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Maurice Jackson:
Welcome to Proven & Probable where focus on metals, mining, and more. I am your host Maurice Jackson.
Today we will discuss The Royalty Generator. I’m speaking of EMX Royalty Corp trading on the TSX-V symbol EMX and on the New York Stock Exchange symbol EMX. Joining us today is David Cole. He is the President, CEO, and Director of EMX Royalty Corp.
Mr. Cole, welcome to the show, sir.
David Cole:
Thank you Maurice. Great to be here.
Maurice Jackson:
Mr. Cole, for first-time listeners, please share who is EMX royalty Corp and what is the thesis you’re attempting to prove?
David Cole:
EMX Royalty Corporation is a royalty company focused on building a portfolio of gold and copper royalties in addition to other metals such as lead, zinc, cobalt et cetera, silver, around the world, and we have a global approach.
Maurice Jackson:
Now, EMX Royalty employs what is known as the Prospect-Generator model. Please share with listeners that may not be familiar with the concept. What is a Prospect Generator?
David Cole:
I’m happy to. I’m quite passionate about the Prospect Generation business model as you know Maurice. The Prospect Generation business model is one in which we utilize our geological expertise and our business acumen with respect to the trends that we’re working around the world to go forward and acquire prospective mineral rights utilizing that technology as leverage. We build a portfolio prospective mineral rights, we add value by doing good geology and advancing permitting et cetera, and then sell those assets on to well funded major companies and junior companies that we believe will do a good job on our projects where we maintain cash flow coming in from pre-production payments in addition to production royalties on that portfolio.
It’s a very powerful way to approach the exploration business giving the shareholders exposure to a substantial optionality across our portfolio.
Maurice Jackson:
One of the virtues I really like about the Prospect Generating model that you’ve been very successful with is that you de-risk or deleverage the portfolio by using capital from someone else. Expand on that just a little bit.
David Cole:
That’s fantastic. Isn’t it? We add value to the early stages which are intellectually taxing but not typically very expensive. We’re able to sell these assets on with the geological models that we’ve developed on our mineral rights and get other people spend the money to advance them or we have a tied interest in that which is that optionality. We’re exposed to the exploration upside in the discovery potential on these assets as are developed. All at the expense of the counterparty.
Maurice Jackson:
EMX has truly earned the distinction in the natural resource space as being the Royalty Ggenerator by utilizing a Three-Point Approach. Can you elaborate further on this process which has been a proven formula for success?
David Cole:
Yeah. I love this combined business model, Maurice, and specifically your bread and butter is your organic growth royalty portfolio through the Prospect Generation business model. But to augment that portfolio which we have grown organically over the course last 14 years, we also occasionally find royalties that are available for outright purchase and we’ve purchased some good royalties that have increased our cash flow and given us greater exposure to some good mineral systems around the world. That’s a nice two-pronged approach.
Other royalty companies typically focus only on buying royalties. We focus on organically growing into the Prospect Generation process in addition to buying them if and when we can find them a good value, which I’ll say straight up is a difficult thing to do because royalties tend to trade at a premium and so it’s hard to find royalties to buy at a accretive pricing, but we’re happy to do so when we do find them and there’s a couple of good examples within our portfolio. But the fact that they trade at dear valuations is indicative of the value that we’re creating through the organic process.
Then the third prong is strategic investing. The same geologists and businessmen that are out around the world helping us grow our portfolio through the organic Prospect Generation business model occasionally come across a key specific investment where we can buy shares in a company which is in advancing a new discovery around the world. And when you’re armed with that geological intelligence, we’re happy to put some of our shareholders’ money to work as a share placement in those companies. We have a good track record of producing some nice returns for our shareholders executing that strategic investment arm. And the three together, in my opinion, very powerful.
Maurice Jackson:
You referenced royalties. Let’s put screens and discuss some past successes of EMX Royalty Corp. How many royalties does EMX Royalty currently have, and where are they located?
David Cole:
We have now a portfolio of 37 royalties around the world focus on copper, gold, and polymetallic systems. We have a nice portfolio of gold and copper royalties in the Western United States in the states of Nevada and Arizona in addition to South Dakota and Washington but the key assets that are cash line are in Nevada at this time. In addition to some very nice important royalties that we’re developing in Scandinavia focused ultimately on copper and polymetallic systems including some assets there with cobalt and nickel, which are quite popular right now because of the use of those metals in battery technology.
Some important near-term cash-flowing royalties and currently cash one royalties in the country of Turkey where we’ve had a not active Prospect Generation business now for 14 years. And then a key copper and gold royalty on massive new discovery in Serbia that’s being advanced by Nevsun Resources and that long-term will become a very much a company building royalty for EMX Royalty Corporation.
If we go down and look at the list, this is from our website at emxroyalty.com for your listeners if they’d like to go there. You can see the map with the various colored dots representing our royalties we have around the world and then a list of those royalties. Right to top of list is very important one, Leeville, which is a mine operated by Newmont Mining operation on the northern portion of the Carlin Trend, which is one of the most prolific gold producing regions in North America. We’re quite pleased to have a 1% royalty there and get checks from Newmont every month. In 2017, this royalty paid 1.86 million US dollars. That’s a key risk-reducing and cash line asset for us within the portfolio.
We have a number of Nevada based and Arizona based royalties in addition to that and many of these are being advanced by the counterparties including Kennecott Exploration Company, which is the operating arm of Rio Tinto Zinc one the largest money companies in the world. I would like to point out that we do have some interesting royalties within us and some of the ones that really drive value are in Europe and Turkey as well. Let’s move on and look at some of those.
In Serbia, we have a half percent royalty on the big Brestovac Discovery that I mentioned. That’s copper and gold being operated by Nevsun Resources. We have additional royalties within that complex. It’s a geological trend called the Timok Magmatic Complex. It’s in Eastern Europe in Serbia and it’s the largest historic Copper-Gold producing region within Europe actually. These royalties we have there speak volumes to our business model and that we were one of the first companies to enter into Serbia help them rewrite their money concession legislation and then became substantial landholders there and sold those off and kept royalties then in addition we’ve purchased some other royalties to augment that portfolio coming back to that idea of multiple prongs to our business model and the long-term potential coming off of this Brestovac license is extraordinary.
We’re very, very pleased with that advancement there. A lot of press releases coming out of national resources with regards to the advancement of the resource both in the lower zone, quote-unquote as well as the opera zone, and they’ve got a timetable to put that in production, which will be an important moment with respect to the catalysts for revaluation of the EMX Royalty Corporation.
Our team in Sweden has done a fantastic job of executing the organic growth of our portfolio through the Prospect Generation process by acquiring lots of really interesting mineral rights covering Lead-Zinc-Silver systems, Copper-Zinc-Silver systems, iron and copper systems, Cobalt by-products, and many of these associate with nickel Mineralization. For example, we focused not only in Sweden, but we have some very nice assets in Norway as well and we’ve been quite successful in getting these sold off via our business model and keeping royalties on those projects. Very importantly, we’re also typically paid in shares for many of these as well so we’re building a portfolio of shares with other exploration companies that we’re able to give our shareholders direct exposure to the exploration upside and production upside via the royalty in addition to the excitement of the shares in those companies by giving us the opportunity to win more than once when there is a discovery.
That speaks to this idea of optionality for our shareholders are exposed to the optionality with respect to the share portfolio that we have whether they’re strategic investments or shares even paid to us for our properties. In addition to the optionality associated with holding royalties, dominantly that is related to commodity price increases over long periods of time and in addition very importantly the exploration and discovery upside to these. Quite importantly, these are typically gross royalties and they cost us nothing to hold. All the work that goes into the ground on behalf of our counterparts Boreal Metals, or Kennecott Exploration, or whoever it is, all of their monies that they spend drilling holes and advancing resources is not to our account. That’s other people’s money. Those are our counterparties.
We are the royalty holders here and we explore that upside and so when I discuss the term of optionality and optionality that our shareholders enjoy through this portfolio, that’s a good example. Very importantly, we’ve been in Turkey for 14 years. It’s been a very productive Prospect Generation business unit for us. We’ve cycled through over 250 licenses in Turkey, all of that period of time and there’s now multiple mines being built on our properties. We have nice income stream coming in from pre-production payments and production royalty payments just recently started with the Lead-Zinc-Silver mine that Dedeman Madencilik operates that’s now producing royalty for us and we’re quite pleased. That’s a 4% royalty, which is a very, very healthy number in the mining industry to have a 4% royalty.
Maurice Jackson:
Yeah. You actually don’t see a 4%. That is quite impressive. It’s a testament to the business acumen that EMX Royalty has.
David Cole:
It was a very attractive asset and the company that bought that Dedeman Madencilik is willing to give us 4% royalty in order to secure interest in the projects so they could advance it and they have sunk a shaft and are now in production and we’re very, very pleased to see that and have that production payments coming in. Çiftay, who is advancing the Akarca project where we have a 1-3% sliding scale royalty as production increases over time, they also pay us 500 ounces of gold as pre-production payment every six months. That’s nice income coming in for the EMX Royalty shareholders and we utilize that money to reinvest in our portfolio to acquire more prospective mineral rights around the world.
Sisorta is also an advancing gold discovery with some copper exploration potential at depths of being advanced by Bahar Madencilik and they’re doing a good job. There and we sold off all of our projects that we had in Haiti and kept the royalty. We sold everything that we had in Haiti, which at one point in time was 1,100 square miles. We sold that off to Newmont Mining Corporation for $4 million US dollars in cash, which was a nice infusion of cash into our treasury and then kept royalties on those projects part and parcel to our business model.
We’ve got a couple of good royalties in New Zealand and Australia as well that are gold focused and with good counter parties who are advancing those projects.
Maurice Jackson:
Yes, we just completed the one in Koonenberry in Australia. That was a nice transaction there as will. This is quite an impressive portfolio. I have to tell you that, and I am biased because I am a shareholder, but this is one of the reasons why I became a shareholder. Two fold question here for you’re here. How close is EMX Royalty to becoming cash flow neutral and what is the timeline we should expect to reach this milestone?
David Cole:
Actually, interestingly enough, we were just reviewing our finances for 2017, and when you include devaluation of the shares that we have been paid for our assets that we’ve sold in Sweden and in Norway, now we’re actually cash flow positive and 2017 which is a nice milestone for us. We look forward to another good year in 2018. I believe that we will be cash flow positive in 2018 as long as we have a good deal flow which so far this year it has been clicking along nicely and I expect to see additional deal flow throughout the year.
We see very strong interest on behalf of well funded junior and major companies in the assets that we have around the world as so has continued angst within the mining industry that more discoveries need to be able to be made in order to feed the Globe’s demand for metals. They come to companies like us to look for those properties.
Maurice Jackson:
So another milestone has been reached. We’ve exceeded being cash flow neutral. We’re actually cash flow positive. So again, congratulations sir.
David Cole:
Oh, thank you very, very much. And as I said, what put us over the line were share payments and we do have those shares in our portfolio. We do from time to time liquidate those shares, to able to convert those to cash so we can redeploy those monies into our portfolio and execute our organic model.
Maurice Jackson:
Mr Cole, share with us some of the counterparties that EMX royalties has.
David Cole:
I’d be proud to do that. We’ve had the opportunity of working with some very, very, very, well funded and astute mining companies around the world. I had the opportunity to work with some of the world’s largest mining companies. Right to top the list would be Newmont Mining Corporation who operates our Leeville mine royalty, and we’re happy to get checks from them every month but we’re also happy to see their expertise employed on that project. They do an excellent job in continuing to find more mineralization enjoying that out. They’re also the company that we sold all of our assets in Haiti too and kept a royalty on those projects.
We have the ongoing communication with Newmont. They’re also a shareholder. They own around 5.5% percent of EMX Royalty Corporation. Another company that we have done repeat business with is Rio Tinto, the world’s largest mining house. We’ve done 6 deals in the course of last four years with Rio Tinto. We have ongoing work and programs with them and continue the discussions about possible new deals in the future. It’s a pleasure for us to have a chance to work with the behemoth Rio Tinto and that speaks to the credibility that our geologists have such as Dr. Eric Jensen in Northern Europe and Dr. David Johnson who managed the Americas and … Companies like Rio Tinto want to work with us because of the expertise that these economic geologists have and these strengths where they work around the world.
Freeport-McMoRan, the largest US copper company is our partner in Russia where we have a strategic investment and advancing in a substantial Copper-Gold discovery there in far South-Eastern Russia. Nevsun Resources well funded aggresive junior mid-tier. They’re not a junior, they’re actually a mid-tier resource company focused on base metal and gold production. They’re advancing the project Timok, the Brestovac license in Serbia that we talked about previously and we’re happy to have them on the list.
Antofagasta, who’s a major copper producer dominantly in South America, they have about a twenty billion dollar market capitalization. They’re very large company. We’ve done multiple deals with Antofagasta. They’re also a small shareholder in EMX Royalty corporation of about 3%. We’ve been quite pleased to have ongoing relationship with them with repeat business.
I’d like to point out that Arizona Mining is a new company focus on discovery of a large base metal, lead, zinc, and silver deposit in Arizona. That, and we have a royalty on some o their claims that have been released from us and we’re delighted to see their expertise. Boreal Metals Corporation is a new public company focused on advancing battery, metals, and base metal opportunities in Northern Europe. We’re large shareholders in Boreal. We own over 19% of that company, thanks to the deals that we have done with them, where we’ve sold them different assets and in exchange for shares, cash payments, and royalties. I believe that Boreal is going to do very well. Their first round of drilling and they completed on some other projects in Sweden recently, produced some quite nice results and they were very pleased.
Just to give you an example of a number of the companies we’ve worked with. I’ll say that over the course of 14 years of executing this business, we have worked with a lot of different companies. We have the pleasure of their monies being spent on our properties, but we also have the pleasure of seeing their expertise, whether it’s geophysical, geological, social expertise with regards to permiting et cetera. All of these things add value and give that optionality that keep coming back to our shareholders.
Maurice Jackson:
David, take us through the asset portfolio and let’s look at projects that may join the royalty portfolio.
David Cole:
Maurice, and this is the global map of the EMX Royalty Corporations assets around the world. This includes our royalties, and in addition to the projects that we’re advancing and marketing, and trying to sell off and to continue to grow our royalty portfolio. We’ve been very, very, very active in Western United States particularly in the copper belts of Arizona in the gold belts of Nevada where we have a large number of mining claims. We’re now over5,000 active mining claims in the western United States making us one of the larger mining claimants in the Western United States.
Another area of the world that we have focused organic growth and which continue to be aggressive with regards to acquiring new projects based upon our geological expertise is Northern Europe, and Norway, and Sweden. There, were looking at Polymetallic systems. What I mean by that is systems that have zinc, lead, copper, or nickel copper and cobalt. Metals that are in big demand right now in the world. We see a strong appetite from those that wish to invest in the exploration business in our projects in Sweden right now, which is a great position to be in.
We talked about the royalty portfolio that we have in Serbia and Turkey. We’re happy with those royalties. We’re currently not doing much new acquisition in those countries. We’re focusing our new acquisition in Northern Europe in the western United States.
Maurice Jackson:
David, I realize that EMX Royalty is not biased to any one project in your asset portfolio, but I have to share that I am. What can you share with us regarding Malmyzh?
David Cole:
Well, Malmyzh is a large ongoing Copper-Gold discovery. It’s one of the larger ongoing Copper-Gold discoveries in the world. In fact, and it’s being advanced by the private company IG Copper. EMX Royalty Corporation owns 42% of the issued and outstanding share capital of IG copper and IG Copper is in joint venture with Freeport-McMoRan. We’ve found a number of Copper-Gold deposits along a belt there that’s a substantial asset within our portfolio and it was recently announced, Maurice, that we have signed up Scotiabank, which is one of the largest banks focused on natural resource investing in the world and we have them in our camp now and they’re helping us decide on what the right business initiatives are for that project.
Maurice Jackson:
David, if you would, just take your mouse and hover around that focus so we know where you are on the map.
David Cole:
You bet. Right in here. This is extreme South-Eastern Russia on the Amur river, Maurice. That’s a close proximity to a number of smelters. Korea, Japan, and China all have smelters at waterfront. The deposits at Malmyzh lie in close proximity to a railroad in addition to a barge able of a river the Amur river where you can barge concentrate down river to the sea of Okhotsk and around to the sea of Japan to access those smelters. This is a region the world has a very, very, very significant copper demand.
Maurice Jackson:
Switching gears, let’s talk numbers. How much cash and cash equivalents do you have in the Treasury?
David Cole:
Right now, Maurice, we’re sitting in with about $5 million Canadian dollars in cash and shares in other companies. Most of those shares have been paid to us part and parcel to deals we’ve executed in the recent past. That does not include the share position that we have in IG Copper. That’s a private company so it’s not included in that. Those are only public companies of which we have shares at this time.
Maurice Jackson:
How much debt do you have?
David Cole:
We do not have any debt. I would typically execute our business model without taking on debt.
Maurice Jackson:
What is your burn rate?
David Cole:
We actually, and we discussed this previously with respect to us becoming cash positive, cash flow. When you take a look at all the royalty payments we have coming in, pre-production payments, lease payments associated with projects that we’re in the process of selling, in addition to the share payments that have come in associated with sales of assets, we have … we’re cash flow positive in 2017.
I believe that we’ll continue on that trend to be cash flow neutral to cash flow positive as we move in ’18. And that’s a key event for us because that means we’ve created now a perpetual motion machine where instead of continued need to raise money by issuing shares capital, we will have the monies coming in from the sale of shares, and from royalty payments, and lease payments, and advance minimum royalty payments. All sorts of different payments that we’ve designed into the deals we’ve executed over time so that we have money coming in to fund the continued acquisition of prospective mineral rights around the world.
That’s a key threshold for us to be at a point where the portfolio is funding additional land grabs and mineral rights grabs around the world to fuel our exposure to mineral upside.
Maurice Jackson:
What is the current price?
David Cole:
We’re currently trading at around a $1.11 Canadian per share in the Toronto stock exchange, and .89 cents US per share on the New York Stock Exchange.
Maurice Jackson:
Tell us about your share structure, which includes warrants, options, and all the fully diluted.
David Cole:
Yeah. We have 77 million shares issued and outstanding. I believe we have about 83 million shares fully diluted by the time you consider the options and a few warrants are also outstanding on the stock at this point in time.
Maurice Jackson:
Who are your major shareholders?
David Cole:
Yeah, that’s an important one. In addition to Newmont Mining Corporation that we talked about previously, owning about 5.5% percent, and Antofagasta owning a few percent. We do have some key strategic shareholders and that would include Paul Stevens, and Paul Stevens a very successful fund manager. That as it is now and he’s well into his 70s. It’s got a long track record of success as an investment manager. Previously we had Robertson Stephens funds, which was a famous fund group back in the day.
Paul manages mostly his own money and the money of himself and some friends in a couple of different funds. They collectively through the monies that they manage in their own personal funds have 18 or almost 19%. of EMX Royalty Corporation, they’re our largest single shareholder. They believe in our combined business model approach. They fully understand the optionality that we’re creating for our shareholders through the exposure of discovery that’s ongoing on the assets around the world. Paul’s been a long-term shareholder and he continues to buy more shares. He’s been buying more shares for years.
Maurice Jackson:
What percentage does management ow?
David Cole:
I believe in a fully diluted basis, we’re around 12% right now. That number has been going up and there has been substantial insider buying both on behalf of Paul Stevens and myself. I’ve been buying the stock consistently or … I shouldn’t say consistently, but periodically over the course of the last three years. That speaks volumes with regards to our attitude as to what potential the company has in it.
Maurice Jackson:
When was the last time you purchased shares in reference in the last three years, and what was the price?
David Cole:
I do not remember the last time that I purchased, but it was a handful of months ago. It would have been in the .70 or .80 cent range US. All of our trades, of course, are reported. Those are available on SEDAR website that has everybody’s trades and you can go there and research that, and see those insider purchases which have been occurring consistently over the course of last three to three and a half years.
Maurice Jackson:
What is the float?
David Cole:
That’s a tough one to answer, Maurice, but I would think that with just a few phone calls we could put our hands on 60% of the issued and outstanding shares. We may not completely know where. Roughly 40%. Call 30 or 40 million shares are at any given time, so I would estimate the flow to be somewhere in that range. Certainly ample for someone to come in and buy significant shareholding.
Maurice Jackson:
In closing, Mr. Cole, what is the next unanswered question for EMX Royalty? When should we expect an answer? And what determines success?
David Cole:
Well, more cash in our treasury and more cash flow from our royalties is the ultimate measure of our success, Maurice. When we have 80 some projects worldwide and 37 royalties, these unanswered questions here can come from multiple avenues. But we’re very pleased with the deal flow that we continue to enjoy across the portfolio, and, of course, I would like to highlight your favorite project, which is Malmyzh in far South-Eastern Russia and our engaged at Scotiabank to help us with our business initiatives there.
This could be very interesting to see what business initiatives are recommended by Scotiabank and how we can execute on those over time. I believe that can be a catalyst for repricing EMX Royalty Corporation in the marketplace.
Maurice Jackson:
David, what keeps you up at night that we don’t know about?
David Cole:
Well, I just have some fantastic people on board here that are contributing to help build this portfolio. We’re on the road a lot, traveling, working hard in remote regions, and I’m most concerned about their safety and wellbeing.
Maurice Jackson:
Last question. What did I forget to ask?
David Cole:
Well you’re very thorough, Maurice, and you’ve got a good understanding of our portfolio and I appreciate that. I appreciate the fact that you are a shareholder in the company. One of the key aspects that drives our share price and the better impact, which is the rule that the market has overall relative to our share price is the role of commodity prices, and that’s something that of course we have no control over, but it’s something that we have to manage.
We try to very much understand that it’s a quite cyclical business and one of our key strategies around that cyclicity is to be aggressive in acquisition of prospective mineral rights during downturns and then available as projects to capable mining houses as the market recovers. That’s a key component to long-term shareholder value creation with then EMX Royalty Corporation. I oftentimes field questions about where I think commodity prices are going, but, of course, I don’t have a crystal ball. But what I can elaborate on is what our ongoing strategy is.
We just recently came off a period of substantially reduced commodity prices and we took full advantage of that acquiring a substantial number of new prospective mineral right properties around the world. And now we’re seeing a modest recovery with strong interest from a lot of customers. I’m more happy to sell these off and continue to grow that portfolio of royalties.
Maurice Jackson:
David, if investors wish to give more information regarding EMX Royalty Corp, please share the contact details.
David Cole:
Emxroyalty.com is a great place to start on that website but also the phone numbers where you can reach Investor Relations and call up and talk to us. We’d love to talk to shareholders and prospective shareholders about the advancement that we have on various assets around the world whether they be battery metal related, precious metal related, or base metal related.
Maurice Jackson:
And for our listeners, if you’re wishing to reach Investor Relations, Scott Close will be your point of contact, and his phone number is 303-973-8585. Again, that number is 303-973-8585 and that is Scott Close.
Last but not least, please visit our website www.provenandprobable.com where we interview the most respected names in the natural resource space. You may reach us at contact@provenandprobable.com.
David Cole of EMX Royalty Corp, thank you for joining us today on Proven and Probable.
David Cole:
Thank you Maurice.
Maurice Jackson:
As a reminder, EMX Royalty Corp is a sponsor of Proven & Probable, and that we’re proud shareholders of EMX Royalty Corp for their virtues conveyed in today’s message.
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