New Teams are Playing in
the Royalty Market

Issue 167, September 2016

Continued from Page 1

...they understood that we want to make a decent return and they don't want to faff about with a little bit of money.”

“Mining goes up and down,” he says, “and it is down. Companies need capital, they're over-leveraged, they're vending things off. If we came in and low-balled it, they'd go, 'Okay, we're talking to everyone else', but if you knock on their door and you chase them and show them all your workings, you're open, and the valuation is in line, broadly, with what the other guys would pay, then I think you don't have to compete. That's what we're really going for.”

Another source of deal flow is private individuals: company founders, or locals “in-country”, who are willing to sell their royalty, but are unlikely to hire an investment bank to run a sales process. “If it's for sale, I would fly out straight away, meet the guy and say, how are we going to do this?” One party Elemental is talking to is a billionaire in the US, sitting on some land rights. “Some of these guys are private... If you're sitting in an office and you're looking at the accounts, you're never going to see that.”

As Bell ups his deal size, he is likely to hit competition. But he thinks he has a way to go. “$5m to $20m is kind of perfect, because the big guys will be interested, but it won't be top of the priority list. They won't be chasing it. If a mine changes hands in West Africa with a couple of million ounces and there's a third-party, they're not going to rush out the door to try and hunt him down.”

“They get so many brought to them, just going through that is a full-time job. They're being sent royalties every day, some they'll never do, some they'll enter into a database, then they're monitoring a portfolio. Imagine how many announcements are going out every day. These ones that we're tracking down, no-one else will be doing those.”

Bell has looked at structuring Elemental as a fund, or listing it in London. But for now, he is happy to keep it private. The biggest “hurdle” in getting started has been tax, he says, which can make it more efficient for parties to keep royalties than sell them. Elemental is based in the British Virgin Islands. It also has an advisory board, including Matthew Tack, the former finance director of London-based royalty group, Anglo Pacific.

“The benefit of being private is that you've got more flexibility. You don't have to be announcing everything, you don't have to be saying the terms, the prices, it can be a private deal, you can do it quietly, quickly. Being in a public company, people are more sensitive.”

His objective, for now, is to roll-up ten to twenty cash-flowing royalties. “If you take a royalty that's worth $2m, if you put it into a private company with twenty of those, they are all going from $2m-fair-value to two-point-whatever, because the combination of a portfolio of royalties, a basket of them, is always going to attract a higher price.” The deal flow, Bell says, is “out there.”

“The more you look, the more you find.”

“They don’t want to faff about with a little bit of money.”

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