A strategic investment in a copper-gold porphyry property in Russia has netted royalty
generator EMX Royalty Corp (TSX-V, NYSE:EMX) over US$68 million – more than
five times the $13 million invested over the past seven years.
Vancouver-based EMX first announced the pending sale of Malmyzh in June , then the
imminent completion of the deal on Oct. 2 , in which Russian Copper Company (RCC)
deposited US$200 million into escrow (a third party that holds payment of funds
required for two parties in a transaction). The $68+ million is EMX’s portion of the
proceeds from the sale.
EMX is the largest shareholder of IGC (39% fully diluted), which operates the Malmyzh
project in the Russian Far East near the border with China. The 227-square-kilometre
property is a joint venture between IGC and US copper giant Freeport-McMoRan.
According to EMX, Malmyzh’s porphyry deposits, prospects, and targets occur within a
district-scale 16 by 5-kilometre intrusive corridor hidden beneath shallow cover.
Mineralization extends from surface or near surface, to greater than 400 to 800 meters of
Over 77,000 meters of diamond drilling has intersected porphyry copper-gold
mineralization at 15 targets. Using a 0.3% copper-equivalent cutoff, the open-pit
constrained resource (four targets) is estimated to contain 12.45 billion pounds of copper
and 9.11 million ounces of gold, or 15.56 billion pounds of copper-equivalent.
Background to the Sale
So how did EMX, a relatively small royalty company with a market cap of just $142
million, as of last Friday’s close, come away with such a big injection to their treasury?
The genesis of the deal goes back to 2010, when EMX noticed that IG Copper – a
Russian-focused explorer – bought a 51% stake in a large land package, putting them in
bed with Freeport-McMoRan, which owned the other 49%. At the time, Freeport was
downsizing its portfolio but wanted to hang onto its interest in Malmyzh – considered
one of the largest undeveloped copper-gold porphyries in the world. In fact, Malmyzh is
not one porphyry – a geological term referring to a very large body of uniformly
disseminated, bulk mineable mineralization – but a new porphyry “district”.
Sensing a sizable opportunity, EMX jumped in with funding and exploration expertise in
which to aid IGC in the advancement of the project. The company’s record speaks for
itself. One of EMX’s more profitable investments was in Standard Uranium Inc., which
resulted in a $4.7 million realized gain after a successful buy-out of URN in 2006 by
Energy Metals Corp. Recent strategic investments include the Malmyzh porphyry
copper-gold discovery in Far East Russia, plus Revelo Resources Corp. (TSX-V:RVL)
and their portfolio of gold and copper properties in Chile.
Company and Business Model
EMX via the Prospect Generation business model acquires prospective mineral real
estate on a global basis, performs various inexpensive surface or near surface
explorations where it hopes to find indications of mineralization or outright
mineralization. Once that is achieved, it seeks out a partner to acquire the property, once
acquired, EMX is no longer writing any checks related to that specific project, while
holding back a royalty on the property. Furthermore, once a property is in a partner’s
hands, EMX will receive serial payments including annual property payments, milestone
payments, advance royalty payments, and a 10% management fee on any project it
manages for the partner.
EMX does augment its organically derived royalty portfolio with royalty acquisitions
when they can find them at reasonable pricing valuations. An example of this would the
purchase of Leeville Royalty which encompasses portions Newmont Mining’s
producing Leeville and Turf mines on the Carlin Trend of Nevada. That asset has earned
EMX in excess of US$12 million as of the second quarter of 2018.
The strategy, then, is three-pronged:
- Generate early-stage exploration properties, sell them, and retain a royalty. (E.g.
Balya in Turkey)
- Acquire undervalued royalties. (E.g. the Timok/Cakaru Peki Royalty in Serbia)
- Make strategic investments in prospective mineral properties. (E.g. Malmyzh project)
Founded in 2003, EMX has attracted management with both geological prowess and
business acumen. The Company employs some of the best geo-technical talent in the
world at sleuthing for mineral properties and the business savvy to negotiate highly
favorable terms with major, high-calibre partners such as Rio Tinto, Anglo American
and South 32. Now investors have an opportunity to join EMX at a time when the risk
has been minimized and benefit from its extensive list of current and future producing
EMX has also has a history of demonstrating fiscal prudence – every capital raise has
been completed at a higher share price than every previous raise with the exception of
one relatively small raise. This is something noticed by supporter Rick Rule, President
and CEO of Sprott US Holdings. His company’s Sprott Resource Lending issued EMX a
one-year credit facility for US$5 million.
Another high-powered individual behind EMX is Paul Stephens. The Company’s largest
shareholder at 19.5% of shares issued and outstanding, Paul Stephens is chairman of
Stephens Investment Management LLC, a hedge fund and venture capital firm. Stephens
earned a fortune as a mining industry investor as early-backer to Robert Friedland’s
Diamond Fields International – an African diamond explorer turned discoverer of the
Voisey’s Bay nickel mine in Newfoundland – Stephens was a leading beneficiary of
Vale’s Voisey’s Bay $4+ billion sale to Inco in 1995.
EMX is currently 19.5% owned by Stephens Investment Management, 9.25% by Sprott
Global, 8.5% by EMX employees, 5.9% by Newmont Mining, a Zurich based hedge
fund owns 5% and 1.9% apiece from Chilean copper producer Antofagasta and Mason
Hill Asset Management
As of August 27, NYSE and TSX Venture-listed EMX had 89,734,540 shares on a fully
diluted basis, with a cash position of CAD$6.9 million and CAD$1.4 million in
The Malmyzh Deal’s Value to Shareholders
So how is the sale of the Malmyzh copper-gold property of benefit to EMX
shareholders? First, EMX investors can be confident that the buyer is a reputable
company. Founded in 2004, RCC is a copper miner and processor that makes copper
concentrates, cathodes and rods. Privately held RCC is one of the largest copper
producers in Russia; it manages eight mines, several plant facilities in Russia and
Kazakhstan, and a trading company. In 2017, it generated 130 billion rubles in revenue,
or US$2 billion, notes Exploration Insights, a newsletter run by Brent Cook and Joe
Mazumdar – both experts in the field.
Proceeds from the sale of Malmyzh will enhance EMX’s ability to seek out additional
royalty and property opportunities as well as assure investors that it will likely never
have cause to float any future equity raises.
Moreover, this means the company will have more cash then they have raised
cumulatively throughout their fifteen years of operation. With the $68 million from the
Malmyzh sale, EMX will be equipped with over 15 years of run time at its present rate
The capital realized from the transaction (US$68M) will allow EMX to focus on its
global portfolio of properties, specifically in the western US, Sweden and Norway.
Multiple Sources of Income
Both its Sisorta and Akarca precious metals properties are seeing considerable levels of
advancement and have a strong chance of reaching production. Sisorta is a 1 by 0.6-
kilometre area of shallow, oxidized gold mineralization. The operator, Bahar, has started
an Environmental Impact Study (EIS) to obtain a permit to begin construction. If
successful, EMX will receive royalty payments in the two to three years, assuming the
mine takes a year to build.
EMX holds an unbuyable, uncapped 4% net smelter royalty on the producing Balya,
lead-zinc-silver mine. Partner, Dedeman Madencilik, is drilling 24,000 meters to
delineate additional mineralization. Highlighted intersections, including 12.75 meters
grading 11.39% lead, 5.92% zinc and 225 grams per tonne silver, south of the
Hastanetepe zone, suggest the mineralization is continuous.
Along with the aforementioned Leeville Royalty (US$12+ million since acquisition),
EMX also has royalties on the Timok copper-gold project in Serbia which is the process
of being taken over by Zijin Mining Group – China’s largest gold miner that bettered a
hostile bid from Lundin Mining to take over Nevsun Resources.
The recent sale of the Malmyzh copper-gold porphyry district in Russia is a major step
in the evolution of EMX Royalty Corp. With the company’s treasury flush with an extra
US$68 million, it has now ample cash to explore other royalty opportunities without
share dilution. Proceeds from the sale will also allow EMX to easily pay off its $5
million loan from Sprott, thus improving its financial position.
The company’s long-term objective has always been to have steady and sustainable cash
flow from its royalty portfolio in order to cover it’s G&A (general and administrative)
and exploration costs. Instead, it appears that EMX has met its goal of achieving positive
cash flow via the sale of a strategic asset.