EMX Royalty (TSXV:EMX) – Significant Increase in Revenue
David Cole, CEO of EMX Royalty EMX.V sat down with Matthew Gordon of Crux Investor to update viewers on pivotal developments and the growing royalty portfolio.
Matthew Gordon:
Good to see you too. Been a while.
David Cole:
It has been.
Matthew Gordon:
Have you been in hiding waiting for good news?
David Cole:
That’s right. Exactly. Yeah,
Matthew Gordon:
It paid off. It paid off. So well done. Congratulations. Explain to people what happened.
David Cole:
Well, I bought a royalty for $200,000 and it was not the best written royalty in the world. I did not write it. I bought it and it had the right to be diluted. And one interpretation is that it was diluted. One interpretation is that it wasn’t. We met halfway in between and gotten all the money. So we’re delighted. And I will say that Zijin (Mining) was honorable to work with. Slow, it took a long time, but we wrote an excellent agreement that documents clearly the royalty will not be disputed again, I’m confident of that. The deductions for the smelter clearly defined and they’ve built a huge mine. It’s a generational asset.
Matthew Gordon:
Right. Okay. And I noticed you’ve already received a payment. Yes. Backdated as well back.
David Cole:
We got all our back royalties.
Matthew Gordon:
Very honorable. That is good news. Give us the numbers.
David Cole:
$6.68 million USD in the bank.
Matthew Gordon:
In the bank. That’s the best place. And obviously what does that, can we infer from the first half of 2023 number what it might be on an annualized basis moving forward?
David Cole:
Yeah, that works out to 3.8 million USD has been increasing, as you would expect, increase production. But they have told us that they expect to mine the upper zone because they’re just mining in the small upper high grade zone at the moment whilst they’re developing the underground infrastructure to get into the bigger lower zone. So whilst they’re mining in the upper zone, we’re expecting the royalty to remain approximately the same and that should last another 10 years. And then they have told the market that they expect the lower zone to be in production in five to seven years.
Matthew Gordon:
Okay. And those things could happen concurrently.
David Cole:
They will happen. They are happening concurrently.
Matthew Gordon:
So again, is there any sense, where do we look for numbers to get a sense of what a royalty or whatever it’s 3.3625% is going to be worth for you. Have you got an idea of a yourself?
David Cole:
I do. I do. Probably the easiest way to calculate that would be to look at the last 43-101 compliant resource, which is put out by Nevsun. I’m distinctly of the opinion that Zijin would have had between a half dozen and a dozen drill rigs turning around the clock for years now have expanded that resource, but we do not know that definitively. But the last 43-101 compliant resource that was published, and I will get all of that data by the way, but I haven’t gotten it yet. But the last compliant resource was roughly around the numbers of, so we can do the math easily, 2 billion tons at 1% copper equivalent. So you do the math of what a royalty of 0.3625 is worth on that endowment and it’s hundreds of millions of dollars.
Matthew Gordon:
Right, okay. How does that get worked at in terms of it’s not on recoverable, it’s on…
David Cole:
Payable from the smelter. Right. So that’s not a return, which is gross revenue to the mining company.
Matthew Gordon:
So a little further maths to do that, but we’ll work out, we’ll do a number for you folks, and I’m sure you will too
David Cole:
So let’s say that you looked at the total endowment and let’s say that 90% of that gets produced and let’s say that they metallurgically recover 92% of that and let’s say that the smelter pays 87% of that number
Matthew Gordon:
Roughly. Yeah. Yeah,
David Cole:
That would get you close.
Matthew Gordon:
Okay. We’ll do, that’ll do. Thank you. I just wonder, be clear about exactly what the royalties on. So you just about those two components, that’s what it’s on. It doesn’t cover anything else which they’ve not yet started tackling. There’s no further upside.
David Cole:
Can I clarify that? So we have royalties on three licenses within the district. The royalties have nothing to do with the zones. Those, okay. So the royalties cover the entire license theoretically to the center of the earth.
Matthew Gordon:
Okay.
David Cole:
Right. So on the whole license, all mineral production from each license would be affected by the royalty that we have on that license. Two of the licenses we have a 0.3625% royalty, including most importantly the one where the Timok Mine is being developed. And that is the 0.3625, the lower zone there actually plunges to the west. And we have another royalty that is contiguous with the 0.3625 that is on the Brestovac East license, on the Brestovac West license we have a 2% royalty on gold and silver and 1% …
Matthew Gordon:
Nothing contentious in that
David Cole:
Nope. Never has been. And I wrote that Royalty.
Matthew Gordon:
Right. And that’s not part of the reason the negotiations either. It didn’t have to be.
David Cole:
That was not part of the renegotiation. And that dates back to when EMX did generative work in the district, which is how we ended up there in the first place. That was a catalyst for us to be there. And as luck would have at the big discovery, it was literally only a couple hundred meters away from the original royalty. And then I went out and bought the royalty that did cover the discovery before it was fully recognized that it was a world-class asset, but that lower zone, it has been tilted geologically and so it’s up to the east or down to the west and it’s plunging towards our 2% royalty, our one two royalty. If that comes over the line, it could be an absolute game changer for the company. It’s already a company making asset. And let me point out that Zinjin just announced, and it came out in our last press release, that they expect to invest a further, not a total, but further, 3.5 to 3.8 billion and they said that they expect to drill the lower zone to two kilometers of depths.
Matthew Gordon:
Right. The current lower is saying what about the sub plunging? K?
David Cole:
Yeah, that’s the lower zone.
Matthew Gordon:
You are talking about the lower zone, gotcha.
David Cole:
They will drill that out to two kilometers of depth. I believe that there’s a reasonable probability that the zone will come over onto our larger royalty ground.
Matthew Gordon:
So I don’t want to make this entirely about Timok, although as great as news as it is, I think there are other things that are happening. So we can sort of see the $3.8 over the next 10 years. We can see we will work at the number of a bigger number in terms of revenues for you as well and whatever happens on the lower zone in some distant future calculation. So that is good enough. You could stop, you stand still now you don’t have to do too much else. That’s change. I want to get onto things. So some of the things that you’ve been talking about Caserones is, again picking up a little more to that.
David Cole:
So we’re top lining about 10 a year from that pre-tax and Lundin Mining Corporation is really excited about what they have there. We continue to hear good feedback from the folks at Lundin, what they’re telling the market. There’s some production upside I believe there, and certainly exploration upside. And this is what’s great about having Lundin on the property. A royalty’s only as good as its counterparty. JX Nippon was a good counterparty. We think Lundin Mining Corporation is a great counterparty. They should be aggressive at continuing to advance resources on that asset and increasing production. We’re really excited.
Matthew Gordon:
Yeah, and nice and I guess it’s been sort of housekeeping for now in a market like this. Not a lot of business happening. Well, desperate business but not a lot of good business happening out there. What about you guys? What have you been,
David Cole:
We sold a project today, right?
Matthew Gordon:
Tell us about that
David Cole:
We sold a project today, Copperhole Creek, I believe it was called in Australia. And that’s just part of our organic business
Matthew Gordon:
Project generation.
David Cole:
We generate projects and sell ’em on average 20 a year. And that part of our business works like a Swiss watch and continues to have great deal flow. We love that business for multiple reasons. One, we generate royalties inexpensively. Two, it puts smart people in the mineral belts around the world that are identifying other opportunities to be able to buy royalties such as Timok.
Matthew Gordon:
But it’s a numbers game, that one right, because not everything pans out and works out.
So you do 20 a year and you’ve been doing it a long time. So what are the best examples of Timok? It would be one, but what are the best examples of those in the portfolio which are now paying?
David Cole:
Balya is a great one. Balya is now paying a little over a million a year, about a hundred grand a month. And that’s a lead zinc, silver royalty, 4%. It’s been slow to develop. I’ve always thought that Balya would’ve developed faster than it has. So the market may be a little bit disenamored with the fact that I said it was going to cashflow more sooner. It hasn’t, but all the metal’s in the ground, they are producing metal there now. They’ve gotten past some metallurgical issues that they had at the mine site and it’ll be a long-term large pair and the production will continue to increase.
Matthew Gordon:
And despite the zinc thing, I’m being about here for zinc,
David Cole:
They have a good silver credit, they have a good lead credit, they’re doing fine and cost in Turkey are low. The Turkish miners are doing fine because they’re paying for many of their expenses in the Turkish lira.
Matthew Gordon:
Were they near anywhere near earthquake issues?
David Cole:
No, thankfully not. They’re in Western Turkey.
Matthew Gordon:
Okay. Okay. So look, the portfolio is fine, but like I said, there’s quite market out there and even I think for the folks in the conference here where we are speaking to them today in Beaver Creek, it’s like I think there’s a lot of people listening, watching, talking, but not a lot of doing for you guys, given you’ve a longer term horizon in terms of the business model, the planning that goes in now, when does it convert into action you’re selling? I get the selling stuff on the generative side that people have got to raise capital, be able to do something with us. So that must be slowing theirselves somewhat for you, but it’s not affecting the bottom line.
David Cole:
Everyone likes to complain about how bad the market is, and I don’t disagree, but I’ll say that we’re seasoned veterans in the mining business. We know that it’s usually a bad market and I think that good projects are getting funded. I know that that doesn’t mean all projects are being funded. It doesn’t mean all good projects are being funded either, but there are folks that are able to raise money. There are projects that are being advanced. It’s hard not to be bullish metal prices long term. We know that the compounded annual growth rate for copper demand is outstanding.
Matthew Gordon:
Yeah, no, okay. It’s metal supercycles and so forth. It’s a great commodity, it’s a great thing topic to talk about. We write about it regularly, but I’m not seeing big deals. Maybe yours also slightly, maybe because slightly smaller and it’s okay to raise smaller amounts of money then get things going if the project that you’ve generated. And I think regular deals are a little bit harder to come by. So it is affecting sentiment come with Mr. Powell in his interest rates. So as a seasoned guy who’s been to a few cycles, this one surely does feel a little bit longer, deeper, stronger. And quite frankly it’ll be intense. Too intense for some people.
David Cole:
I remember December of 15 we were even more depressed and I’ll say this, at EMX, we like to allocate capital when other people aren’t and that’s a good way to be counter.
Matthew Gordon:
That’s where I’m getting to.
David Cole:
Yes. And so I could tell you what this is one of the reasons why we have the joint venture with Franco Nevada and that joint venture is to take advantage of the fact that there is prospective mineral rights out there that are held by people that don’t have any money and they’re willing to do royalty financing early stage, what we’re calling royalty microfinancings. So funding people to do exploration work in exchange for royalty. And Franco thinks that’s a great idea. We’re doing that in conjunction with them. There’s a lot of synergies there with respect to being able to do due diligence and identify opportunities. And so that’s one way that we’re taking advantage of the current market.
Matthew Gordon:
Good. It’s kind of where I wanted to get to because guys like you in my markets like this should deem better. People are cash strapped, cash constrained, a lot of pressure, a lot of all alternative of financing conversations going on out there. Lots of business models changing as a result. So how’s it been a fruitful period you in the sense of we can do business where others can’t.
David Cole:
We’re trying, right? Yeah. We haven’t seen substantial deal flow in that arena yet, but we do want to take advantage of it and we’re certainly trying and I think we’ll at least get a couple deals across the line. Right. Okay.
Matthew Gordon:
And once your view of the cash that you generate, what do you do with it? You sat on a lot of cash for a long time. You plowed it back in the ground. Here is a mining term as well, so you’re not necessarily in terms of your balance sheet, your balance sheet is more about investing and not looking like, look at us, we’re holding up lot of cash. Cash in the bank doesn’t do much for you, does it?
David Cole:
We believe in assets. We believe in growth of the assets and we like to contribute to the base of our pyramid through the royalty generation work and populate further up the pyramid with acquisition. Right now I’ve got some debt I need to work on, so I’m going to pay that debt down before it cycles up to a higher interest rate. It is as a fixed interest rate, thank goodness. It’s at a fixed interest rate at 7% until December of 2024. But I would like to pay that down before we refinance that because it’s likely to go up unless the bond market has a big move between now and then. So that’s one thing that we can do. And then look for special opportunities. We have a lot of smart people in the world knocking on doors and turning over rocks.
Matthew Gordon:
Right, okay. Which is good. It all makes sense, right? We’re here to invest and build future value and this great and dividends and sort of conversations I’m sure are big, high in your thoughts. When I look at your Q2 numbers and it shows revenue down compared to year over year. Is that right?
David Cole:
Well that was because of non-recurring. Recurring revenue is up,
Matthew Gordon:
Recurring revenue is
David Cole:
Up, but last year there was the big payment from Barrick, et cetera. Right? So we settled the Barrick lawsuit brought in $18 million.
Matthew Gordon:
I’m going to work out how you can balance those flows.
David Cole:
There’s a lot of one-offs that happen inside of EMX, stagegate payments. When we settled the Barrick lawsuit, delighted to have that behind us. Delighted to have the money in the bank. We utilize those monies to buy additional royalties of Casserones. What people need to do is they need to filter through the one-offs and see the recurring revenue grow. Okay.
Matthew Gordon:
Is that in your PowerPoint?
David Cole:
Better be can see that. Why don’t I put it in there?
Matthew Gordon:
Why not right?
David Cole:
I could easily go.
Matthew Gordon:
I’m not surprised. You need all the help I can get.
David Cole:
That’s a fair criticism.
Matthew Gordon:
Okay. So look, you’re here at the conference. I know you’ve got a dash. I see you live here. They’re no dashing for you. You know the’re shortcuts, don’t you?
David Cole:
You think I would.
Matthew Gordon:
Although we did manage to lose you on the way here. So apologies for that on camera. You’re going to get back over there. We’d love to hear from you again in terms of perhaps what some of the takeaways from the show. Obviously you’re looking at it from slightly different eyes better, some of the companies there. So did I cover that?
David Cole:
Matt? Matt, always a pleasure. I appreciate your questions. Thank you.
