From a $2M Royalty to closing a $290M Deal with a $1.95B Market Cap: Fred Bell of Elemental Royalty

FLS ep 1 v2: Hi everyone, Jim Paterson, Brian London of Forward Looking Statements. We have our inaugural guest, Fred Bell, a friend of the group who has volunteered to come talk to us here at the Beaver Creek Conference in near Denver, Colorado. Fred, big news announced on Monday for Elemental. You're the CEO of Elemental. And I was reminded when I first met you, a private royalties company. In twenty seventeen in Zurich. maybe walk us through the difference. Bookend, that meeting in twenty seventeen, a young CEO, take us then to yesterday's announcement. Yeah, look, it's it's going back then, private company. I think I was introduced to a very skeptical Jim Paterson. my goodness, the first person. And look, we were probably half targeting half a million dollars of revenue a year. I think if you fast forward to today, we're probably a hundred million dollars of revenue a year. Well just to sort of put it from start to finish perspective. But I think that it's funny, I was actually on a panel this morning and they they asked me about who is a mentor for you in the industry in the space and I shouldn't say this if John's gonna see it, but I actually said, John, yeah, you know, that that meeting with you and you and John, we were a London Australian group looking to list in North America but not knowing the capital markets. And I think being wary of who we got into bed with, who we worked with. And I think that that intro to you and John actually you know really set the set the path forward for us going into Discovery Group and then the rest is history as I say. What was it about that meeting? Well I mean what hit you? What told you I can trust these guys? So I I I remember very curious about that. I remember very curious. Don't name any names by the way. Because I remember very clear clearly that Jim played bad cop and John played good cop. Yeah. So John was sort of saying, you know, what's a project? How did you do this? What's fencil? And Jim was going, you know, who are the guys behind this? You know, where's all the one penny stock hidden? Yeah. all that that side. So it was But you did it in a in a yeah. Yeah, relative yeah. And it was actually follow up meeting. We went to Vancouver and I went with one of my partners and we we spent some time, got to know and then I also put a few calls in and said, You know, have you heard of people in Vancouver? Have you heard of John? Have you heard of Jim? And they all came back saying, Yeah, you know, fantastic guys, great track record and I think there was some, you know Discovery Group had just had a few big wins and a few really good ones. And so it was it was a really good, really good combination for us. and I think still got a lot of shareholders today who were original intros through John and Jenny. And the intro came from David's our friend David Sadowski in Zurich. And this is a funny story. So Dave Sadowski I first met because I gate crashed a call mark drinks party at PDAC. and I was at the bar and someone came over and said, you know Who are you and what are you doing here? And I started chatting and I sort of joked that I actually wasn't invited to the party, but I heard about it. And the person I was chatting to was one of the hosts, Dave Sidalski. And the second time I met him was in Zurich, where he introduced me to you and to John. Yeah, amazing. So for all the very small world. Yeah. So we don't have to talk all about Discovery Group, but we we want to celebrate your success. A big announcement yesterday, which lit the conference on fire, was I think the biggest deal announced. Tell us about that. So look, it's yeah, go back to the first day when we had to syndicate a two million dollar royalty. Yeah. Fifty fifty, because we couldn't raise two million dollars. and fast forward to yesterday and we announced acquisition of a portfolio of five royalties and streams for two hundred and ninety million US, two hundred million in cash that we're funding through cash and credit facility, and then ninety million in equity with Orion. And of those five assets, three of them are already in production. One is going into production at the end of this year. and then the last one, the the one of the biggest development ones is IAT's Ruby Hill in Nevada. where we've got a silver stream on fifty to ten percent of the silver coming out of that project. So a really in terms of single transactions, it's the largest single transaction refer in the company's history. And I think to be able to do that without having to do a fundraiser alongside it and doing it in a way that it just fits into our portfolio. Is a good, I suppose, demonstration of how far we've come from that. So your your growth trajectory obviously has been pretty extraordinary. And the deal you just announced is is extraordinary even at this event in terms of size and scope and and everything else. The royalty space is highly competitive and it's just gotten more so. And and so how do you differentiate yourself from the rest? What's your secret sauce? where you've been able to close these kind of deals and get this kind of growth trajectory where others are still, you know, have not been able to do that. It it it's a good question because it is the hardest part about the royalty space. And you look at now the majors and they are sitting on so much cash they can't find enough ways to deploy it. From Elemental we almost had the opposite problem, which was over the history of the company, we have given away two hundred million dollars in syndicated deal flow. We've done that five times. So actually I think If you look at it from that perspective, what do you mean by that? We've been really good at finding deals, but we didn't always have the money to do them. And so we had to get a parcel. So we've done it with two private equity funds and mining. We've done it with Franco Nevada, we've done it with EMX, who we then merged with. So we've done it with quite a few companies, which I suppose is now a really nice place to be in, where actually we can do deals ourselves and they're not going to overweight us. We actually have the financing to do it ourselves. And so if we want to syndicate it and we choose to, that's fine. But we don't have to do it out of necessity. Right. And that's that's the difference. So I think one thing we've been very good at is finding deals and opportunities. And that is, you know, I put it down to a mix of network, contacts, persistence, dogginess, because you you know, you see you see deals, multiple opportunities every day now. And there are so many. and you've got to be able to pretty quickly hone in on the one or two that you think could be a good fit or good upside and or good team. Why why would you want to syndicate a deal now that you have the capability of doing it yourself? So you've you know, I'll use an example of of a number of years ago, Franco Nevada and Sandstorm syndicated a stream in northern Bikina Faso. And at the time it was on the Karma mine and I think they did that for a political risk as well and jurisdiction risk. It was not, you know, easily they could have done it either of them themselves. And they did it for that. So I think often you'll see it where people don't want to be too overweight a single asset or a region or a company. And that that's probably the most likely one also sometimes happens for commodity perspectives. So, you know, a lot of big royalty companies and three and this focus is precious metals. And so you might often see an iron ore royalty that gets syndicated. Yeah. Because actually you don't want too much exposure to iron ore or choose your commodity. Or vice versa, yeah. Yeah. Terms of one one question on that, so how many continents or countries for different mines are you are you receiving? cash flow from that because you're very diversified now. Yeah. So with this deal closing, we will have twenty one different producing mines that we get paid from. So it's amazing when you actually think about it, we are more diversified than the major mining companies. And no mining company would really want to operate twenty one different assets from Australia to Chile. Because the time zones and the yeah yeah operationally it would be an you know very challenging. So that's one of the great things about the Rules model is the revenue is so diversified. you end up with a lower cost of capital than even the major mining companies. Yeah. And that is really where the royalty, the companies sort of, you know, they get their structural advantages. And your staff actually just shrunk while you grew the business. Yeah. So with this deal yesterday, what we announced is and and it's been I think under discussion for a long time internally, which is this generation business, which is a bit like EMX and Altius as well had it. and the royalties end up the tail that wags the dog. Where the royalties are worth more than the original business, which was the generation. And we've just reached a point now, it's about a year on from the merger with EMX. We've we've probably deployed the best part with this deal of a billion dollars or just over in the last 12 months. And we've we've sort of reached a stage where the generation is maybe a third of our GNA, is 60% of all of our staff. So it's it's 25 or 45 people in the company, just on the generation. And so as a result, actually. It makes a lot more sense to put it in its own vehicle where it will get value and it will have a different risk reward. And then the royalty side is also cleaner, streamlined, and it's more straightforward for investors. And for those who want to do the prospect generating royalty generation side, and we'll still be the bigger shareholder by that in a way. in that, by the way, you can still have that, but it has a very different risk reward. And you can daylight that value. Exactly for shareholders. Exactly. So you mentioned that you're seeing a lot of opportunity. Up and with so many royalty companies out there competing in the space. But that I find that interesting. You're still seeing a lot of opportunities. So talk to us a little bit about that, kind of characterize that in what you would tell an investor right now as to why they should buy elemental right now. Well, look, I think the f the fundamental reason is something that we can point to today that was very hard to point to when I met Jim, which was track record. And when I met John and Jim all those years ago, we would be in private deliberately. For two years or so, because we wanted to be able to demonstrate at least some sort of track record before we came to market. And now if you look back, we've got a we can put slides together and we've got one in our presentation showing all the original investments we made, what we paid for them, what we have been paid to date, and what the current value is. And so that for investors is key because the next part of it, the next part of the answer is that we have deployed the third most in the last 12 months. After Wheaton and raw gold in the entire royalty space. And if you look at our track record, our track record has been we'd have been able to buy and execute on really accretive deals to the extent that we have syndicated them five times, with including Franco, when they were too big for us. And so I think that side means that we're going from 20,000 gold equivalent ounces today to in 2031, approximately 50,000, a bit over, geos. and all of that is organic growth in the portfolio. At the same time that Jim mentioned, we're gonna be cutting our G and A by a third coming into next year. So we've got record revenue and we've got pretty good growth every year throughout that. at the same time that we're actually lowering our costs. So you're gonna have the margin expansion, more diversified revenue than ever before, with a track record of actually having started the company from the first valuation we did was a million dollar valuation on the company when we started. What was it? A million dollars, around one. I think my investment was fourteen thousand pounds. huh. so you know, it it comes a long way now to be able to say, you know, hey, look out to twenty thirty, we're doing fifty thousand GS. And I mean in terms of dollars, you can pick your gold price. But if you took four thousand dollars or fifty thousand GS instead of two hundred million revenue, and your costs are twenty people on the team. And I will say about the team, personal experience, incredibly competent, incredibly hardworking, very high level of integrity, best in the business. So what that is one exception. With I will exclude present company, but I think generally people want to do deals with people that they like and they trust. And that Elemental has that team. That that's actually that is a really good answer as well to Brian's question earlier around how you find deal flow and and so much of these relationships. And we have done so many deals with people where they did not need to do the deal with us. And actually they could have gone to other companies. And I would say three or four of them, they did it partly because they took equity in us as well. Yeah. So they said, look, we like your portfolio, we think your good value, we think you're gonna grow. Rather than just selling it for twenty million to cash to X, why don't we sell it for 10 million in cash and take 10 million in equity on you guys? Yeah. We still have some exposure to our set. We've got Best compliment you can get. Yeah, but yeah. And we have done that, you know, quite often. And and actually one of the more recent ones we just closed last week, corporate transaction on Visa Realty. And that ended up being 75% equity, 25% cash. And and for them, you know, they've got a what is gonna be one of the best. development silver primary silver assets in the world. Yeah. And I think for for them, they actually wanted to retain exposure to it. Because their view is, you know, they're still very early days of the expiration there. Yeah. and and you know, I think they have they have drilled 30% of the known veins. And they haven't even mapped the whole license yet. Yeah. And so from that perspective, they can take some cash off the table, they put it into us. Since they put it into us, they have made money on the shares that they did. And it will be, you know, a key part in our portfolio going forwards into the future that they will still have exposure to if they think that the upside there is gonna continue to add value over there. And they would know it better than anyone. The upside. They know the project better than anyone in the world. So being the common team, it's great. Anything else you wanna s sort of end off with or say after yesterday's big news? No, I maybe look I'll I'll say one thing and I think that the you know, the biggest thing I've learned over the years, and having done exploration before I discovered loyalties. the biggest thing I found is working with good people because actually consistently good people tend to introduce you to other good people. Yeah and then it's a virtuous circle. And so I think you know I go back to to meeting Dehi, meeting you, meeting John, and actually through that I have met a whole network of people over time gradually. But generally it has been what I would class as you know very smart, very successful people with morals who do things the right way. And that's actually been incredibly valuable for us. Because in this business reputation is everything. Whether you're raising money, whether you're trying to do a deal with someone, it's all about, you know, reputation. Do people want to work with you? Do people want to invest in you? And I think that's that's maybe a good note to leave it on. That's that's such a powerful thing that this is the second time we've talked in front of the camera and that has been the dominant theme of both of those That was both of those instances. Well, we're honored to have you here. Thank you very much. And congratulations, Red. Thank you very much. Thanks, Red.