EMX Royalty and Elemental Altus Royalty Merger Creates Mid-Tier Powerhouse

The Strategic Merger: How EMX Royalty and Elemental Altus Are Reshaping the Mid-Tier Royalty Landscape

The mining royalty sector has witnessed significant consolidation in recent years, creating a gap in the mid-tier market. The merger of EMX Royalty and Elemental Altus Royalty addresses this opportunity by combining complementary portfolios and expertise to create a stronger, more diversified entity positioned for accelerated growth in the precious and base metals royalty space.

This strategic combination comes at a pivotal time for both companies, establishing a formidable presence in the mining royalty landscape with enhanced financial capabilities and expanded asset diversification. The merged entity will benefit significantly from current gold prices analysis trends that show strong upward momentum.

The Catalyst: Tether's Strategic Investment

Tether emerged as a key player in facilitating this merger through its strategic backing and vision for the combined entity. With a commitment of $100 million in concurrent financing to support the merger, Tether is positioned to become approximately a 33% shareholder upon closing in mid-November.

This investment is part of Tether's broader strategy in the precious metals space. The company currently holds approximately $10 billion in physical gold and continues to acquire more on a regular basis, viewing gold as an asset that will appreciate relative to US dollars.

For Tether, investing in royalty companies represents a strategic alternative to purchasing physical gold directly. As explained by management, "If you look at the long-term consensus gold price that analysts would use in the mining business, it might be $2,500," which makes investing in uncapped gold royalties valued at lower long-term price assumptions particularly attractive.

Rather than simply outbidding major royalty companies to build a portfolio quickly, Tether has chosen to back experienced management teams with proven track records in the mining royalty sector.

How Does the Combined Portfolio Transform the Companies?

The merger creates a substantially enhanced portfolio that immediately elevates the combined entity into mid-tier status with significant diversification benefits across multiple dimensions.

Portfolio Composition and Diversification

The merged entity boasts an impressive and diverse asset base that few mining companies can match:

This level of diversification strategies provides natural risk mitigation through multiple layers:

• Geographic spread across multiple mining jurisdictions worldwide
• Commodity diversification with 67% exposure to precious metals (primarily gold) and 33% to base metals
• Operational diversity with multiple mining operators
• Project stage diversity from exploration through production

On a revenue basis, the portfolio maintains a 67% weighting toward precious metals (predominantly gold) with the remaining 33% in base metals. On a net asset value (NAV) basis, the weighting shifts slightly more toward copper due to the long-lived nature of the copper assets in the portfolio.

Cornerstone Assets Driving Value

The combined portfolio features several high-quality cornerstone assets that would be competitive in any major royalty company's holdings:

• Timok Project (Serbia): A flagship copper-gold asset with significant exploration upside and ongoing discoveries
• Caserones (Chile): A producing copper mine where operators are actively drilling high-grade breccias
• Karlawinda (Australia): A stable gold producing asset with exploration potential
• Leverton Project: Recently acquired strategic royalty described as "the biggest single acquisition that Elemental has ever made"

These cornerstone assets provide stable revenue generation while the extensive pipeline of development and exploration assets offers substantial organic growth potential through discovery optionality.

A compelling example of this discovery optionality comes from Northern Star's Hercules discovery in Australia. What was previously a license with no resource suddenly produced a maiden resource of approximately one million ounces earlier this year. This type of unexpected value creation exemplifies why maintaining a large portfolio of early-stage royalties is so valuable.

What Financial Advantages Does the Merger Create?

The merger establishes multiple financial benefits that strengthen the combined entity's position in the market and create new opportunities for growth and value creation.

Enhanced Financial Profile

The merger establishes a much stronger financial foundation:

• Projected annual revenue of $70-80 million (2025-2026)
• Post-merger cash position of approximately $50 million
• Elimination of $25 million debt to Franco Nevada
• Undrawn credit facility with potential to expand to $200 million
• No debt on a pro forma basis

This financial strength positions the company to capitalize on opportunities across market cycles and compete more effectively for larger royalty transactions.

Improved Capital Markets Position

The enhanced scale brings several capital markets advantages that should benefit shareholders over time:

• Lower cost of capital through improved risk profile
• Increased market capitalization attracting institutional investors
• Enhanced trading liquidity
• Planned US listing expected by mid-October to access broader investor base
• Potential inclusion in relevant indices

Since the merger announcement, management notes they've already seen interest from funds and institutions that previously considered the individual companies too small or illiquid for investment consideration, as reported by Canadian Lawyer.

How Will the Combined Management Team Drive Growth?

The merger brings together complementary management expertise and establishes a leadership structure designed to capitalize on the strengths of both organizations.

Leadership Structure and Expertise

The combined company will feature a leadership team with deep industry experience and complementary skills:

• Dave Cole (EMX) as CEO
• Fred Bell (Elemental Altus) as President and COO
• David Baker as Chief Investment Officer
• Stephan Winganger (former Royal Gold executive) as CFO
• Juan Alvarez (Tether representative) as Executive Chairman

This leadership structure combines EMX's technical excellence in royalty generation with Elemental Altus's proven acquisition capabilities, creating a powerful operational model for future growth.

The addition of Stephan Winganger brings valuable experience from Royal Gold, where he was part of the team that grew the company "from couple hundred million to a few billion" in value. His experience scaling a royalty company will be particularly valuable in this next growth phase.

Board Composition and Governance

The board structure reflects the strategic partnership with Tether while maintaining balanced representation:

• Three directors from Elemental Altus
• Two directors from EMX (including Dave Cole)
• Tether representation through Executive Chairman
• Streamlined from previous larger board structures

This represents a significant streamlining from Elemental Altus's previous nine-member board, creating a more efficient governance structure while maintaining appropriate oversight.

What Growth Strategy Will Drive Future Value?

The combined entity will pursue a multi-faceted growth strategy leveraging its enhanced capabilities and financial strength to identify and capture value across the royalty landscape.

Diversified Acquisition Approach

The company plans to evaluate opportunities across the full spectrum of the royalty space:

• Early-stage royalty generation through technical expertise
• Strategic acquisitions of existing royalties
• Royalty financing for development projects
• Portfolio acquisitions
• Selective corporate transactions when strategically advantageous

Management emphasizes they will "cast a broad net" when evaluating opportunities, from early-stage royalty generation through major corporate transactions, while maintaining their core value investing ethos.

While the enhanced financial capabilities will allow the company to "hunt bigger game," management stresses they will maintain discipline in capital allocation and continue to focus on transactions that offer compelling risk-adjusted returns.

Technical Excellence as Competitive Advantage

A key differentiator for the combined entity is its technical expertise in evaluating geological potential:

• Comprehensive technical assessment of target regions
• Layered analysis incorporating geology, exploration results, and resource outlines
• Evaluation of permitting status and environmental/social considerations
• Integration of data in sophisticated GIS systems
• Identification of opportunities across the value chain

Management explains their approach: "We do the technical work first… We put it together and we think about it opportunistically." This technical foundation enables the company to identify value that others might miss, particularly in early-stage assets with significant optionality.

This technical focus creates a competitive advantage in identifying high-potential royalty opportunities before they become widely recognized, potentially enabling acquisitions at more favorable valuations, especially in the context of ongoing mineral exploration insights.

How Does the Royalty Model Create Shareholder Value?

The royalty business model offers distinct advantages that create compelling shareholder value, particularly in the current market environment with elevated metal prices and operational challenges.

The Optionality Advantage

Royalties provide exceptional optionality without additional capital requirements:

• Commodity Price Optionality: Direct exposure to rising metal prices without operational costs
• Discovery Optionality: Benefit from exploration success without funding the drilling
• Expansion Optionality: Potential upside from mine expansions or new discoveries on existing properties
• Development Optionality: Early-stage royalties can deliver outsized returns when projects advance to production

This optionality creates asymmetric risk-reward profiles where downside is limited but upside potential remains substantial. As management notes, "some of their best royalties that they have today five or 10 years prior you didn't even know the name of" due to unexpected discoveries or developments.

Capital Efficiency and Risk Mitigation

The royalty model offers superior capital efficiency compared to mining operations:

• No ongoing capital expenditure requirements
• No operational cost inflation exposure
• No direct environmental liabilities
• Diversification across multiple assets reduces single-asset risk
• Exposure to upside while avoiding many operational challenges

These advantages create a business model that can deliver consistent returns throughout market cycles while avoiding many of the operational and financial risks associated with direct mining operations.

Management emphasizes the value of maintaining even early-stage royalties that might appear to have limited near-term value: "If someone came to us today and said, I've got a whole portfolio of very early stage royalties that you can have for free and it will effectively cost you next to nothing… fantastic because we've got optionality and you never know what will happen."

What Market Trends Support the Royalty Sector?

Several macro trends create a favorable environment for royalty companies, particularly those with precious metals exposure like the merged entity.

Precious Metals as Strategic Assets

Gold and silver are increasingly viewed as strategic assets in an uncertain economic environment:

• Hedge against currency devaluation and inflation
• Store of value in times of economic uncertainty
• Growing demand from institutional investors and central banks
• Limited new supply coming online

These factors create a supportive environment for precious metals prices, benefiting royalty holders through increased revenue without corresponding cost inflation. The gold safe haven market dynamics continue to drive investment interest in this sector.

The rising gold price environment is already creating opportunities, as exemplified by the recent Leverton acquisition. Management noted this transaction was catalyzed in part by the higher gold price, which helped "unlock that opportunity" after multiple companies had tried unsuccessfully over several years.

Mining Industry Capital Constraints

The broader mining industry faces ongoing capital challenges that create opportunities for royalty companies:

• Historical underinvestment in exploration and development
• Rising costs for new project development
• ESG considerations adding complexity and costs
• Traditional financing sources becoming more selective

Management notes that the current strong gold price environment is starting to cascade down to earlier stage companies, with "money flow to the smaller companies" creating both acquisition opportunities and advancing existing royalty assets in the portfolio.

This improved funding environment for exploration companies benefits the combined entity in two ways: accelerating the development of existing royalty assets and creating new opportunities to generate or acquire royalties from companies with improved access to capital.

How Will the Merger Impact Shareholder Returns?

The enhanced scale and financial strength of the combined entity creates new opportunities for shareholder returns through both capital appreciation and potential dividend distributions.

Dividend Potential

The merger creates a platform that can support potential dividend distributions:

• Sufficient scale to cover operating costs, fund growth, and distribute dividends
• Strong revenue generation from producing assets
• Potential to implement dividend policy in the near term
• Balanced approach to growth and shareholder returns

Management has indicated that dividend policy will be communicated "within the next quarter or two," noting that the combined company is "absolutely in a position we can do that" regarding dividend payments.

The ability to fund both growth and dividends represents a significant milestone for both companies, allowing them to attract income-focused investors while maintaining their growth trajectory.

Value Creation Through Scale

The increased scale unlocks multiple value creation opportunities:

• Ability to pursue larger, more impactful transactions
• Enhanced market visibility attracting new investors
• Improved trading liquidity
• Potential for multiple expansion as the company bridges the valuation gap with larger peers

These factors position the combined entity to deliver superior long-term shareholder returns compared to what either company could achieve independently, as detailed in the official merger announcement.

The planned US listing is expected to further enhance market accessibility and liquidity, potentially attracting new institutional investors who previously couldn't consider the individual companies due to size and liquidity constraints.

What Challenges and Opportunities Lie Ahead?

The merged entity faces both challenges and opportunities as it establishes itself in the mid-tier royalty space and executes its growth strategy.

Navigating Market Cycles

The royalty sector operates within cyclical commodity markets:

• High metal prices can limit near-term acquisition opportunities
• Counter-cyclical investment approach required for long-term success
• Discipline in capital allocation essential through market cycles
• Maintaining technical focus regardless of market conditions

Management acknowledges that while strong metal prices create challenges in finding attractively priced acquisitions, they also create opportunities by advancing existing royalty assets and unlocking transactions that weren't previously viable.

The combined company's experience through previous market cycles provides valuable perspective for navigating these challenges. As management notes, they believe in "being countercyclical" and "using the cycles to your advantage rather than be used by the cycles."

Competitive Landscape

The royalty sector features established competitors with significant resources:

• Major royalty companies have substantial capital advantages
• Increasing interest from alternative capital providers
• Competition for quality assets can drive up acquisition costs
• Need to maintain disciplined approach to valuation

The combined technical expertise and enhanced capital position improve competitive positioning against these established players. Management notes they already compete with major royalty companies on early-stage royalties and their enhanced financial capabilities will allow them to compete more effectively across the royalty spectrum.

Conclusion: A Transformative Combination

The merger of EMX Royalty and Elemental Altus Royalty represents a transformative combination that creates a differentiated mid-tier royalty company with enhanced growth prospects. By combining complementary portfolios, expertise, and financial resources, the merged entity is positioned to capitalize on opportunities across the royalty spectrum.

With 16 producing royalties providing stable revenue, extensive optionality across more than 200 royalty assets, and the financial strength to pursue strategic growth opportunities, the combined company offers a compelling investment proposition in the royalty sector. The partnership with Tether provides additional strategic advantages through enhanced financial flexibility and long-term investment perspective.

As the combined entity executes its growth strategy and establishes itself in the mid-tier royalty space, it has the potential to deliver significant shareholder value through both capital appreciation and potential dividend distributions in the near future. With favorable gold price forecast trends, the timing of this merger appears particularly strategic.

The merger represents a significant milestone in the evolution of both companies and establishes a new competitive force in the royalty sector with the scale, expertise, and financial resources to compete effectively across market cycles.

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