the space and overnight, out of nowhere, you have this group that has immense liquidity."

This development addresses a persistent challenge in the mining industry, where traditional capital sources have been constrained and new investor interest has been limited.

Crypto-Gold Investor Crossover

The investment thesis includes potential crossover between cryptocurrency and precious metals investors. Derek noted the philosophical alignment: 

"There's a lot of crossover between the gold bugs and the Bitcoin bugs. Right now they're both sort of anti-fiat currency groups." 

This common ground could facilitate broader cryptocurrency investor participation in gold and mining investments.

Risk Considerations

Execution & Discipline Risks

The primary downside risks identified center on capital allocation discipline. Derek outlined potential concerns: 

"The place where we lose is that all of a sudden, because they're awash with capital, we get an undisciplined approach to new acquisitions, they overpay, they get out of it."

However, the retention of existing management and early indications of disciplined approach provide some mitigation of these concerns.

Market Volatility & Speculative Interest

The potential for cryptocurrency investor interest could create both opportunities and risks. While increased attention could drive valuations higher, it might also introduce greater volatility typical of cryptocurrency-influenced assets.

Future Outlook & Speculation

Expansion Potential

The Elemental investment likely represents the beginning rather than the conclusion of Tether's mining sector involvement. With $5 billion in annual cash flow and a strategic focus on hard assets, the company has substantial capacity for additional investments across the mining value chain.

Potential areas for expansion could include additional royalty company investments, direct mining company stakes, or private equity participation in mining projects. The royalty model's similarity to Tether's own high-margin, asset-light business structure makes this sector particularly attractive.

Gold-Backed Stablecoin Implications

Tether's existing gold-backed stablecoin creates an additional strategic rationale for mining investments. Increased adoption of gold-backed cryptocurrency products would require corresponding increases in gold reserves, potentially driving demand for reliable gold exposure through royalty streams and mining investments.

Key Takeaways & Implications

The Tether investment in Elemental Altus Royalties Corp represents a potentially transformative development for the mining royalty sector and the broader mining industry. The transaction brings substantial, stable capital from outside traditional mining finance circles while maintaining operational discipline through experienced management.

The philosophical alignment between cryptocurrency and precious metals investors creates potential for broader capital flows into the sector. For mining investors, this development signals possible rerating opportunities across quality royalty companies and demonstrates the sector's appeal to large, sophisticated capital sources seeking hard asset exposure.

The limited initial market recognition of this transaction's significance may present opportunities for investors who appreciate the long-term implications of cryptocurrency-derived capital entering the mining space.