Elemental Royalty Corporation (ELE) Earnings Call Transcript

Good day, everyone, and thank you all for joining this Elemental Royalty Corporation Second Quarter 2026 Conference Call. [Operator Instructions] As a reminder, today's session is being recorded. It is my pleasure to turn the floor over to President and COO, Mr. Frederick Bell. Welcome, sir. The floor is yours.

Thank you very much, and thank you, everyone, for joining us. Today, you have myself, Frederick Bell, COO and President; and Stefan Wenger, our CFO, to talk us through the Q2 results for 2026. And if you look at this slide, look at a high level, it was the second highest quarter of revenue in the company's history. It was a record in terms of gold equivalent ounces sold in the quarter, continues to show the growth that we have forecast for this year. And we're ahead of the midpoint of guidance as we pass the mid-year point. And as of the end of Q2, the company, before new acquisitions, had a cash position of about USD 74 million. And I will talk through a few overview slides and then pass over to Stefan to run through the more detailed Q2 financials. And we'll give a bit of an update on the portfolio projects' growth profile and then lead into a Q&A. So as a brief reminder, the portfolio as it sits today, is roughly 2/3 gold focused, 1/3 copper, very diversified across both jurisdiction and counterparty operators. We have done a lot of work in the first half of the year in terms of on the corporate side in terms of up-list to the TSX from the TSXV. We completed our NASDAQ listing at the end of last year. We increased our credit facility, upsizing it and reducing the cost of capital on that. We had some new analyst coverage coming on, and we had some -- starting to see the first indexes as well for the company index inclusion that we expect to [indiscernible] and onwards. In terms of capital allocation, we've put in place the company's maiden dividend in Q1. We also had approval for a normal course issuer bid out there, the company's AGM of up to 5% of shares outstanding over the next year. And we have now paid 2 quarters of dividends in Q1 and Q2. The management team, we have both taken on the management teams from EMX and Elemental Altus as part of the merger, but we have also added to that over the course of the first year, strengthening both our technical team, financial team and legal team to enable us to maintain cadence of growth in transactions that we have demonstrated over the past year. And we continue to have a very supportive shareholder base. And I think as most people are aware, major shareholder, 32% approximately currently is Tether. One, I think before we get into the detail of Q2, it's worth rewinding and going back to June 2025 and looking at the difference between the company as it was then and as we sit at the end of Q2 2026. And a few really key points to highlight here. If you look at our top 6 cornerstone assets as of the middle of 2025, they had an average value of about $40 million. And with the conclusion, closing of the Vizsla transaction, those top 6 assets for the company going forward will have an average value of about $170 million. So a number of new acquisitions and additions [indiscernible] increased our cornerstone assets materially in terms of size and importance to the portfolio. And I think we guided last year that this was going to be 1 of the key areas of focus for the company is improving the quality of our cornerstone top 10 assets as we go forward and looking to build this into a mid-tier royalty company. We're looking to have really high-quality assets underpinning it. In terms of capital allocation, you can see that in the year from June '24 to '25, the company deployed about $28 million in new acquisitions, including, again, the Vizsla transaction in the year to June '26, the company will have deployed about $750 million, including the EMX and Vizsla corporate transactions. So material step up in terms of growth in terms of the number of producing royalties, again, [indiscernible] it from that perspective, a multiple uplift of 3x in terms of total number of royalties as well, adding a lot in the development and earlier stage side. And then in terms of revenue, which we'll talk to you more, but you can see that the guidance for 2025 was about $40 million and up to $85 million this year. So I think on all of those metrics, we are a very different company at the end of Q2 to where we were at the end of Q2 2025. And I think before we get into the detail, really important to have that context of just how much has been going on both on the portfolio side, strengthening it, but also on the corporate side, on the team side, really building it out. And I think we have spoken to a bit some of the indexes that we expect the company to get into, and we have the S&P TSX Global Gold Index inclusion in Q2 with the Russell 2000 inclusion as well. And we're expecting MSCI, Canadian small cap and GDXJ as well going forward in the short term. In terms of really, material strategic developments, the most important 1 was the agreement to acquire Vizsla Royalty, and that is an uncapped life of mine 2% to 3.5% NSR over the Panuco project. We have guided to the market close of that transaction in Q3 2026. And just to reiterate, we have these [ low ] royalties have had shareholder approval, and they have had court approval, and we are waiting on the Mexican Antitrust Commission, who we are in regular contact with [indiscernible] of that transaction. And we can talk a bit more to that later on. In terms of some of the corporate milestones -- and these often going on in the [indiscernible] -- every time in the company's history, we have renewed our credit facility. We have lowered the cost [indiscernible] that trend in H1, both upsizing it to $150 million, plus $50 million accordion, but also reducing our cost of capital, giving us additional flexibility index inclusions we spoke to. And we have been active at times on the normal course issuer bid, given some of the volatility in markets and trying to take advantage of that when we see anomalies in terms of our valuation. We completed another transaction on the Western Queen royalty where we already had exposure, and we increased that royalty, we improved the terms, we improved the [indiscernible] in the course of the H1. There's a number of updates. We'll talk a bit more to on some of our cornerstone assets, Timok, Caserones, Karlawinda, Laverton. And then post quarter end, we had an investment which was both adding to our royalty -- existing royalty at Chapi, which commissioned in H1, but also taking some equity in the company as they look to come public in the coming months. And we paid our second quarterly dividend. We also introduced the option for shareholders to take that in Tether Gold as well as cash. And just to clarify for some shareholders on that point, anyone can still take that in cash. It is just now an additional option to take that in Tether Gold for those who would like to. So with that, I think those are some of the highlights overall. I'll pass over to Stefan to run through Q2 financials in detail.

Yes. Thank you, Fred, and good morning, everyone. And I'm really pleased to be reporting to you today that we had an outstanding second quarter and first half of the year. And as Fred mentioned, it's a completely different company post-merger with EMX. And we're -- we've had quite a busy first half of the year that I'll talk to in more detail. But the portfolio is performing as we expected it would. We had nearly $24 million in revenue in Q2, a 127% increase over the prior year. GEOs are at the higher end of our guidance range. We had 5,250 GEOs sold in Q2. It's a 65% increase over the prior period. And our adjusted EBITDA of $17.4 million was up nearly 100%. Operating cash flow of $15.5 million is a record over prior year. It's only up 8% because we had some payments in the prior year that also came in operating cash flow with very strong conversion to cash flow. And at the end of the quarter, we had $74 million in cash. And Fred's already talked about our undrawn credit facility as well. I will guide that as we close the Vizsla transaction, there is a cash component to that, so we expect to use about $60 million in cash on the Vizsla transaction. We've also just completed the Chapi acquisition that Fred pointed out. So we will potentially use a small amount of our credit facility just to maintain working capital post those couple of items. But as you can see from the portfolio, we continue to generate cash, and we feel like we're in a very excellent financial position with working capital of $96 million. Moving on to the financials. And I've already pointed out some of the revenue numbers on the left, but just focused on the financials themselves. The questions I get most are, what's your G&A run rate going forward? And how should we expect the cost profile going forward? From a G&A perspective, the first half was incredibly busy, and we've really laid the foundation for growth in the future. But I expect in the second half, our costs will decline. And from a run rate perspective, I would expect our G&A to be somewhere in the low $4 million range on a quarter-over-quarter basis instead of the $5.6 million that you see here. But there's a number of initiatives that we're working on right now to reduce those costs. For example, after we completed the merger with EMX and Elemental, we had over 70 entities within the combined group because of historically how the company has been put together. This year, we're targeting reducing that by over 50%, which will reduce costs and reduce friction within the company. Also during the first half of the year, Fred mentioned some of the corporate initiatives that we worked on, the NASDAQ, the TSX uplift, the dividend, the NCIB, the credit facility. All of the work that we've been doing to sort of build the platform for future growth, and some of those costs are going to come off as we go forward. So that's why I can guide to a lower G&A rate running forward from here. Royalty generation expense is right in line with our budgets. You can annualize that for the year as far as an expectation. And we continue to be focused on growing NAV per share every day. So that's where you'll continue to see the focus on the company. And as I go forward, I've already mentioned as well, we're tracking towards the upper end of our guidance of 21,000 GEOs for the year. And we're over -- we're about 60% of the lower end of our guidance. So tracking very well within that guidance range, and our revenue was also tracking. So we're in very good shape. The portfolio is doing exactly what we expected it to do this year. Just giving a snapshot of where our cash flow goes. You can see that we ended Q1 with $69 million in cash. We generated that $15.5 million of free cash flow. And then from a capital allocation perspective, we had a relatively small investment to expand our Western Queen royalty. That was AUD 10 million or about USD 7 million. And then Fred mentioned, we commenced an NCIB with our share price, we believe, was trading well below our NAV, and we took advantage of that and invested $2 million of share repurchases in addition to just less than $2 million of our dividend payments that now happened in Q1 and Q2 or Q1 and Q2. So a really balanced allocation of return of capital to shareholders with both the NCIB and the dividend. The full first half cash flow bridge shows a similar story. And really, that free cash flow is being driven from our key royalties from Caserones, Bonikro, Karlawinda, Leeville and Timok. I believe 80% of our revenue comes from those top 5 assets. And we're performing and growing as expected. And Fred's going to give a slide that talks about our growth profile. And all of these things that we're doing during this quarter are focused on building for the future, and you'll see that in the slide that Fred will present. So with that, I'll turn it back to Fred, and then happy to answer questions at the end.

Thank you. Thank you, Stefan. And look, this is an overview of our portfolio, just as a reminder for everyone. And I think the -- 1 of the takeaways from this is not just how diversified we are in terms of our revenue base, but also a number of advanced projects that we have in the portfolio, a few of which we will talk to specifically later in this presentation. And then a very, very deep pool of embedded optionality with those approximately 200 earlier-stage royalties where we often do not have a value attributed to them, but where a lot of those operators and our counterparties are investing in some cases, tens of millions dollars a year in terms of exploration and advancing those projects. So we know from experience, there is a huge amount of embedded optionality in those earlier-stage royalties that we do not get value for currently, but that is part of the benefit of having this portfolio and very diversified. So there are two additions to it in -- that we'll talk to a bit just recently. And we've touched on Panuco. And again, this is 1 of the highest quality primary silver development assets that is known in the market. It is going to be a very material contributor for us once it is in production going forward, and we are really excited, remain really excited by the exploration potential. And there is 1/3 of the new range being explored to date. And the more work they do, the more they find. And we expect the resource across the project to continue to grow. And if you look at those first 5 years of the mine plan, we see potential for that to continue over the 4 years of the life and the later extension. So we think that the feasibility study they put out was at a point in time, based on the resources, we expect that to improve over time. We expect more resources coming into it. And that 2% to 3.5% uncapped royalty on the project makes it a very material contributor for us going forward. In terms of key catalysts there, Vizsla waiting for their permit for the mine. And we have seen over the last quarter to, I think, all the permits granted in Mexico. So there is progress being made by other companies in the sort of pipeline of projects getting approvals. And there's also a plan for Vizsla to have enhanced security at the outset going forward. So we look to get approval from the Mexican Antitrust Commission, we have guided this quarter. We have had questions back and forwards with them coming over the summer as well. I think there was a bit of a delay in getting some [ test ] back from them, but we would anticipate getting that approval in the coming weeks, subject to not getting any further follow-up questions from that. So we have answered everything to date that we need, and we have shareholder approval for that and the court approval as well. So expect that to take the final Mexican antitrust to happen in the coming weeks and be able to close the Vizsla transaction, which, as Stefan mentioned, is -- it was [ 3 quarters' ] equity consideration, approximately [ 1 quarter ] cash that will be paid on closing. The next asset that we added to here, and this was an existing royalty we had in the portfolio. And the initial investment was made at the beginning of 2025. We added an additional royalty on it. We also took equity in the company, which we don't do as often. This is a very well-known management team in Peru, a really top-tier track record. It is in a belt here where you can see all of the majors deposits are [ Freeport, Terra Verde ] to the Northwest. And you've got Anglo-American Southern Copper projects. And more recently, [ Chinoco ] just came in, in the past month or 2 as well. So it's a huge amount of exploration potential. They have done the hardest part in terms of commissioning the mine in the first half of this year, getting production at an initial 10,000 tonnes per annum and working on the plans for expansion to 30,000 tonnes per annum as well going forward. So an asset where we see cash flow from immediately. We've increased our coverage. We've also increased our total royalty exposure. And we think it's a top rate management team with a very, very storied track record in Peru of actually operating successfully and executing. So we added to that in the quarter. And then maybe a bit of an update on some of our producing assets and [ Samarco ] ones. And there are a few updates from Karlawinda. And you can see it generated about USD 3 million of revenue in Q2, and approximately that amount, when you look at H1, similar, about $3 million. Two important updates from Karlawinda. The first is that the expansion of the mine is on track for completion in Q3, so this quarter. And as a reminder, they are taking that annual production, increasing it from about 115,000 ounces, 120,000 ounces to approximately 150,000 ounces per annum. And that expansion is expected to complete and commission this quarter. And then they will be at a run rate of about 150,000 ounces per annum, and fully funded internally by Capricorn. They also, very importantly, post quarter end, they announced an increase both in their reserves and resources. So about a 30% increase in reserves versus last year and about a 48% increase in total resources as well. And just as a note, I think, look, it's using approximately in U.S. dollar terms, an $1,800 gold price, I think, on that resource reserve update. So we continue to see material mine life potential, both through exploration and also converting the resources which are approximately equal to the reserves as they stand today going forward. At Caserones, in Chile, Lundin continue the exploration that they have been doing over the past 18 months. And in total, that will be about 100 kilometers of drilling at the project. And I think for us, there's a number of other growth initiatives underway, improving the cathode plant utilization. And we expect to see some updates on that exploration they've been doing over the past 18 months going forward. So that's been -- I think the best way to characterize Caserones has been continued incremental improvement since Lundin took majority ownership quarter-on-quarter, year-on-year. And that's tracking well, notwithstanding some interruptions in Q3 for weather that they have announced. But that's, as you can see, an asset that both Elemental and EMX owned and a material contributor now and going forward. In terms of some of the other assets, we had site visits and updates both at Timok and Leeville in the first half of the year as well. So we were able to meet with management teams get updates on mine plans and how they're progressing. And I think positive on both centers in terms of what they're actually achieving on the ground and current production, as well as the long-term outlook. And Timok is an asset that we have spoken to quite a lot in terms of the expansion there. And they continue to develop the Lower Zone. So as a reminder, they are currently mining the Upper Zone. They have a major expansion into the Lower Zone underway, and they will be mining that both through shafts and declines, and that will be mined in parallel with the Upper Zone. They also made a very important discovery a year ago that in Zijin's terms by itself classifies as a super major discovery, which is the MG Zone Malka Golaja to the Southeast and within our royalty area. And they've put out an initial resource on that. And we expect that also to be another area -- production area for them in the future going forward. So very, very good to get our site visit there complete and see the progress they're making. And it's been a pretty consistent contributor for us in recent quarters. At Bonikro, this is a 4.5% NSR. So this has been a material contributor for us recently. And this is capped royalty, so it will continue until approximately 2029, producing for us. Allied were going to be acquired by [ Singen ], and that changed post quarter end into investment by [ Singen ] in Allied. And Allied continue to operate -- I think at Bonikro, they actually extended the mine life there. So they continue to work on it, and it continues to be a very important contributor for them and also for us, through that 4.5% royalty coverage that we have. And then lastly, Leeville. And this is partial coverage. So again, quite important for us to get the site visit here, talk to the management team and understand how our royalty area, which is very similar to Royal Gold's Leeville royalty, how that royalty area fits into their mine plans going forward. And I think 1 comment on Leeville has been the consistent exploration success [ Nevada Gold Mines ] have had there over many years. And I think we saw that through the management update that we had. And I think for us, there's a multi-decade mine life coming through on that Leeville [ old ], and that is before exploration and they continue to do that. So Leeville is -- it's a really high-quality asset for us with our management team there. In terms of the development projects that we talked to most often, and this is a highlight. I think the -- what you might take away from this is that these operators are investing approximately $800 million plus in these projects to expand them, to bring them into production, to develop them. And so that is -- these are serious counterparties, Genesis Minerals in Australia, 1 of the highest [ order ] management teams. AbraSilver, which has been a huge success recently in Diablillos project, Mansa Resources, existing private mid-tier operator, and they operate 2 mines and looking to fast track Dugbe project into construction at end of this year, beginning of next. Fireweed with the Lundin there who have done a lot of work progressing the project, and feasibility study expected on that next year. Viscaria, where they have started construction and looking to target that production coming in next year. And then Cactus, which was successfully acquired by Hudbay and feeds into their pipeline. So I think the important thing about our growth profile when we talk to it is that it is partly coming from existing producers. Genesis is an example, Mansa as an example, Hudbay as an example. But it's also coming from management teams with a track record with an ability to raise a finance, develop the project. And I think our growth profile has materially derisked versus a lot of peers. In terms of our track record, we've updated this slide now for Q2. And so as a reminder, it shows on the first line, what we originally acquired these royalties for. And in the dark gold, the -- what we have received from them to date and then the current NAV. And we update this, try and do it on a quarterly basis. We've summarized on the right, some of our previous investments, smaller ones. But you can see there as well, really good returns and some of those assets still in production today, [ Mount Pleasant, Mercedes Paradise ]. And so continuing to improve those returns over time. But I think if you look at [ Carlo ] in there as an example, the second 1 on the left here. Look, when we bought that royalty, we had a view that the management team were top tier in Australia, very long track record of successful execution. We had a view that their previous company, they built 3 mines in 5 years, and they also expanded all 3 of those mines in that 5-year period. And we had a view they were going to do the same at Karlawinda based on the resource and the deposit and how they built it. And we're seeing that now coming through. And we also had a view that the mine life would continue to grow over time, which we have seen. And so when you combine those factors, you get an awful lot of optionality through the royalty model and through the benefit of an operator like Capricorn being able to invest internally, hundreds of millions of dollars into a mine expansion and into continued exploration for the benefit of us as a royalty holder. The next slide here is our growth outlook. And as Stefan mentioned, we have been working on this assiduously, not just from additions to the portfolio. And we have made a number of royalty acquisitions over the last year that have added to this. And Vizsla, you can see there in the gray, that will come in into that growth profile. But we have done this alongside our adding to the team, building out the really, strength of our management team and the corporate side. And if you look here, our guidance for this year is about 17,000 to 21,000 gold equivalent ounces. And if you jump forward to 2028, we're forecasting that to be about 25,000 GEOs. And if you go to 2029, 2030, 30,000, 35,000 GEOs. So as Stefan alluded to, we will be in -- continue to be in a very strong financial position even post close of Vizsla. And we will have the strongest organic growth profile the company has ever had by orders of magnitude. And that is not including existing assets like Karlawinda that will continue to act to their mine life. It's not including the approximate 100,000 meters of drilling. The Caserones has happened over the last 18 months continues that we expect to add to the mine life there. And it's not including exploration across most of our other major assets. So look, I think it puts us in a very, very strong position, not just to continue delivering the financial returns that we are at the moment, but also to get that material uplift in terms of revenue growth and margins going forward. In terms of the next slide here -- and I'll just touch on this quickly, and we'll go through into Q&A in a minute. But we wanted to give a highlight because it has been such a busy period of the catalysts that we have achieved and those that are still outstanding on the portfolio and corporate side. And you can see on the left, a number of the projects heading material catalysts and the number that are still to come in the second half of this year and being guided to by operators there. And on the corporate front, a number of the initiatives underway to improve the company's position, to strengthen our liquidity, which has seen a very material 50x increase through June of 2025 through to where we are today and put ourselves in a position to continue to grow the company, improve liquidity for shareholders and improve visibility of the company going forward. The next slide here, we -- I'll just touch on quickly, but approximately USD 1.2 billion market cap. And as Stefan mentioned, about $74 million cash as of Q2 and before the $25 million Chapi investment and before the approximately $60 million cash that we will be paying to Vizsla royalties on completion. We had some additional analyst coverage Pleased to say CIBC initiated on the company as well. So we have continued to get better research coverage and I think raising our profile in the space. And part of that is that TSX uplist, the NASDAQ listing, the index inclusion. And we have a number of shareholders listed down on the right-hand side. And I think a number of those shareholders who have been shareholders in the company for a number of years, very supportive. And Stephens Investment Management, Euro Pacific, [ Extra Capital ], a few groups there that have been shareholders in the company for many years, very supportive. And we now have Tether as well since June of last year, who have been a major shareholder in the company, very supportive. Juan is on board as Exec Chair, and continue to be supporting the company in the growth initiatives going forward. And with that, I will come to the last slide here, circling back on where we are at the midyear point. And that is about $48 million in H1 revenue, 10,000 GEOs, as Stefan mentioned. And really on track to deliver a very good performance in line or above guidance for 2026. With that, happy to run over to questions.

[Operator Instructions] And we do have a signal from the audience coming from Mr. [ Larry Liu ] at CIBC Capital Markets.

I have just 2 really quick questions. The first 1 is on the GEO calculation. Can you remind us if the GEO reported is calculated at spot prices or your guidance prices? And if it's it calculated at spot prices, how does that compare to your guidance prices? And does that give us a positive now that you have that 1/3 copper and copper prices really ran?

Yes, I'm happy to take that, Larry. We are -- the GEOs that we report are based on actual average prices for the quarter compared to our revenue, so revenue divided by the average price gets us to our GEOs. Our guidance was made at $4,500 gold. And I'm looking up the copper right now was at $550 copper. So we're sort of today's spot just below where our guidance price range was for gold and well above it for copper, copper has been the outperformer so far.

Perfect. Sounds good. So I guess, Stefan, what you're trying to tell me is, if you use realized prices today, that will give you more GEO count because copper prices are higher?

Yes, we're benefiting from the higher copper prices. Gold, of course, has been a little bit below our guidance range.

Perfect. Sounds good. And I guess I'll touch on my second question, taking a step back here. Fred, you talked about how Elemental is a very different company just from a few months ago or even a year ago where you did the EMX merger and now on track to closing the Vizsla transaction. I just want to ask about what does growing in size -- does that change the way you look at transaction, whether it's deal sizes? Or now you've got your feet wet and put a little bit of into equity investment recently, does that change the way you look at your transaction style?

Thanks, Larry. I think it's very consistent with what we've done in the past. And we have taken small equity positions alongside royalties in the past where we see value and where we see the opportunity. And in terms of the transaction size, I think you've seen the whole spectrum of deals that we have looked at. And so we have done $7 million transactions, adding to existing royalties such as Western Queen, alongside much larger corporate transactions on the other side of the scale with Vizsla Silver. So I think we're continuing to look across a range. We do see really strong pipeline in terms of opportunities that we are working on and we have progressed. And I think importantly, the company is in a position to be able to execute on those. And just a reminder for everyone on the call, I think in the royalty space, if you look across it from really the top down, people are looking both for growth and the ability to continue to [ land ] capital accretively. And then also the second consideration is, are you -- do you have the financing and funding and ability to do that? And if you look at both Elemental and EMX historically, we have actually, between us syndicated about $200 million of deal flow over the history of the company. And that is, as we grew from smaller companies not wanting to overweight the portfolio, but also to individual assets, but also a function of availability of capital. And so we have syndicated with Franco-Nevada twice. We have syndicated with 2 different private equity groups in the space as well. And that is an area that we don't necessarily have to do going forward where we are giving away some of the deal flow that we have generated and opportunities that we have found ourselves. So I think we'll continue to do -- to be very active looking across the spectrum of assets where we're probably going to be very consistent as well as on the commodity front. And I mentioned earlier, we were roughly 2/3 precious metals and 1/3 copper. And I think we continue to have a focus on those commodities, but with an ability to be opportunistic where we see deep value elsewhere in [ Swiss ].

Excited to hear good cash chasing good assets out there. Congrats on a strong quarter.

We'll take our next question from the line of Heiko Ihle at H.C. Wainwright.