Not all Royalty Co’s are Born Equal…

Tis the year of the royalty company. I’ve seen 4 junior royalty companies launch in 2020, all with a boom and interest, advertising themselves as the next Osisko, or EMX, but is the space overcrowded? Absolutely, yes.

We normally joke around conference bar tables about how few of our projects will ever even make it to drilling, let alone mining. It is not that we’re not working hard, it’s that >99% of the deposits we know about or discover aren’t economically viable to develop, this is the game of exploration, hunting for that <1% that really deserve our attention. In the battery metals space, the odds are even smaller for success in Canada and Europe, with financing difficult and Chinese manufacturers favouring cheaper African/Asian products (regardless of their human/environmental reputations).

Electric Royalties are the first battery metal focussed royalty company, picking up cobalt, lithium, vanadium, and titanium royalties around the world. Their idea is a good one, we are theoretically entering a boom period with huge infrastructure and EV demand and plenty of cash starved projects ready to be drilled off and built up, but they’re teetering on the wrong side of a knife edge.

This morning Globex Mining and Electric Royalties released news of vending  7 properties from the Globex land bank to Electric. This was an exceptional deal for Globex, who are primarily a land-banking company and unlikely to have advanced their battery metal projects alone, but I do not understand the logic behind the acquisitions from Electric.

Jack and his Globex team have done the ground-work on an exceptional set of properties, to maintain and hold >170 projects for option is no simple job, but most of these projects are still at ‘first-pass’ stage, awesome for young new explorers to get their hammers into and work on, useless for a royalty co banking on future production.

If Electric had picked one project, lets say Globex’s ‘Authier’ lithium play, after a significant amount of DD and site investigation, we’d say well played, but to take 7 of these projects at early stage is akin to jumping out of a plane without a parachute. It would appear Electric’s methods are to simply throw money at everything, rather than select the best or realistic projects. Assuming the odds of development for a battery metal project are <1%, Electric (with less than 100 projects) are below the average junior by a significant margin, picking up projects without full geological merit and logic.

To simplify, this is a stock market and marketing play, not a mining one. With three well known financiers on the board and no geologists to go over the data, the goal of electric is clearly to pump poorly constrained, early phase projects as valuable and pump them to buyers.

Compare this to a successful mining royalty co… Lets look at EMX, this month up to €2.40 from €1.70… With a skilled geological team in Johannes and Eric, when somebody sends them a project they can shred the maps, burn the paperwork, model the numbers and tear it apart, before even having a meeting with the vendors. When a company like EMX do their DD, they are not just taking whatever is offered at the back end of a competitive market… They’re looking at realistic development to return cash to their company and shareholders.

The position of a royalty co should be to lead the market in research and pick out gems from the mud. Another example would be VOX royalty, who have recently hired a friend of mine to run DD on a huge number of projects… They’re seeing hundreds of opportunities and thoroughly researching each, not just picking up everything for sale. To be a successful royalty co, you need sleepless nights pouring over maps and technical data, not just an abundance of money.

As above, this is a superb deal for Globex’s shareholders, who now have plenty of money in the bank after JV deals with Excellon for Braunsdorf and now vending some of their less exciting properties… But it exposes a significant weakness in the technical DD abilities of Electric to simply skim the basket and take everything on show.

Maybe all of these opportunities were ground-breaking, but it seems like clutching at straws without inspiration to me. If you’re sat on a washed up battery metal project and not sure what to do with it… Maybe make a few jazzy calls to the Electric team, they’re bound to bite.

We’ll gladly host a chat with or post any replies from the Electric team as always, this is a fair forum and I’m happy to hold my hands up when I screw up… But on the face of it, I see a pump-dump stock play here… Not a long-term development plan.

Liam
Spotlight Mining