Elemental Royalty Corporation (ELE) Earnings Call Transcript

Good morning, good morning, everyone. Welcome to the Elemental Royalty presentation today, the 22nd of September 2026. We're going to walk through the transactions that we announced yesterday relating to the acquisition of a portfolio of 3 streams and 5 royalties as well as the sale of the generation business alongside. We will be making some forward-looking statements as we go through this presentation. And today, you have here, myself, FredericK Bell, the CEO of Elemental and also David Baker, our Chief Investment Officer, to run through the transaction in some more detail. So really, what this transaction is about today is it's a material acquisition addition to the portfolio. It's a combination of 3 streams and 2 royalties, all precious metals. It is immediately accretive on a revenue basis, adding approximately 5,000 gold equivalent ounces as we go forward. And it also adds in the cornerstone asset in the future, IoT's Ruby Hill complex in Nevada that will take the contribution from the portfolio to over 13,000 gold equivalent ounces per annum. So this adds 3 new producing assets. One of the additional assets comes on stream at the end of this year and then a new cornerstone asset in our portfolio, Ruby Hill that will be bringing -- adding into the portfolio once it comes into construction and taking us up to an additional over 13,000 gold equivalent ounces a year. So really material meaningful increase from some high-quality assets or precious metals and with some really well-known established management teams. In terms of the consideration for this, it is $200 million in cash, and it is $90 million in equity, which equates to approximately 5.6% pro forma ownership in the company. At the same time, as this increase to our royalty portfolio, we are also divesting the generation business, and that means we'll be becoming the largest shareholder in Carlin East, a private company. And that company is acquiring our generation business for a combination of equity and cash. For us, what it really means is that we will have continued exposure to the other 100 early-stage royalties that we have generated and in the portfolio today from over 10 years of work. And at the same time, we'll continue to have indirect exposure going forward to the portfolio through our stake in Carlin East and some shared interest that they'll be managing. The divestment will deliver an approximately $6 million reduction in G&A for the company. So we are a meaningful streamlining of the business. at the same time as freeing up an amount of working capital that sits within the Generation business. Dave Cole is going to step down to lead Carlin East, and I've been appointed as CEO of Elemental to run it forward. And I anticipate we're going to continue to work closely together, but we have shared interest on those projects. And so in summary, we're adding to the portfolio, we're scaling it up I think this is a really accretive to both on an AP basis and on a revenue basis. And we're streamlining the business, reducing our G&A going forward. In terms of looking back over the past year, I think the company has been very active in adding to the portfolio. And we have deployed in the royalty space. I think that the third most capital after Wheaton and Royal Gold over the last 12 months. And that has been looking at our track record. I think those have been a number of really smart deals, the majority of which we have sourced found, identified and executed ourselves. And I think we can already see from those transactions that we have done material additions to NAV and the value that have a period of time. And I think that the portfolio we just acquired from Orion and announcing, I think that is also going to have some really strong catalysts and value-add that our counterparties are putting into putting into the portfolio as we go forward. With that, I'll hand over to my colleague, Dave Baker, to run through the details of some of the assets we've acquired and the outlook there.

So I'll just start with the portfolio, what we're acquiring, how the assets contribute to the broader elemental portfolio and how we're going to finance it. So the map on Slide 7 shows the 5 assets. and where they fit into the wider portfolio all contributing at different stages. So Carissa and La Negra had immediate production and cash flow alongside some residual leaching small from the Ruby Hill stream. And then we're expecting our first production in Q1 2027 from Snowy River in New Zealand. The cornerstone asset in the portfolio, however, is mineral point, that's within our 80s room reveal complex, and that provides opportunity for us. We also have a royalty on the Kodak's Homes deck district giving us further development exposure. So really, what we've got is a balance of acquiring revenue contributing from day 1, together with material assets that will contribute that over time to our portfolio. Before we look at the assets, if we jump to Slide 8, the transaction terms are relatively straightforward. So on Slide 8, the consideration is USD 290 million. As Fred said, that's $200 million in cash, $90 million in equity. Our iron will approximately 5.6% of elemental on pro forma acts. That cash component is being funded entirely through an underwritten upsize to our revolving credit facility, which we're increasing to $250 million and we're attaining the existing $50 million accordion. In terms of conditions of the transaction, revenue was attributable to Elemental from the first of August of this year and we're expecting completion in Q4 subject to standing closing conditions. So we get economic contributions from the first of August and Orion retained some exposure to the portfolio through our 5.5% shareholding Elemental. Slide 9, you'll see that the largest long-term addition to Elemental on the largest asset in the portfolio is the silver stream at Ruby Hill. Mineral Point is IA's flagship development asset. And on an internal NAV basis, the stream is put out a preliminary pleconomic assessment in 2025. Matt described a 16.5-year line life averaging about 4 million to 4.5 million ounces of silver production annually. [indiscernible], there are some years that are considerably larger than that. The available timetable currently has production from '21. [indiscernible] in perpetuity with no caps would actually notice this morning that I announced some fantastic drill results this morning. I think, 35 drill results, of which over half were outside the current pit constraint costs. So this is going to be a very long-life asset for Elemental. Slide 10. Kouroussa contributes immediately. Kouroussa produced 88,000 ounces of gold in 2025, and we received 5% of payable gold production paying again 20% of spot for gold delivered under the stream. To operate it by Mana, it's a private West African producer, backed by Norco resources in Corus and Orion. And we had a site visit to Kouroussa as part of the operation, part of our due diligence, and we're very comfortable with the operation and performance there. the useful feature of the stream as well is that it covers all material produced through cores. So we had -- so we do have exposure to that long-term additional feed. pollution Chairman there. They're targeting first gold in December 2026. So that would mean that we'd have stream revenue in early 2027, and Dura targeting 60,000 ounces of Gold Year over 10 years. La Negra is producing polymetallic royalty Mexico. They're ramping up to the nameplate capacity of 2,500 tonnes a day in 2027. And actually, coincidentally, this morning, they released an updated study that's outlining 2 million ounces of silver production a year over the half year mine life, so a material contributor for Elemental. We also have a 1% royalty on the Homestake district in operators like the codable 1% royalty is partially as part recovered, but we are confident that we get the initial production years and a decade. So in terms of what that looks rated an updated 20202026 guidance to 195,000 to 22,000 ounces. And that includes approximately 1,500 GEOs attributable from the throne portfolio. We are looking to see material growth assets come online and [indiscernible]. The assets that we've acquired, the TT assets from Orion on Slide 13, fit really nicely into the Elemental portfolio. The top row there are material producing assets, including on the gold side, [indiscernible], on the copper side, Timok and Caserones with the lower road showing our material development assets. really gives a bit of context for the assets we bought, and they fit really well into cornerstone assets in our portfolio changes the balance of our commodity and geographic exposure. So on Slide 14. You can see the precious metals rise from 60% to 66% portfolio. with silver increasing from 11% to 18%, that reflects the importance of RBL. It's an interesting rebalance as well. Our copper weighting has increased both through strong commodity prices, copper price at record highs and strong performance at our assets. So material precious metal acquisition does balance that portfolio back to the 2/3 precious and 1/3 copper that we've had as an internal target was again a very considerably more substantial North American presence with our NAV in U.S. internal and U.S. and Canada are increasing from 13% to 21%. So our pro forma capital structure is on Slide 15. So we will, as I said before, we will use the upsized revolving credit facility to cover the cash requirements of the transaction, so $230 million of gross debt, maybe $25 million of net debt on closing. And we would expect near-term royalty and streaming cash flows to support a rapid deleveraging that will allow us to execute on more royalty deals. And Orion come in as a 5.6% shareholder. -- in the wider elemental. So in conclusion on the portfolio acquisition on Slide 16. The portfolio -- the Orion portfolio adds producing revenue increases our precious metals and North American exposure and a major long-life silver interest. We estimate a contribution of approximately 9,000 gold equivalent ounces over the next 10 years. And that really been the outset from Carisa and La Negra and scope for a much larger contribution over time with Mineral Point. And with that, I might hand over to Fred to summarize and discuss the disposition of the generation business.

Thank you, Dave, for running through that. Talking then to the generation side of the transaction. And I'll give an overview here on Slide 18 of some of the key points here, which is we're divesting the generation business, into Carlin East private company alongside the shared interest in certain option agreements and early-stage exploration royalties related to the generation business, where Carlin will effectively become the manager of those and we will show the royalty interest in it. The business infrastructure we have on that side and the generation team who have a very long track record of working together, we'll go to Carlin East on that. And Elemental will become the largest shareholder in that company, and we will also have some cash contributions to that going forward. And I think what it does for Elemental is it allows us to bank for 10 years, approximately plus of generated early stage royalties that we already have in the portfolio. And then it gives us indirect exposure going forward to future generation activities through coal and East at the same time as streamlining the company. with a reduction in approximately $6 million G&A for the company going forward and in terms of head count, that's sort of order of magnitude, 45 people to about 20 people and it frees up an amount of working capital in the business as well and allows us to simplify the corporate structure and the business model that I think will have ongoing benefits in terms of cost synergies for the company going forward. It is a term sheet that we have signed. It is nonbinding at this stage, but we expect to progress it over the coming weeks and take it forward to a conclusion. Just in terms of a little bit here on the background of the generation piece. I think as we have come now to turn to the nearly 1 year anniversary of the merger with and the company has grown. And you can see on the beginning of the presentation in terms of the size of the portfolio, the number of assets we have added in, and I think there has been a view in the company over time. that the generation portfolio does not get the value within Elemental that it would otherwise I think it is also add some complexity to our corporate structure and the business model that we're doing. And so I think this is a way that we can actually create value from a smaller private company that focuses on the generation side with the same team and strong track record with Elemental being a part of it and supporting it. And at the same time, simplifying the Elemental Royalty business model into what it is in the pure play royalty side. So look, overall, where we are with these transactions is we are increasingly scaled royalty company I think the additions to the portfolio are really strong additions in terms of the assets. We immediately add 3 new producing royalties and streams. We have another one coming online at the end of the year, as Dave mentioned. And then we have the new cornerstone Ruby Hill complex in Nevada that will come into the portfolio in the future. It adds materially to our growth profile is immediately accretive and heavily accretive on a revenue basis as well as being accretive on a NAV basis. And I think that we have some really high-quality management teams that we are partnered with through this transaction. If you look at the IT management team, not only do we have a small royalty on part of their ground already, but we have previously worked with them in the past. At Teranga, if you look at -- if you look at Mana, we have exposure through their second project Dubey. And we have on the team, we have members who have been to site there now twice on the Kouroussa asset and familiar with it. And I think and the progress they have made with the backing of Orion over the past year on that project. And as Dave mentioned, really interesting structure where the stream at Kouroussa is on the mill. And so everything that goes through that mill in the future, we get the optionality and exposure to in the Sagari basin. Next to which has been 1 of the standout performers recently now with a consolidated approximately 14 million ounces in resources. So I think absolutely prolific district and having a stream on the mill there is a strategic asset to have. And then some of the other management teams, Dakota Gold, a very well-known management team in the U.S., and we have a very large land package coming with that Indura in New Zealand, where Jay Klein is the Executive Chair as well. And then lastly, Silver that, as Dave mentioned, just put out a PEA yesterday that was materially better than we had anticipated. And along with the update from IAT this morning on the exploration results they've been getting at Mineral Hill which are looking to increase the strike of the deposit and also the with as well. So I think both of those updates are very positive for the for the value actually of this transaction where we are. With that, I will -- I'll conclude our presentation. And apologies if there were some IT issues here as we were going through. Some of you may have had a broken signal. But we're happy to go on to the Q&A from here and answer any questions that come in.

[Operator Instructions] We'll take our first question from the line of Heiko Ihle at H.C. Wainwright.

Congratulations on a very transformational transaction here. Is there a right of first refusal from the generation is for any prospective future sales that you keep?

So in terms of the generation business, it will be the largest shareholders, as I mentioned, and we will have a joint interest, joint economic interest in a number of the assets that are going through, but we will not have an explicit right first option on future projects that they generate that did not come from originate from Elemental.

Okay. Fair enough. And then I'm trying to see maybe a bit of a breakdown of the 20% -- 25% G&A reduction that you're guiding towards in the press release. I mean, I assume this is mostly labor, but you want to maybe just give a bit more color. And I -- and also I assume the reduction is mostly from people going to NewCo, correct?

Yes. Look, I think the generation business model, we probably have approximately 25 people involved in that in the company. And so the primary cost there is direct employee cost, but we also we have a number of offices in different jurisdictions, and we have about 50 to 60 early-stage projects. where the commitment and the expenditure is on the company. And so that's really where the cost comes from. And I think that with this transaction, we will also be able to -- and we haven't included it in that estimation of G&A savings. But I think that we will also be able to streamline the corporate structure. And so I think if you looked back a year ago, we probably had 95 subsidiaries. And I think that if you fast forward into the new year, we'll probably have in the region of 40 subsidiaries and being able to keep streamlining and reducing that and making the company more efficient in that regard.

Very good. Okay. Perfect. And then just last one coming from me. what exactly -- is there a bit of a shift in being willing to fund things through equity? Or should we expect -- you've done a whole number of large-scale transactions over the past year. Where should we expect future transactions to be credit or equity or cash on hand? I guess if you have some, what are you sort of looking to do?

Look, I think it's very much dependent on the circumstances and what is going to make the most sense. And obviously, we have a -- with the cash flow that we have with the increase in revenue that we are getting from this transaction. we have a greater ability than we've ever had to be able to use our own cash and our own revenue to reinvest and limit dilution. And I think what you see with this transaction is that where we are using predominantly cash and our available credit facility to limit the dilution that we have for shareholders. So I think that it really depends. And I guess the other side of the coin is that there are some counterparties we deal with. We're part of the attraction for them in dealing with us is getting equity exposure as well through Elemental and through the portfolio that we have. and through the growth that we have been able to put into the portfolio, especially over the last 12, 24 months. And so I think that it's always a balancing act between where we can add the most value and sometimes where counterparties would -- where their preference sits as well.

We will hear next from Brian MacArthur at Raymond James.

First question, are these separation of generation and the deals Orion, are they dependent on each other, i.e., if, for some reason, the Orion transaction didn't close with the generation spinout go ahead.

No, they're separate transactions. And so the deal with Orion is a binding transaction that we have announced and the deal on the generation side. that is, at this stage, a nonbinding term sheet, and that is dependent on a few pieces on the Carlin East side as well. So those are 2 separate transactions. I think just announcing them in terms of together, they sort of dovetailed both in terms of timing a bit, but also in terms of it being approximately a year on from where we were in 2025 when we announced the EMX Elemental merger. And I think throughout that time, we've had conversations on whether generation gets value within Elemental or whether it actually as the company scales and increases its portfolio, whether that generation side would actually get better value in its own entity and vehicle. And I think that's really the conclusion we reached and the timing here is announcing them alongside, but they are independent transactions.