Elemental Altus Royalties – 2022 Recap Including The Merger With Altus Strategies, A 2023 Outlook For Key Assets and M&A
Fredrick Bell, CEO of Elemental Altus Royalties (TSX.V:ELE – OTCQX:ELEMF) joins us to recap a very important 2022 for the Company and the growth strategies for 2023.
2022 started out with a hostile takeover bid from Gold Royalty Corp which was fought off by the Company, then followed by an announcement in June of an at-market merger with Altus Strategies. Fred explains how this merger immediately increased the value of the Company and the overall royalty portfolio. We also highlight the recent transaction to acquire a portfolio of 19 uncapped royalties from First Mining Gold Corp (TSX: FF) (OTCQX: FFMGF).
For 2023 we have Fred share his outlook for growth both from within the royalty portfolio and possible new royalty acquisitions. With the strong financial position of the Company it sounds like there could be more deals coming this year.
If you have any follow up questions for Fred regarding Elemental Altus Royalties or the royalty sector please email us at Fleck@kereport.com and Shad@kereport.com.
- In full disclosure, Shad is a shareholder of Elemental Altus Royalties
Click here to visit the Elemental Altus Royalties website to learn more about the Company and royalty portfolio.
We talked in this interview of the merger of Elemental and Altus to form Elemental Altus last year.
We talked with Triple Flag PMs last week with their acquisition and merger with Maverix Metals.
We’ve talked recently about some of the Mega-Mergers with the big boys, like Yamana getting acquired by both Agnico Eagle and Pan American Silver, and that Newmont is acquiring Newcrest to form a “Super-Major.”
Now here is one more merger/acquisition from one of the larger Mid-tiers:
(BTO) (BTG) B2Gold Corp. Announces Acquisition of (SBB) (SGSVF) Sabina Gold & Silver Corp.
13 Feb 2023
I’ve been reflecting more as the night went on about Sabina getting taken over, and went back and checked and noticed I was trading Sabina since 2016, and traded it about 3-8 times a year each year after in 2017, 2018, 2019, 2020, and sold out of it in 2021 at a higher level than where it traded today on this takeover news. I had some good trades and bad trades, but overall made some nice returns on it, but haven’t been in it for about 2 years, and feel a bit bittersweet about this news of the takeover.
I feel a bit sad that the premium and exit event isn’t higher for longer time shareholders, because it swung up and down in a big range of a 5-6 bagger from 2015 to the 2020 high. Sabina had pretty bullish overall years in 2016, 2017, 2019, and 2020, and overall bearish years in 2015, 2018, 2021, and the first half of 2022, before the surge higher in the last part of last year and into this recent news here in early 2023. In a way it’s nice that the takeover news is coming after a multi-month upswing, but still, depending on where people got positioned, many will not be made whole here by this premium. That’s the case on many takeovers though, when the larger company strikes when the smaller company is bouncing off a low or at a low.
Anyway, it always feels exciting to be in a company that is taken over and see the premium jump, but often it is a sad day for long suffering “buy and hold” type investors, but usually it has bolstered the larger company’s portfolio in a serious way (in this case B2Gold’s portfolio), but it also becomes that companies headache to move forward into operations or optimize operations.
It is similar to how Gold Standard Venture’s takeover was at relatively low blip, but it was an exit, and personally I had gotten into positions in the few months leading up to that news and did OK, but most investors lost money on GSV and exited pretty pissed about where they got picked off. However, some investors stuck with the new combined Orla Mining and have a more solid producer at the helm now, but now those properties are their burden to bear.
Same thing with Hecla taking over Alexco’s operations and deposits at Keno Hill… many upset longer time shareholders, and they just couldn’t quite get things dialed in at the mine, took too long, costs went up, and they didn’t get escape velocity with operations. Hecla is likely going to be a champ with that asset coming back online into production in Q3, but who knows, maybe they have challenges, or maybe it becomes a cash cow. The asset lives on and may become legend, but there are also the extremes of folks that did really well in Alexco in different years, and those that lost big, but everyone saw it go out in a weak position. It’s just unfortunate, but that is often with the larger companies come sniffing around… wanting to get a shrewd acquisition. Can’t blame em’ though…. In that case, I had done really well in Alexco in prior years leading up to the mining, but didn’t do good on my last 2 trades in AXU last year though, so lost on those, but I’m a Hecla shareholder and feel I’ll win longer term on the asset being in their stable moving forward.
There are some other examples of legendary asset/company rollups that worked out for many, but also didn’t work out for many in each phase of the consolidation from Crocodile Gold, into Newmarket Gold, into Kirkland Lake, into KL acquiring Detour Gold, into Agnico Acquiring Kirkland Lake…
Or look at Equinox being formed out of Trek Mining (a rollup of 2-3 other companies), Newcastle, and Anfield Gold, only to then acquire Premier Gold, but then I-80 was spun out, etc….
Or look at Anglogold Ashanti acquiring Corvus, which again, I had positioned in for that eventuality and liked the premium paid, but so many investors were really upset about that one. Then I mentioned Coeur would sell Sterling to Anglogold Ashanti (which they did), and that was one they’d picked up by acquiring Northern Vertex, which was a nice win for many… all of that along that stretch of the Walker Lane Trend in Nevada.
I was personally involved with different pieces of different parts of those rollups, but there were many losers that were not made whole, much less making money in those acquisitions, because many investors over many years had positioned at much higher levels with a higher cost basis, and got pretty jaded about the M&A.
So from that standpoint, yes mergers and acquisitions do free up capital to potentially rotate into other mining stocks , but some investors may say screw this and take their ball and go home… after getting fleeced buying at the wrong times or parts of the cycle. The point being that M&A announcements are often bittersweet moments or bifurcated experience moments for the shareholder base.
It’s tough after an M&A deal gets announced, as there is a clear division and final tally for investors that made it or lost it on that deal at that moment in time. I feel a bit bad for folks that bought and held all that time and still ended up losing, and feel good for those that averaged down or initiated positions during pullbacks that came out with a nice win, but it is typically a mixed bag.
I went over to the Sabina and B2Gold channels at ceo.ca, and the Great Bear and Kinross channels today once the resource was announced, and there are a lot of sour grapes commentors out there, which are more vocal, because they extrapolate out their personal experience to be everyone’s experience… which is never how it is. In most M&A deals there are still people buying a stock each day, week, month, and quarter leading up to the announcement, so there also had to be some folks that came out with a nice win on all the transactions referenced, and so that is an encouraging thought. If we had any investors here in the KER crew that did well on the Sabina deal, then congratulations and good trading to you.
And the Great Bear Maiden Resource Estimate is finally in….. right about where I suggested it would be at 5 Million ounces, despite the bluster from so many overly optimistic GBR superfans that were convinced that the maiden resource estimate would be between 8.5 Million – 12 Million ounces. Nope!
Thank goodness Great Bear was acquired by Kinross before they released their maiden resource estimate, or GBR would have tanked hard with the rest of the sector as investors threw a bit temper tantrum that all their blue sky dreams were not based in reality. I said it then, as a shareholder of GBR at the time of the takeover, that it was the best possible outcome for all Great Bear shareholders (even though so many thought the offer from Kinross was not enough because of the huge resource they just knew was going to be released).
Somehow “I told you so…” is just not enough on this one, because it is symptomatic of how resource investors repeatedly set themselves up for disappointment by having estimates way up in the stratosphere. What those crying in their beer don’t seem to appreciate is that a 5 million ounce resource in just 2 1/2 years of drilling IS world class.
We’ve seen it when other companies put out really stunning maiden resource estimates and the market sells them off hard, having wanted more (we saw it with NexGen’s arrow deposit a few years back, we saw it with Orezone initially, we saw it with Sabina originally, we saw it with Wallbridge twice now, we saw it Integra, we saw it with Liberty Gold, we just saw it with Stillwater Critical Minerals, and on and on….).
The danger of excessive speculation and hyperbole is that retail investors have such unrealistic expectations that when reality smacks them in the face… even really promising reality…. they still have a meltdown that it isn’t good enough (and it is never good enough). When will investors learn to have an expectation based on reality instead of pie-in-the-sky?
5 million ounces for Kinross’s Great Bear asset is extremely solid, and it will grow to be millions of ounces more over time, but those that actually expected to see 8.5 million, 10 million, or 12 million ounces on the MRE were totally wacked out in their headspace. I mentioned it at the time that there was an additional kicker for GBR shareholders once they got it up to 8.5 million ounces, and this proved the point that they didn’t have that many ounces yet, and I had stated I was selling my GBR after digesting that point, as it may take years to get it up to that point, and there was an opportunity cost to sitting in Kinross all that time hoping to cross that threshold. This is playing out exactly as expected, and once again, Kinross completely overpaid for Great Bear and rang the bell at the top of the market for next 2 1/2 years in the PM sector with that excessive buyout. Same thing on the Great Bear Royalty that was taken over.
(K) Kinross announces robust initial mineral resource of 2.7 Moz. indicated and 2.3 Moz. inferred for Great Bear project
13 Feb 2023
This is going to be another stumbling block for Majors or larger Mid-Tiers wanting to take over hot and trending pre-resource advanced exploration companies, like Great Bear was when Kinross made the takeover offer.
The B2Gold takeover of Sabina, in contrast, makes much more ssense, and they are buying those 9 million+ defined ounces of gold for $300,000 less than Kinross paid for 5 million ounces of gold with Great Bear.
It is puzzling why any larger producer now, would have any interest in pre-resource stage companies, because even the best-of-the-best deposits on the planet, Great Bear, ended up disappointing folks after today’s news.
>> Why not just buy known ounces in the ground moving forward? (most developers are priced dirt cheap at present and the acquiring companies know exactly what they are are getting)
So companies with insanely bloated market caps that are still pre-resource in Newfoundland or in the Yukon are just setting people up for disappointment at current valuations. The resource estimate and following economic studies are the data to ground these development projects in at least some sort of reality… here on planet Earth.
As a result, going forward in the M&A space, I suspect we’ll see more takeovers like the B2Gold takeover of Sabina, or the Orla Mining takover of Gold Standard Ventures, or the Hecla takeover of Alexco, much more so than larger producers wanting to risk taking over advanced explorers with no resource or economics like Great Bear, or at present the high-flying market caps of New Found Gold, or Snowline Gold (until they put out a resource and some economics to backstop those valuations). Just sayin’…
The markets are a tough game that’s for sure, I loaded up with Orea Mining and they have a 5 million proven ounce resource of Au at Montagne d’OR in French Guiana, with possibilities for increasing the size of this deposit with expansion and infill drilling. They are waiting for the third and final appeal from The French Supreme Court for the environmental go ahead. This deposit is too big to not get approved, especially with the importance of gold now that the various western governments will need to start buying to backstop their currencies. With a market cap of 22 million and a price of 10 cents a share, it won’t keep me up at night worrying about my investment. As always Due Your Own Due Diligence. DT
With 11 producing royalties and roughly 75 royalties overall, I like the portfolio-size now of Elemental Altus Royalties, and the ability to keep generating good revenues and cash flows from both expansion of production and mine life, as well as the development stage assets moving along towards the production pipeline. It was nice to see them fend off the hostile bid from Gold Royalty Corp last year, and then instead, merger with Altus, and now pick up 19 more royalties from First Mining Gold, as they’ve grown into a solid mid-tier royalty corp now.