Everything you need to know about royalties, with Spencer Cole

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Righto buddy.
Miners.

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You wanna know about royalties?
This whole episode's about

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royalties.
Everything and everything you

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wanna know.
I wouldn't the the dark art of

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royalties and you can make a
whole episode about it.

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Really you can.
We've got it here, buddy.

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We have got bloody speaking
about royalties.

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Talk about insurance, broking
royalties, CRE insurance.

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Well, we're on the topic on the
on the back of telling everyone

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our bloody good CRE are mate,
they're expanding everywhere, JC

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they are.
They're they're more people to

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keep up with the demand that's
coming out of finally everyone

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now and how bloody good they are
mate.

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You want it doesn't matter
whether you own the rocks, own

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the equipment to mine the rocks
or you construct things around

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the rocks.
They can broke a policy for you

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or review your existing one,
mate, Hard Rock Carl friggin

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construction anything,
renewables, anything, CRO

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insurance and there anything and
everywhere Brisbane, Sydney,

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Perth.
They just doubled the Perth

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chain.
Oh mate, it's so happening.

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Oh, getting right back on to
royalties, right this episode

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we've got Spencer Carl from
UBSBHBS 32 fame started the

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royalty marketplace CIO at Vox
Royalties.

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And since I've said royalty so
many times, you can tell this

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guy's a guru about royalties.
Yes, royalties streaming buddy.

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The the art of it, all the funky
stuff.

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Let's get into it, JC.
Thanks to the boys for recording

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this one.
Spencer Cole, thank you so much

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for for joining us.
We're really keen to understand

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the landscape of, of royalties,
how that industry has changed.

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It's changed a lot.
The whole yeah, investment

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universe for investors has
evolved.

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The valuations have changed.
The way that, you know, mining

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companies get finance has
changed.

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Yeah, I'm, I'm really interested
to have this conversation with

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you because you've spent
obviously the best part is 15

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years just trying to find
obscure royalties in in the most

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strange of places and, and get
your hands on them.

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Would that be a fair, fair
characterisation?

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Yeah, it's a fair assessment,
Trev, and thanks for having me

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here.
Yeah, I'm a sort of self

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confessed royalty nerd, so I
could talk the leg off the chair

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about royalties.
So happy to talk both of your

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the legs off your collective
chairs and hopefully it's

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interesting for listeners.
We, we, we, we want to own some

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royalties, Spencer.
So if you can find some for us,

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that'd be wonderful.
But I don't think I don't think

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we're alone in wanting to own
royalties.

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The the challenge is we're just
not massive fans of seeing

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royalties pop up when they are
created in deals because they

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they're pretty the hemorrhage
projects.

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Yeah.
Well, not to be flippant, Trev,

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but if you're in the market for
extremely cheap royalties, the

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the the inside money would be if
you're willing to go to northern

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Burkina where there's, you know,
it's more sandy than secure, I

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think you you'd be able to buy
them for probably less than one

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times revenue.
But that's not necessarily an

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investment strategy that we at
Vox Royalty would necessarily

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support.
So what about?

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What about actually upholding
the the terms of that royalty?

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Would I, how would I go about
doing that?

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Yeah, need a few.
Well you might bit of security.

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Challenges You might be getting
paid in rubles rather than U.S.

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dollars, but when your when your
friends at the Wagner Group are

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sending you royalty checks.
But no, in All, in all

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seriousness, there are some some
extremely cheap royalties out

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there, but they're probably not
the type of royalties you want

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to be acquiring.
Yeah, makes sense.

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Totally.
It's like for, for us observing

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the, the mining industry and,
you know, albeit our careers are

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shorter than the, the history of
the royalty industry, but it, it

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really seems like, you know, the
oil and gas industry led the way

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with, you know, with royalty
businesses.

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They're they're much larger in
that, in that world and, and the

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likes.
But Franco kind of kind of

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captured the essence of, of, of
that, that industry and, and,

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and birth what is now becoming a
quite a substantial and growing

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part of the mining industry over
time.

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They started like, was it 1986
was the first royalty, but they

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they didn't actually become at
least they spun out of Newmont

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in 2007.
Is that right?

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Yeah.
So they they were incubated

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within Newmont and then spun out
and then ultimately they were

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IPO D in 2007.
But yeah, that the the classic

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story was, you know, they threw
one of their connections.

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They they heard heard about a
small ad in a local Nevada

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newspaper selling a a little
gold royalty for 2,000,000 bucks

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and they rattled the tin with
friends and family.

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This is PLS on and Seymour short
can Fast forward to today and I

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think over 40 million oz have
been delineated at that little

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gold gold claim.
So you know, turned that into

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that $2,000,000 into a billion
Ave. and probably another

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billion in MPV at gold strikes.
So you know when you do it

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right, the industry can be
extremely lucrative.

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It really is like the ultimate
treasure hunt.

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If you like sifting through
dusty old maps and storerooms

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looking for a reference to a
forgotten royalty, this is the

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industry for you.
And you know, it's a great

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industry where if you choose the
right royalty and, you know, you

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just sit back and collect
quarterly checks.

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So it's that's not a bad
business to be in if you can, if

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you can choose the right
royalties.

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They're such awesome business
and yet pretty envious.

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It's, they're not just limited
to natural resources either,

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like some of the ones that come
to mind, Michael Jordan on, on

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his shoes and Coco Chanel, I'm
pretty sure had one on Chanel #5

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and you know, one of them had
like just living expenses

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chucked in for the rest of their
life.

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They're such awesome businesses.
I'm sure that's part of the

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reason you're sort of attracted
to them.

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It's.
Perpetuity you've got like, it's

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these things, it's perpetuity.
How many assets do you buy that

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have?
Yeah, an entitlement for

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perpetuity like.
The people in the you guys

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fence.
I think one of the the most

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lucrative royalties is actually
like AI think it was a royalty

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on Listerine or some sort of
mouthwash.

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And that's, that's yielded, you
know, hundreds of 1,000,000.

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So, yeah, I mean, these these
types of yield instruments, you

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know, whether you're in the
Pharmaceutical industry, the

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music industry or mining, you
know, you name it, oil and gas,

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you know, they, they're
extremely attractive because as

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you said, they're perpetual
typically.

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And you know, if there's a
fundamental change or shift in

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the industry, you know, you can
see, you know, exponential

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factor in, in the yield you're
getting, which is why I think

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generalist investors are also
attracted to this model, you

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know, relative to just single
asset mining, mining companies.

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That's a big distinction right
in, in mining royalties versus

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the the more generic royalties
is that, yeah, I'd use the word

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perpetuity, but the reality is
mines have a finite mine life.

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However, you can have a royal, a
royalty over an asset and then

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there's some new discovery or
some like crazy my life

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extension, which can, you know,
and and they can just keep going

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in there.
You talked about Frank Franco's

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origination.
One like that's that's where

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things get exciting because you
can pay a small amount and and

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have a a really large long term
lucrative pay off.

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Yeah.
I think what's what's not as

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well understood is, you know,
you know, when you value any

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sort of option, you know, how do
you actually increase the value

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of that option?
And, and there's a lot of people

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running around sort of buying
moose pasture royalties or spin

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effects royalties that don't
have any work going on them.

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You know, our focus is really
buy royalties at attractive

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prices.
But most importantly, they have

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millions, 10s, hundreds of
millions of dollars of work

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being done on the ground
because, you know, buying

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completely out out of the money
options.

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You know, you're not sort of
getting enough shots on goal

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relative to if you're buying.
You know, if you, if you want

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one hypothesis we love is you
pick a big hungry mill that's

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running out of feed and you try
and buy all the royalties on all

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the satellite deposits around
it.

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You know, we've, we've had some
success with the likes of

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Genesis and whatnot
consolidating some of our

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royalties and you know, we've
made some, some really

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attractive returns on that, that
hypothesis.

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But fundamentally if your
royalty isn't getting any

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activity and it's moves past
you, obviously you know it's

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you're not going to get a lot of
return on it.

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Kaydrill or Exploration royalty
that checks out.

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They they do all this royalty
talk just reminds me of Rhino

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Sol Ryan O'Sullivan, the royalty
of operation manager exploration

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drilling, king of the RC and
diamond rig.

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Yeah, mate, there mate.
There ain't going to be enough

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bloody exploration rigs to keep
up with this gold mania we are

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seeing at the moment.
So I would suggest calling K

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drill right now if you want
their expertise drilling your RC

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and diamond holes, because
they're probably by the end of

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this episode they've been
snapped up by someone else.

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Get up the team go K drill.
Oh, mate, call them now.

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Number is in the show notes.
Finds yourself some gold.

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Spencer, you made the really
interesting comment just before

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about generalists being
attracted to royalties.

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And I think that's a an awesome
segue into sort of setting the

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landscape of what the royalty
business looks like in the Hard

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Rock natural resources industry
right now.

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Because it's evolved massively
over the past couple decades.

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Over the past ten years in
particular, the the number of

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companies, while not massive, it
sort of ticked up steadily and

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the combined market cap has also
grown quite massively over that

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period.
So given your sort of 15 year

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experience, talk us through how
it's kind of evolved and I'm

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keen to hear the sort of impacts
that the growth in the royalty

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sector has had on more classical
miners, whether that might be

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sort of pulling away market cap,
pulling away generalist dollars

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and these sorts of things.
Yeah.

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So, yeah, it's an interesting
sort of history, JD, if you go

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back sort of 20 years ago, you
know, there are about 10 royalty

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companies and but collectively I
think the combined market cap

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was about 1,000,000 bucks, a
billion bucks.

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Sorry.
So, you know, the industry as a

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whole has really picked up
steam, I guess you could say

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largely since the success of
Franklin Nevada post 2007.

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And you know, there has been
somewhat of a proliferation of

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royalty companies.
So the industry's gone from

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00:10:45,760 --> 00:10:50,280
circuit 10 companies to 30
companies in the last 20 years

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00:10:50,640 --> 00:10:53,880
and it's gone from a billion
dollar combined market cap to

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00:10:53,880 --> 00:10:57,560
about 70 billion.
Then you know, when you

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00:10:57,560 --> 00:11:01,080
segmented through a few
different lenses, you know it

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it, it fragments a bit further.
So the majority of that 70

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00:11:04,880 --> 00:11:07,960
billion is, is precious metals
and more specifically gold and

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00:11:07,960 --> 00:11:10,600
silver.
So that probably speaks for, you

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00:11:10,600 --> 00:11:13,200
know, about 65 of that 70
billion.

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00:11:13,440 --> 00:11:16,840
And then there's about 5 billion
across sort of diversified or

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non precious royalty companies.
There's three majors, There's

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00:11:21,160 --> 00:11:23,200
like 3, three major royalty
companies kind of dominate.

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00:11:23,200 --> 00:11:26,480
Is that right?
Yeah, that's absolutely right.

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00:11:26,480 --> 00:11:31,360
So you know, the top three speak
for I think 2nd 90 odd percent

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00:11:31,360 --> 00:11:33,920
of the industry in for in terms
of market cap.

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00:11:35,840 --> 00:11:39,600
But you know, in terms of deal
flow and activity, obviously the

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00:11:39,720 --> 00:11:43,240
the other sort of 27 odd
companies, you know, nipping at

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00:11:43,240 --> 00:11:45,840
their heels and you know,
aggressively trying to sort of

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00:11:46,120 --> 00:11:48,680
step into that sort of next that
next category.

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00:11:50,120 --> 00:11:54,000
I think in terms of how capital
has shifted between miners and

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00:11:54,000 --> 00:11:57,200
royalty companies, you know,
it's interesting.

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00:11:57,200 --> 00:12:00,640
We I'd say the incremental buyer
of our stock, particularly since

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00:12:00,640 --> 00:12:04,800
we do listed on NASDAQ has been
US generalist investors.

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00:12:05,720 --> 00:12:09,680
And so we get a lot of really
granular feedback from US family

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00:12:09,680 --> 00:12:12,880
office investors and generalists
and small cap investors.

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00:12:13,240 --> 00:12:16,840
And for a lot of them, what
they'll tell us is I was burnt

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on this, this junior mining
stock or this whatever mining

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00:12:19,640 --> 00:12:21,600
stock, you know, a couple of
years ago.

226
00:12:21,600 --> 00:12:25,400
And so I haven't been able to
trust the mining industry since

227
00:12:25,400 --> 00:12:28,720
then.
And so, you know, the attract

228
00:12:28,800 --> 00:12:30,600
the attraction to a royalty
model where you've got a

229
00:12:30,600 --> 00:12:33,360
portfolio approach, it's capital
light, head count light.

230
00:12:33,960 --> 00:12:38,360
It resonates really strongly.
So, you know, I wouldn't say

231
00:12:38,360 --> 00:12:41,800
that that's always been the same
level of attraction from

232
00:12:41,800 --> 00:12:44,120
generalists in the last five to
10 years.

233
00:12:45,440 --> 00:12:48,440
But you know, certainly, you
know, in these markets where

234
00:12:48,600 --> 00:12:51,280
particularly American
generalists are looking for an

235
00:12:51,280 --> 00:12:54,400
inflation hedge, looking for
metals exposure, but don't

236
00:12:54,400 --> 00:12:56,400
really know how to dissect the
mine.

237
00:12:57,240 --> 00:13:00,200
You know, I think this model is
resonating really strongly in

238
00:13:00,200 --> 00:13:02,160
these markets, particularly in
the US.

239
00:13:02,320 --> 00:13:06,840
Combine that with the, the
historic tendency of of miners

240
00:13:06,840 --> 00:13:09,560
to disappoint expectations as
well, right?

241
00:13:09,560 --> 00:13:15,440
Like I was talking to JD this
morning about that, that chart

242
00:13:15,440 --> 00:13:18,600
that is always used the showing
the historical P NAV, a price to

243
00:13:18,600 --> 00:13:22,080
NAV ratio that the gold miners
would would, would trade at for

244
00:13:22,280 --> 00:13:24,000
over like a, you know, 40 year
period.

245
00:13:24,000 --> 00:13:27,120
And for the best part of of
history, they roughly traded

246
00:13:27,120 --> 00:13:30,800
about two times NAV And then it
kind of, you know, rapidly falls

247
00:13:30,800 --> 00:13:35,000
off around 2010 ish 2009 two
thousand and 10:00-ish where

248
00:13:35,280 --> 00:13:38,160
they kind of now hover around
one times NAV And the the bulls

249
00:13:38,160 --> 00:13:42,600
will tell you a return to the
long term average of of of 1.5

250
00:13:42,600 --> 00:13:47,040
Times Now.
But I just I think previously

251
00:13:48,760 --> 00:13:52,800
the like investors in those gold
companies were were willing to

252
00:13:52,800 --> 00:13:56,280
pay greater than NAV because if
because that would attribute,

253
00:13:56,480 --> 00:13:58,760
you know, the option value, the
upside or option value of those

254
00:13:58,760 --> 00:14:01,160
like the projects that they had
to the to the mining company,

255
00:14:01,160 --> 00:14:03,800
They get the upside of them.
But in reality, costs escalate

256
00:14:03,800 --> 00:14:07,600
massively and they're not able
to capture the upside of my life

257
00:14:07,600 --> 00:14:09,480
extension on on new discoveries
very well at all.

258
00:14:09,480 --> 00:14:12,080
In fact, the royalty companies
capture that very well.

259
00:14:12,360 --> 00:14:14,840
Hence, Franco Nevada rightfully
trades at two times NAV.

260
00:14:15,560 --> 00:14:18,280
Do you think that's like a
fairway to interpret trading

261
00:14:18,280 --> 00:14:24,720
valuation evolution as well?
I think there's sort of infinite

262
00:14:24,720 --> 00:14:29,440
ways you could dissect it.
Look, I think one metric that is

263
00:14:29,440 --> 00:14:34,320
really telling or maybe 2
metrics, 1 is if you look at the

264
00:14:34,320 --> 00:14:40,800
total quantum of managed mining
funds relative to passive mining

265
00:14:41,040 --> 00:14:43,640
ETFs.
So as of the end of last year,

266
00:14:44,320 --> 00:14:49,680
the stats I saw was it was about
US 28 billion collectively in in

267
00:14:49,680 --> 00:14:54,000
discretionary like mining hedge
funds and you know, managed

268
00:14:54,000 --> 00:14:57,880
mining funds.
So contrast that 28 billion with

269
00:14:57,880 --> 00:15:03,080
the passive mining ETF money and
that that was 330 billion.

270
00:15:03,640 --> 00:15:05,920
So you know, what do you take
out of that?

271
00:15:05,920 --> 00:15:09,680
It's that for a lot of the, you
know, historically a lot of the

272
00:15:09,680 --> 00:15:13,120
industry and the volatility has
been driven by that

273
00:15:13,240 --> 00:15:16,640
discretionary capital.
Whereas now this sort of light

274
00:15:16,640 --> 00:15:19,720
towards, you know, passive ETF
mining capital.

275
00:15:20,440 --> 00:15:25,400
It's, it's just it grown so much
that, you know, if, if investors

276
00:15:25,400 --> 00:15:28,840
want exposure to gold, they're
going to buy an ETF that's sort

277
00:15:28,840 --> 00:15:32,480
of gold linked or mining linked
more, more and more.

278
00:15:32,480 --> 00:15:36,840
So, So yeah, I think there is an
element that a lot of the large

279
00:15:36,840 --> 00:15:38,800
cap golds have have
disappointed.

280
00:15:39,040 --> 00:15:41,880
You know, I think our investors
tell us that all the time and

281
00:15:41,880 --> 00:15:44,360
that's why they sort of move
recycling capital into

282
00:15:44,360 --> 00:15:46,400
royalties.
Like you look at Newmont, I

283
00:15:46,400 --> 00:15:49,400
think over the last five years
they've doubled their share

284
00:15:49,400 --> 00:15:51,520
count.
They've grown production from 5

285
00:15:51,520 --> 00:15:55,200
million oz per annum to 8
million oz and then they've sold

286
00:15:55,200 --> 00:15:58,640
3,000,000 ounces of production.
So, you know, they're still at 5

287
00:15:58,640 --> 00:16:00,880
million ounces of production,
but they've doubled their share

288
00:16:00,880 --> 00:16:03,320
count.
And the share prices, you know,

289
00:16:03,960 --> 00:16:08,560
they're broadly flat.
So I think for some of these

290
00:16:08,560 --> 00:16:11,920
large golds companies that just
haven't focused on value per

291
00:16:11,920 --> 00:16:16,440
share or compounding returns per
share, investors are

292
00:16:16,440 --> 00:16:19,680
understandably pissed off.
And you know, that's why a, a

293
00:16:19,680 --> 00:16:22,720
number of people are sort of
moving away from the large caps

294
00:16:22,720 --> 00:16:25,760
and just, you know, there's,
there's a trend towards passive

295
00:16:25,760 --> 00:16:30,880
sort of index hugging.
To to go into the, the multiples

296
00:16:30,880 --> 00:16:36,040
of how these royalty businesses
trade sort of in general, it

297
00:16:36,120 --> 00:16:41,360
seems to be around that 20
times, you know, EBITDA multiple

298
00:16:41,360 --> 00:16:44,000
that they kind of trade on.
And whilst the market has grown

299
00:16:44,000 --> 00:16:45,880
massively.
Am I sort of right in thinking

300
00:16:46,040 --> 00:16:51,360
that has, you know swayed as the
the commodity cycle of ebb and

301
00:16:51,360 --> 00:16:54,680
flowed, but it's broadly for a
long time despite the growth

302
00:16:54,680 --> 00:16:56,720
stayed similar to that level,
right?

303
00:16:58,400 --> 00:17:01,320
Yeah, I think, I think you're
right, JD, particularly at the

304
00:17:01,320 --> 00:17:06,359
sort of mid to large cap space
at the small cap end of town,

305
00:17:06,520 --> 00:17:09,400
you know, we see sort of
multiples that are quasi tech

306
00:17:09,400 --> 00:17:14,160
multiples like 50 to 60 times
revenue where, you know,

307
00:17:14,160 --> 00:17:18,280
investors I guess are buying
into longer dated, you know,

308
00:17:18,319 --> 00:17:19,280
DCF.
Or.

309
00:17:19,960 --> 00:17:24,680
Yeah, development royalties, so
and there's probably a lot more

310
00:17:24,680 --> 00:17:28,319
arm waving around, you know,
those development pipelines that

311
00:17:28,319 --> 00:17:31,600
at the large end of town.
So but yeah, like broadly

312
00:17:31,600 --> 00:17:35,000
speaking, the industry has sort
of traded around that sort of

313
00:17:35,000 --> 00:17:40,600
2020 times level.
And look, I think what also

314
00:17:40,600 --> 00:17:44,720
shifted in the industry was
about sort of 15 years ago with

315
00:17:44,720 --> 00:17:48,680
the advent of streaming and
streaming and it's, you know,

316
00:17:48,680 --> 00:17:51,600
when it was created, it was just
pure financial arbitrage.

317
00:17:51,920 --> 00:17:55,560
We'll pay 10 times revenue for
this metal, this, this silver

318
00:17:55,560 --> 00:17:59,360
byproduct stream and it'll
trade, you know, magically it'll

319
00:17:59,360 --> 00:18:03,520
trade at 20 times.
And there's a number of people

320
00:18:03,520 --> 00:18:06,640
in the industry that's still
trying to chase that, you know,

321
00:18:06,960 --> 00:18:10,880
financial arbitrage dragon, so
to speak, some successfully,

322
00:18:10,880 --> 00:18:16,360
some extremely unsuccessfully.
But, you know, we're, we're not

323
00:18:16,360 --> 00:18:18,280
in the game of sort of financial
arbitrage.

324
00:18:18,280 --> 00:18:21,840
We're trying to focus on, you
know, identifying which mines

325
00:18:21,840 --> 00:18:24,920
and deposits are just about to
be built and then finding

326
00:18:24,920 --> 00:18:28,880
forgotten royalties from 20 to
40 years ago on those rural on

327
00:18:28,880 --> 00:18:32,120
those projects and acquiring
them at attractive prices.

328
00:18:32,120 --> 00:18:35,920
But yeah, this this arbitrage
game and and hoping that

329
00:18:35,920 --> 00:18:40,000
everything trades 20 times
historically that that's been

330
00:18:40,000 --> 00:18:41,880
quite prevalent, particularly on
the streaming side of the

331
00:18:41,880 --> 00:18:43,840
business.
That that's an interesting

332
00:18:43,840 --> 00:18:46,800
point, right?
And I mean, you do get the the

333
00:18:46,800 --> 00:18:50,880
big difference in in trading
valuations between the the

334
00:18:50,880 --> 00:18:53,160
royalty goes that have largely
development portfolios.

335
00:18:53,160 --> 00:18:57,000
You don't get too much value for
a development royalty given so

336
00:18:57,000 --> 00:18:59,920
much uncertainty with them.
But I can like those companies

337
00:18:59,920 --> 00:19:03,520
can try to like slows like .3
Times Now all the way up to to

338
00:19:03,520 --> 00:19:07,080
Franco, which is often north of
two Times Now whenever I've

339
00:19:07,080 --> 00:19:09,840
checked.
But on the on the on the actual

340
00:19:09,840 --> 00:19:13,120
like the the arbitrage,
financial arbitrage side of

341
00:19:13,120 --> 00:19:18,080
things, it's like how do you if
you're playing that game, how do

342
00:19:18,080 --> 00:19:21,520
you compete with the, the
Francos of the world where the

343
00:19:21,520 --> 00:19:24,640
cost of capital is so, so low?
You know what I mean?

344
00:19:24,640 --> 00:19:28,760
Like that, Like, yeah, I always,
I always thought of that

345
00:19:28,760 --> 00:19:32,280
conundrum for De Terra in a lot
of ways because they they didn't

346
00:19:32,280 --> 00:19:35,400
have the same cost of capital as
as as Franco, but you know,

347
00:19:35,440 --> 00:19:38,320
probably found themselves trying
to compete with them on various

348
00:19:38,320 --> 00:19:40,360
opportunities.
Yeah.

349
00:19:40,360 --> 00:19:43,400
Look, I think if you go head to
head with, you know, the

350
00:19:43,400 --> 00:19:46,000
strongest balance sheet in the
industry, generally speaking,

351
00:19:46,640 --> 00:19:49,080
you're going to come come off
pretty bad and then bruised.

352
00:19:50,080 --> 00:19:53,120
You know, I think the behind
closed doors, a lot of the large

353
00:19:53,120 --> 00:19:55,760
capital royalty companies will
tell you their cost of capital

354
00:19:55,760 --> 00:19:59,960
is effectively 0 and 1%.
You know, maybe that's crept up

355
00:19:59,960 --> 00:20:02,600
with rates a little bit, but you
know, you're probably talking

356
00:20:02,600 --> 00:20:05,800
zero to 3% for a lot of the, you
know, the large caps.

357
00:20:06,080 --> 00:20:09,680
And so for them, you know, a lot
of things, almost everything

358
00:20:09,680 --> 00:20:14,720
looks accretive.
So, yeah, the key to in any

359
00:20:14,720 --> 00:20:18,120
rational business model is not
not coming head to head with

360
00:20:18,120 --> 00:20:19,960
that extremely low cost of
capital.

361
00:20:21,360 --> 00:20:25,040
You know, it's, it's I guess
comparable to say, you know, a

362
00:20:25,040 --> 00:20:29,640
sand fire or capstone, you know,
trying to compete with a Chinese

363
00:20:29,640 --> 00:20:33,120
SOA cost of capital, you know,
that places strategic value on

364
00:20:33,120 --> 00:20:36,680
copper off take like, you know,
it just doesn't make any sense.

365
00:20:36,680 --> 00:20:39,680
Don't don't bid against someone
who's got, you know, a

366
00:20:39,680 --> 00:20:41,520
structural advantage relative to
you.

367
00:20:41,520 --> 00:20:47,360
So look, I think, you know, most
sort of mid to small cap royalty

368
00:20:47,360 --> 00:20:52,680
companies acknowledge that and
you know, some are still in the

369
00:20:52,680 --> 00:20:54,040
business of trying to win
auctions.

370
00:20:54,280 --> 00:20:57,920
Others, you know, we're trying
to find bilateral proprietary

371
00:20:57,920 --> 00:21:00,120
deal flow.
But you know, it doesn't grow on

372
00:21:00,120 --> 00:21:05,320
trees and you can sort of go
seek 25% returns in Excel, you

373
00:21:05,320 --> 00:21:08,480
know, all day every day.
But as we all know, you know,

374
00:21:08,560 --> 00:21:10,720
you often that's often not going
to be reality.

375
00:21:10,720 --> 00:21:15,440
So just copying and pasting the
PEA or the pre phase into Excel,

376
00:21:15,920 --> 00:21:20,360
you know, that's delusional.
So, yeah, all that is to say, I

377
00:21:20,360 --> 00:21:23,400
think people have tried to
compete with with the large cap

378
00:21:23,400 --> 00:21:26,720
cost of capital, but you know,
there's there's a trail of

379
00:21:26,720 --> 00:21:28,680
impairments behind that sort of
folly in.

380
00:21:29,360 --> 00:21:31,680
My banking Dave Spencer, I did
it.

381
00:21:31,880 --> 00:21:34,720
There was like one, yeah,
unsuccessful advisory to a

382
00:21:34,720 --> 00:21:38,200
royalty Co bidding for a, a, a
royalty portfolio.

383
00:21:38,760 --> 00:21:42,280
And I can tell you the the
assumptions to to try and

384
00:21:42,280 --> 00:21:44,960
compete in that process were
assumed better than the better

385
00:21:44,960 --> 00:21:47,280
than the Peas and PEFSS have
some really questionable,

386
00:21:47,280 --> 00:21:49,760
dubious projects and they still
didn't win.

387
00:21:49,760 --> 00:21:52,520
Yeah.
Yeah.

388
00:21:52,520 --> 00:21:56,200
I mean, some people there, some
people sort of reach for the

389
00:21:56,200 --> 00:21:58,560
wrong assets.
I'm sure we've all seen it.

390
00:21:58,640 --> 00:22:03,760
But yeah.
And, and I think others will try

391
00:22:03,760 --> 00:22:07,000
and sort of create, construct
this narrative that, you know,

392
00:22:07,360 --> 00:22:11,280
the market's missing a certain
technical assumption or, but you

393
00:22:11,280 --> 00:22:14,520
know, if you're getting close to
paying 10 to 15 times revenue,

394
00:22:14,840 --> 00:22:18,240
even if there is exploration
success in year 25, what does

395
00:22:18,240 --> 00:22:20,960
that really mean for your DCF?
And, you know, you're probably

396
00:22:20,960 --> 00:22:23,240
not going to be able to massage
your returns from, you know,

397
00:22:23,240 --> 00:22:26,560
maybe from 5 to 6% if you're
bidding against the herd like

398
00:22:26,560 --> 00:22:29,160
that.
That's a really interesting sort

399
00:22:29,160 --> 00:22:33,840
of concept you, you bring up
there because the beauty in a in

400
00:22:33,840 --> 00:22:38,160
a sense is the, the optionality
and the thing the, the, you

401
00:22:38,160 --> 00:22:41,640
know, you think about the iron
ore royalties and some of them

402
00:22:41,640 --> 00:22:44,480
gone on for 50 years and that
wouldn't have looked great in

403
00:22:44,920 --> 00:22:50,680
ADCF, but it's awesome to still
get that check 50 years down the

404
00:22:50,680 --> 00:22:54,080
track down the track.
But it just doesn't show up as a

405
00:22:54,120 --> 00:22:57,920
massive kicker if you're looking
at it from a DCF perspective.

406
00:22:57,920 --> 00:23:04,080
But how do you think about the
optionality of multiple cycles

407
00:23:04,080 --> 00:23:07,720
in a commodity and the fact that
if you're, you know, in, in a

408
00:23:07,720 --> 00:23:11,800
precious or often in a, in a
bulk like an iron ore or a a

409
00:23:11,800 --> 00:23:15,400
long life cop of mine, that it
could be around way, way, way

410
00:23:15,400 --> 00:23:17,160
down the track.
How do you sort of put that in

411
00:23:17,160 --> 00:23:19,720
perspective when you're
crunching the numbers?

412
00:23:21,400 --> 00:23:23,800
Yeah, there's there's probably
two different answers to that.

413
00:23:23,800 --> 00:23:28,320
JDI think 1 is, you know, P
Ellison often says as the the

414
00:23:28,320 --> 00:23:31,880
godfather of the royalty
industry often talks about, you

415
00:23:31,880 --> 00:23:34,960
know, you need a, you know, a 20
year mine life.

416
00:23:35,640 --> 00:23:38,880
So that then you're going to
have four or five peaks.

417
00:23:39,520 --> 00:23:42,480
And, you know, if you have
commissioning and ramp up

418
00:23:42,480 --> 00:23:46,000
challenges for up to three or
four years and then, you know,

419
00:23:46,000 --> 00:23:50,840
enclosure or sort of as the the
mine starts to run off, you

420
00:23:50,840 --> 00:23:52,800
know, becomes less predictable
and less stable.

421
00:23:53,960 --> 00:23:58,400
So, yeah, I mean, obviously if
you can, if you can sort of

422
00:23:58,400 --> 00:24:02,400
underwrite and acquire a royalty
on that sort of longevity happy

423
00:24:02,400 --> 00:24:06,640
days.
But I think, you know, and, and,

424
00:24:06,680 --> 00:24:10,280
and getting exposure to the full
commodity cycle and multiple

425
00:24:10,280 --> 00:24:14,040
cycles, you know, I think gives
you some extra embedded

426
00:24:14,040 --> 00:24:17,720
optionality and option value.
But I think something is more

427
00:24:17,720 --> 00:24:21,960
important perhaps is if you look
at the absolutely spectacular,

428
00:24:22,360 --> 00:24:24,800
like the best deals in the
royalty industry, the absolute

429
00:24:24,800 --> 00:24:29,120
barn burners, a lot of them
haven't been from, you know,

430
00:24:29,480 --> 00:24:32,360
mine life extending from 10 to
15 years.

431
00:24:32,640 --> 00:24:36,040
A lot of them have been, you
know, if you take gold strike,

432
00:24:36,320 --> 00:24:40,520
it was, you know, a smaller
scale gold, gold asset in 1986

433
00:24:40,520 --> 00:24:44,160
something, it had 400,000 ounces
of reserves in the ground.

434
00:24:45,240 --> 00:24:47,960
There was an ownership change,
you know, some brownfields

435
00:24:47,960 --> 00:24:51,600
drilling that that really proved
up, you know, extremely well.

436
00:24:51,880 --> 00:24:54,880
And then lo and behold, they've
produced another 20 million oz.

437
00:24:54,880 --> 00:24:59,000
So often it's change of
ownership, change of project

438
00:24:59,000 --> 00:25:02,760
scale, you know, doubling,
tripling, quadrupling the size

439
00:25:02,760 --> 00:25:05,800
of the mill.
As ridiculous as that sounds in

440
00:25:05,800 --> 00:25:08,800
this sort of capital intensity
environment, you know, it's,

441
00:25:09,320 --> 00:25:13,040
it's often that ownership change
and rescoping the fundamental

442
00:25:13,040 --> 00:25:19,840
size and shape of the project
that where you see the 100X plus

443
00:25:20,000 --> 00:25:24,880
returns in the royalty industry.
And so even if you look at, you

444
00:25:24,880 --> 00:25:27,280
know, another, another
incredible deal that Franco did

445
00:25:27,320 --> 00:25:31,400
historically was they put, I
think it was a 2 or $3,000,000

446
00:25:31,400 --> 00:25:36,280
into D2 or like when that asset
was effectively being acquired.

447
00:25:37,000 --> 00:25:41,240
So, you know, if you can back
acquisition finance for an asset

448
00:25:41,240 --> 00:25:44,680
that's been either forgotten or
overlooked and then the new

449
00:25:44,680 --> 00:25:49,280
management team comes in, dusts
it off and absolutely, you know,

450
00:25:49,280 --> 00:25:51,560
it might inject a billion or a
couple of billion dollars of

451
00:25:51,560 --> 00:25:54,160
capital into it.
That's where you get the real

452
00:25:54,160 --> 00:25:56,160
talk.
It's not, it's not necessarily

453
00:25:56,160 --> 00:25:59,800
the mind life extension.
It's it's that rescoping the the

454
00:25:59,800 --> 00:26:02,920
actual throughput and often
through change of ownership.

455
00:26:03,160 --> 00:26:09,240
That's yeah, that's fascinating
how the different ways that

456
00:26:09,240 --> 00:26:12,960
royalties actually like come
come into existence is is an

457
00:26:12,960 --> 00:26:15,920
area of interest.
And and like what you talked

458
00:26:15,920 --> 00:26:19,520
about there is acquisition
finance is one method.

459
00:26:20,240 --> 00:26:23,200
Project finance, I imagine is a,
is an, is another method of a

460
00:26:23,200 --> 00:26:25,880
single asset developer might not
be able to access equity in debt

461
00:26:25,880 --> 00:26:28,160
markets quite enough.
Chuck a royalty in there.

462
00:26:29,360 --> 00:26:32,000
Yeah.
And so so M and a project

463
00:26:32,000 --> 00:26:37,120
finance distressed balance
sheets, I think, I think that's

464
00:26:37,120 --> 00:26:39,480
why Sabani I did their streaming
deal last year because they

465
00:26:39,480 --> 00:26:41,680
needed the cash.
Franco sure, we'll do that.

466
00:26:42,400 --> 00:26:45,360
What like what are the other way
weird ways that that you see

467
00:26:45,360 --> 00:26:47,960
royalties kind of come into
existence?

468
00:26:49,520 --> 00:26:54,160
Yeah, so, so before moving to
other categories, I think

469
00:26:54,160 --> 00:26:56,920
balance sheet repair is an
interesting one and particularly

470
00:26:56,920 --> 00:26:59,960
on the streaming side of of the
business, less so on the royalty

471
00:26:59,960 --> 00:27:02,400
side.
So if you look at some of the

472
00:27:02,480 --> 00:27:08,480
the highest IRR streams in the
industry, most of them came from

473
00:27:08,480 --> 00:27:10,280
balance sheet repair
transactions.

474
00:27:10,480 --> 00:27:13,080
So, you know, you may recall
Circuit 10 years ago when

475
00:27:13,080 --> 00:27:17,520
Glencore had a mountain of debt.
And then, you know, the, the,

476
00:27:17,760 --> 00:27:21,320
the, the, the extremely novelty
sized checkbooks from the

477
00:27:21,320 --> 00:27:24,240
streaming industry came out and
started writing half half

478
00:27:24,240 --> 00:27:27,760
billion dollar checks, you know,
into sort of large silver

479
00:27:27,760 --> 00:27:30,920
streams on assets like antimener
and you know, some of these

480
00:27:30,920 --> 00:27:35,560
absolute generational base metal
ore bodies to repair the likes

481
00:27:35,560 --> 00:27:39,960
of Glencore's balance sheet.
Those streams really have been

482
00:27:39,960 --> 00:27:43,680
the most, the highest IRR
streams in the industry and

483
00:27:43,680 --> 00:27:46,200
likewise the balance sheet
repair royalties as well.

484
00:27:47,520 --> 00:27:50,400
The other, I guess probably the
most common way royalties are

485
00:27:50,400 --> 00:27:55,120
created is, you know, when
mineral rights claims, tenements

486
00:27:55,240 --> 00:28:00,400
are farmed out or sold.
So, you know, particularly in

487
00:28:00,400 --> 00:28:04,440
Australian or US context or in
some other countries where the

488
00:28:04,440 --> 00:28:08,280
individual owns the mineral
rights, you know, and let's say

489
00:28:08,280 --> 00:28:13,320
a rancher, you know, in Brazil
or Nova or even Nevada sells the

490
00:28:13,360 --> 00:28:15,720
the gold rights to their to
their land.

491
00:28:16,920 --> 00:28:19,840
You know, selling the mineral
rights and then retaining a

492
00:28:19,840 --> 00:28:21,840
royalty is sort of deferred
consideration.

493
00:28:21,960 --> 00:28:25,520
That's the most common way that
royalties are typically created.

494
00:28:26,000 --> 00:28:29,840
But the challenge then becomes,
how the hell do you find that

495
00:28:29,840 --> 00:28:33,120
landowner or, you know, that
salty prospector who lives in a

496
00:28:33,120 --> 00:28:35,080
van doesn't have an e-mail
address?

497
00:28:35,680 --> 00:28:40,440
It's a real example.
But yeah, so it becomes, you

498
00:28:40,440 --> 00:28:43,600
know, bizarrely, the challenge
for the industry for these

499
00:28:43,600 --> 00:28:47,120
forgotten royalties is how do
you actually track down who owns

500
00:28:47,120 --> 00:28:49,760
the royalty?
So, you know, we, we use private

501
00:28:49,760 --> 00:28:54,080
investigators.
We send a lot of snail mail, as

502
00:28:54,080 --> 00:28:56,960
as crazy as that sounds, because
there's a number of prospectors

503
00:28:56,960 --> 00:29:01,320
and royalty holders that are
basically off grid and the only

504
00:29:01,320 --> 00:29:04,760
way you can reach them is, you
know, with a written letter or,

505
00:29:05,120 --> 00:29:07,000
you know, through a a private
investigator.

506
00:29:07,000 --> 00:29:11,600
So yeah, that that type of
royalty created from mineral

507
00:29:11,600 --> 00:29:14,360
rights being sold, that's
probably the the most common

508
00:29:14,360 --> 00:29:17,440
sort of creation mechanism for
royalties in the industry.

509
00:29:17,680 --> 00:29:19,360
I think you sort of nailed the
other ones.

510
00:29:19,360 --> 00:29:23,280
Project finance is probably the
second most common creation sort

511
00:29:23,280 --> 00:29:24,840
of genesis.
Yeah.

512
00:29:25,000 --> 00:29:28,040
And when you're in a big company
and you sell, sell an asset, you

513
00:29:28,040 --> 00:29:29,720
maybe can't get much for it.
You've got to put a royalty on

514
00:29:29,720 --> 00:29:31,960
it to have some insurance.
You don't look silly down the

515
00:29:31,960 --> 00:29:33,880
track if the new if the new are
going to find something.

516
00:29:34,680 --> 00:29:35,800
You call small.
That's everyone.

517
00:29:37,960 --> 00:29:41,520
Yeah, it's a great way to get
some schmuck insurance as long

518
00:29:41,520 --> 00:29:43,120
as you don't sell the royalty
too early.

519
00:29:43,120 --> 00:29:46,080
And unfortunately I've, I've,
you know, having worked at the

520
00:29:46,080 --> 00:29:49,040
big end of town, I've, I've
seen, you know, that schmuck

521
00:29:49,040 --> 00:29:52,080
insurance created sometimes and
then, you know, sold too

522
00:29:52,080 --> 00:29:55,840
cheaply, unfortunately.
On the, the earlier point that's

523
00:29:55,840 --> 00:29:58,800
really counter cyclical
investing the the Glencore

524
00:29:58,800 --> 00:30:02,760
example you gave when they're in
a real pinch point, you know,

525
00:30:02,760 --> 00:30:06,080
indebted up to the hilt and they
need to get cash on board.

526
00:30:06,080 --> 00:30:09,280
How do you how do you think
about counter cyclical investing

527
00:30:09,280 --> 00:30:11,760
given that you know, you spend a
lot of time looking at the

528
00:30:11,760 --> 00:30:14,800
precious metal space Gold has
done phenomenally well over the

529
00:30:14,800 --> 00:30:19,800
past couple years.
Those more counter cyclical type

530
00:30:19,800 --> 00:30:22,480
deals would be a bit harder to
come by, right?

531
00:30:25,400 --> 00:30:31,400
You'd be surprised, I think, you
know, royalty holders are still,

532
00:30:31,760 --> 00:30:34,560
you know, subject to the same
whims and emotions as everyone

533
00:30:34,560 --> 00:30:37,560
else.
And you know, depending on what

534
00:30:37,560 --> 00:30:40,000
types of royalties you're,
you're creating, like which of

535
00:30:40,000 --> 00:30:43,000
those you know, whether it's
project finance or historical

536
00:30:43,000 --> 00:30:47,560
prospect or royalty, you know,
there are, there are, you know,

537
00:30:48,080 --> 00:30:52,720
plentiful opportunities to
acquire royalties in troughs in

538
00:30:52,720 --> 00:30:58,360
certain commodities.
So you know for example, you

539
00:30:58,360 --> 00:31:01,000
know, when we speak to people
about lithium royalties or

540
00:31:01,000 --> 00:31:06,200
Palladium royalties today, you
know, relative to two years ago,

541
00:31:07,160 --> 00:31:12,080
you know it's night and day.
So yeah, I think the fact that

542
00:31:12,520 --> 00:31:16,920
there is effectively no holding
cost on a royalty means that

543
00:31:17,080 --> 00:31:20,480
there are close to perfect
counter cyclical investment

544
00:31:20,480 --> 00:31:24,760
instrument because you can buy a
royalty when the price is in the

545
00:31:24,760 --> 00:31:27,360
doldrums and put in the bottom
drawer.

546
00:31:27,800 --> 00:31:32,240
And then you know, hopefully you
know that commodity price, that

547
00:31:32,240 --> 00:31:35,360
metal price main reverts and
happy days.

548
00:31:36,160 --> 00:31:38,760
But obviously, you need to make
sure that you're buying a

549
00:31:38,760 --> 00:31:41,440
royalty on on an asset that's at
the right point in the cost

550
00:31:41,440 --> 00:31:43,760
curve.
Yeah, I'd never thought of the

551
00:31:43,760 --> 00:31:47,760
fact they have no holding costs.
That's actually like a food.

552
00:31:47,760 --> 00:31:49,720
Food for.
Thought the only, the only one

553
00:31:49,720 --> 00:31:54,840
caveat I should say on that is
like the only way typically or

554
00:31:54,840 --> 00:31:56,960
sorry, I guess there's two ways
that a royalty can be zeroed

555
00:31:56,960 --> 00:32:00,080
out.
One is if the mining company

556
00:32:00,120 --> 00:32:05,280
relinquishes the tenements.
The other one is if the mining

557
00:32:05,280 --> 00:32:07,880
company ultimately disputes the
royalty legally.

558
00:32:08,480 --> 00:32:11,280
But you know, put that to one
side, assuming you've done your

559
00:32:11,280 --> 00:32:15,360
proper legal due diligence, like
I guess there's no holding cost

560
00:32:15,360 --> 00:32:19,600
on a royalty insofar as the
mining company doesn't give the

561
00:32:19,600 --> 00:32:22,760
tenements back to the actual
state, which would only

562
00:32:22,760 --> 00:32:25,720
typically happen if there's
there's no buyer for those those

563
00:32:25,720 --> 00:32:28,080
tenements.
So it's a pretty sort of rare,

564
00:32:28,120 --> 00:32:29,400
rare event.
So you don't want to buy

565
00:32:29,400 --> 00:32:31,120
royalties on absolute junk, can
you?

566
00:32:32,040 --> 00:32:34,560
Because.
It will be really good.

567
00:32:34,600 --> 00:32:36,600
Gotcha.
Yeah, or, or or, you know, you

568
00:32:36,600 --> 00:32:39,840
need to be careful also like if
the company, if the operator

569
00:32:39,840 --> 00:32:43,280
goes into administration, this
gets into the weeds.

570
00:32:43,280 --> 00:32:46,560
But you need to be sure that the
royalty runs with the land and

571
00:32:46,560 --> 00:32:49,360
can be secured in the event of
administration.

572
00:32:49,360 --> 00:32:53,600
But yeah, so, but generally
speaking, it's if you don't buy

573
00:32:53,680 --> 00:32:57,080
a lot of moose pasture royalties
with dodgy operators, you're

574
00:32:57,280 --> 00:33:01,160
probably in in good shape.
Spencer, there were some pretty

575
00:33:01,160 --> 00:33:05,720
big themes coming out of 2024 in
In Your World of royalties.

576
00:33:05,720 --> 00:33:07,840
And I'm came to chat through a
couple of them.

577
00:33:08,000 --> 00:33:11,760
You sort of mentioned with a bit
of experience the offloading of

578
00:33:11,760 --> 00:33:16,560
these, you know, non core
royalties out of, you know, you

579
00:33:16,560 --> 00:33:18,480
know, some of the big companies
you worked with.

580
00:33:18,480 --> 00:33:21,480
But it it was a trend across a
number of companies last year

581
00:33:21,480 --> 00:33:25,320
with near on a billion dollars
in transactions happening.

582
00:33:25,320 --> 00:33:28,120
Is is that something you see
continuing?

583
00:33:28,120 --> 00:33:31,080
And can you sort of dig into
just briefly the, the rationale

584
00:33:31,080 --> 00:33:34,720
behind the, you know, the
liquidation of these royalties?

585
00:33:36,280 --> 00:33:41,560
Yeah, absolutely, JD.
So you know there's a lot of

586
00:33:41,560 --> 00:33:46,360
major mining companies or large
mid caps that end up with sort

587
00:33:46,360 --> 00:33:49,800
of stranded portfolios of
royalties as you're sort of

588
00:33:49,800 --> 00:33:53,640
alluding to.
Yeah, last year we did see sort

589
00:33:53,640 --> 00:33:56,920
of close to a billion dollars of
secondary royalties traded.

590
00:33:58,000 --> 00:34:01,920
There still are, you know, a
number of quite a large quantum

591
00:34:01,920 --> 00:34:05,480
of royalties held within mining
companies.

592
00:34:06,720 --> 00:34:10,920
You know, I think as the broader
mining industry has sort of, you

593
00:34:10,920 --> 00:34:13,840
know, understood more about the
sort of option value of

594
00:34:13,840 --> 00:34:19,280
royalties, you've seen more
large cap miners include

595
00:34:19,280 --> 00:34:22,719
royalties as part of sort of
divestment or sale proceeds when

596
00:34:22,719 --> 00:34:25,400
they're selling assets.
So I think you will see that the

597
00:34:25,400 --> 00:34:28,560
trend of majors creating
royalties continue.

598
00:34:29,679 --> 00:34:33,560
You know, if you look at BHP
effectively gave away a 2

599
00:34:33,560 --> 00:34:37,719
million oz project in Brazil,
the central gold asset just for

600
00:34:37,880 --> 00:34:40,840
a 1% NSR.
So, you know, I think the major

601
00:34:40,840 --> 00:34:44,600
miners do realize the value in
these royalties G mining.

602
00:34:44,679 --> 00:34:46,760
Picked that up.
Yeah, that was the one that came

603
00:34:46,760 --> 00:34:49,880
out of Oscar was Oscar was.
Oscar Minerals, Yeah, I think I

604
00:34:49,880 --> 00:34:52,679
tried to sell it, yeah, in the
past, but couldn't get much,

605
00:34:52,719 --> 00:34:57,160
yeah.
So, yeah, so look, it typically

606
00:34:57,160 --> 00:34:59,840
these are the completely
orphaned assets internally.

607
00:34:59,840 --> 00:35:03,680
And you know, when I was with
BHP in South 32, it was less so

608
00:35:03,680 --> 00:35:08,760
S 32 more so BHP that, you know,
we LED this project essentially

609
00:35:08,760 --> 00:35:11,440
trying to find all these bottom,
bottom drawer royalty contracts.

610
00:35:11,440 --> 00:35:14,880
And you know, they they either
come from divestments or you

611
00:35:14,880 --> 00:35:18,920
acquire a company like BHP
bought WMC and WMC were

612
00:35:18,920 --> 00:35:22,080
brilliant in the 90s when they
were divesting all their gold

613
00:35:22,080 --> 00:35:25,560
assets.
They always kept a royalty and

614
00:35:25,560 --> 00:35:29,240
so, so you know you've got some
of these companies, you know,

615
00:35:29,760 --> 00:35:34,440
I've got a lot of respect for
WMC that in their DNA, you know

616
00:35:34,480 --> 00:35:37,280
they understood the value of
royalties, so they created a lot

617
00:35:37,280 --> 00:35:40,840
of them.
So you know, I think when will

618
00:35:40,840 --> 00:35:43,840
these major miners, when will
large the various miners are

619
00:35:43,840 --> 00:35:46,240
still on royalty portfolios sell
them.

620
00:35:46,560 --> 00:35:50,880
A lot of it comes down to our
esteemed beam counters and you

621
00:35:50,880 --> 00:35:54,560
know, when the CFO has a 50 to
$200 million holder plug on

622
00:35:54,560 --> 00:35:57,720
there, you know, for their
annual cash flow or their

623
00:35:57,920 --> 00:36:00,800
balance sheet, they'll say, oh,
don't we own those royalties?

624
00:36:01,000 --> 00:36:04,840
Can we flip those to, to some
sucker for, you know, 50 to 200

625
00:36:04,840 --> 00:36:07,160
million.
So a lot of it's sort of

626
00:36:07,160 --> 00:36:09,640
influenced by filling cash
holes.

627
00:36:09,800 --> 00:36:12,000
That matches the balance sheet,
that matches the divestment of

628
00:36:12,000 --> 00:36:15,640
South 32's royalty portfolios
and also Anglo's divestment.

629
00:36:18,640 --> 00:36:21,920
In their in their defence,
though, shareholders just don't

630
00:36:21,920 --> 00:36:27,040
really care an awful lot about a
couple royalties within a 20 to

631
00:36:27,040 --> 00:36:30,960
$200 billion company, do they?
But then they're not really

632
00:36:30,960 --> 00:36:33,400
getting much value.
From royalty to pay through the

633
00:36:33,400 --> 00:36:34,480
roof for it.
Yeah.

634
00:36:34,480 --> 00:36:37,080
And royalties will see the
value, like you said, if they're

635
00:36:37,080 --> 00:36:40,320
going to get marked 20X on the,
on the cash flow of some of

636
00:36:40,320 --> 00:36:44,400
these, then it's, you know, it's
the kind of financial type of

637
00:36:44,400 --> 00:36:47,280
engineering or whatever you call
it that the people on the

638
00:36:47,280 --> 00:36:49,840
finance side love.
But it really goes back to what

639
00:36:49,840 --> 00:36:53,960
you were saying before, that you
need a balance of geological

640
00:36:53,960 --> 00:36:56,960
knowledge as well as financial
knowledge to understand the the

641
00:36:56,960 --> 00:36:59,720
true value of a lot of these
royalties.

642
00:37:00,280 --> 00:37:01,920
I'd love to ask.
Yeah, two of them.

643
00:37:02,400 --> 00:37:06,240
Two of the WMC 1 Spencer, one of
one of them.

644
00:37:06,880 --> 00:37:09,280
One of them you're about to ask
about Trev, but go on.

645
00:37:09,480 --> 00:37:11,640
So the the I'm not going to, I'm
going to ask about the other

646
00:37:11,640 --> 00:37:14,120
one.
So the one I want to ask about

647
00:37:14,120 --> 00:37:16,200
is when I actually only learned
about it recently.

648
00:37:16,200 --> 00:37:21,440
But so there was like the, the
royalty, the infamous Morgan

649
00:37:21,440 --> 00:37:25,840
Stanley royalties that that
haunted WA kind of gold, gold

650
00:37:25,840 --> 00:37:29,880
companies that this was like
these were royalties put in

651
00:37:29,880 --> 00:37:33,680
place in 1991 by WMC.
But smart folks at Morgan

652
00:37:33,680 --> 00:37:38,320
Stanley commodities, a portfolio
of the they will have the same

653
00:37:38,400 --> 00:37:42,280
royalty I think in 2002.
And the way it was, was

654
00:37:42,280 --> 00:37:48,880
structured was an unindexed
royalty, 4% net smell to return

655
00:37:48,880 --> 00:37:54,240
with an additional price
participation at 10% of, of, of

656
00:37:54,360 --> 00:37:58,800
any gold price above $600.00
Australian per oz.

657
00:37:59,960 --> 00:38:03,120
That's an amazing royalty to own
because gold grass has just like

658
00:38:03,120 --> 00:38:05,040
trended N over time.
And all of a sudden, you know,

659
00:38:05,200 --> 00:38:08,760
like you just get 10% of that
price capture into perpetuity.

660
00:38:09,960 --> 00:38:12,720
How like, like surely that's
like just an unknown pitfall.

661
00:38:12,720 --> 00:38:14,320
You don't structure royalties
like that anymore.

662
00:38:14,320 --> 00:38:18,880
But what's your understanding of
like that royalty and the the

663
00:38:18,880 --> 00:38:23,640
kind of impact it had?
Yeah, this sort of brings up,

664
00:38:24,000 --> 00:38:26,840
you know, I guess a few
questions around, you know,

665
00:38:26,840 --> 00:38:30,800
what's sustainable from a
royalty percentage or burden

666
00:38:31,160 --> 00:38:36,400
generally.
So, you know, WMC, they

667
00:38:36,400 --> 00:38:39,320
structured a number of gold
royalties with price linked

668
00:38:39,320 --> 00:38:42,600
escalators historically.
That's that's on the public

669
00:38:42,600 --> 00:38:47,080
record.
I think, you know, when gold's

670
00:38:47,080 --> 00:38:51,360
at 23400 bucks, who could
possibly imagine that it's going

671
00:38:51,360 --> 00:38:55,920
to double.
So it's not not only is it sort

672
00:38:55,920 --> 00:38:59,000
of schmuck insurance, it's
schmuck insurance with, you

673
00:38:59,000 --> 00:39:01,360
know, an escalating clause type
thing.

674
00:39:01,360 --> 00:39:07,920
But yeah, I think in that that
world is specifically and more

675
00:39:07,920 --> 00:39:12,280
generally, I think once you
start to see a royalty

676
00:39:12,400 --> 00:39:16,200
overburdening the asset and, you
know, directly impacting

677
00:39:16,400 --> 00:39:19,960
operators willingness to drill,
you know, develop or expand an

678
00:39:19,960 --> 00:39:25,240
asset, it's this bad business.
And so unfortunately, this whole

679
00:39:25,240 --> 00:39:29,880
large swathes of that Morgan
Stanley royalty ground that were

680
00:39:29,880 --> 00:39:35,320
effectively sterilized for, you
know, over a decade at least

681
00:39:36,240 --> 00:39:38,560
because of how hefty that
royalty was.

682
00:39:38,840 --> 00:39:43,040
So hats off to the Morgan
Stanley team for for picking

683
00:39:43,040 --> 00:39:45,600
that royalty up.
What did what did they pay for

684
00:39:45,600 --> 00:39:46,440
it?
And what have it like?

685
00:39:46,520 --> 00:39:48,840
Have you ever done the numbers
on what that what their returns

686
00:39:48,840 --> 00:39:52,400
must have been on that?
I No, I haven't.

687
00:39:52,400 --> 00:39:54,240
I haven't.
I'd be talking out of school, to

688
00:39:54,240 --> 00:39:56,880
be honest.
Trav yeah, I can speculate.

689
00:39:56,880 --> 00:40:00,360
But yeah, the most recent
iteration, I guess of that

690
00:40:00,440 --> 00:40:05,360
specific royalty was just with.
In and around Higginsville and

691
00:40:05,480 --> 00:40:09,760
and Beta Hunt where it was
obviously restructured but but

692
00:40:09,760 --> 00:40:12,800
no like I'm sure was a great
deal for Morgan Stanley.

693
00:40:12,800 --> 00:40:16,400
But when you think about the
cumulative oz and and

694
00:40:16,400 --> 00:40:20,400
exploration that you know that
that royalty sterilized in WA,

695
00:40:20,400 --> 00:40:23,480
it was it's probably quite
substantial, although you know

696
00:40:23,640 --> 00:40:26,960
somewhat amusingly that WA
government's probably in Morgan

697
00:40:26,960 --> 00:40:30,120
Stanley's debt because it means
that gold's being mined at you

698
00:40:30,120 --> 00:40:33,560
know, 4400 bucks an ounce
instead of 1000 bucks an ounce.

699
00:40:33,600 --> 00:40:34,920
Exactly.
Yeah, exactly.

700
00:40:35,720 --> 00:40:43,360
Yeah, yeah, I it's it's I'd I'd
love to own that royalty if I if

701
00:40:43,360 --> 00:40:45,720
I couldn't almost stand if
you've got any, any left, I'll

702
00:40:45,720 --> 00:40:50,600
I'll happily be gifted one Yeah.
And then the the other funky

703
00:40:50,600 --> 00:40:54,240
kind of like WMC.
They must have just had yeah

704
00:40:54,280 --> 00:40:57,800
like real now so at them.
But these royalties always been

705
00:40:57,800 --> 00:41:00,400
kind of part of their, their
deal making, which is wicked.

706
00:41:00,880 --> 00:41:04,720
But they, the one that came into
focus last year was a royalty

707
00:41:04,720 --> 00:41:07,200
linked to the use of a drill
database.

708
00:41:07,200 --> 00:41:09,800
They had this like drill
database from I think diamond

709
00:41:09,800 --> 00:41:16,240
exploration and and I think IGO
had some agreement with them

710
00:41:16,360 --> 00:41:18,600
that they could access the
database.

711
00:41:18,640 --> 00:41:22,520
And if that database access led
to a discovery, then there would

712
00:41:22,520 --> 00:41:24,760
be an applicable royalty on that
discovery.

713
00:41:24,760 --> 00:41:27,960
And then it became kind of
contentious last year when S S

714
00:41:27,960 --> 00:41:32,800
32 had had basically suggested
that Tropicana, Tropicana, you

715
00:41:32,880 --> 00:41:35,160
know, is entitled to to to that
royalty.

716
00:41:35,640 --> 00:41:37,320
That's a kind of a funky
different structure, but.

717
00:41:37,920 --> 00:41:40,760
It's hard to pay that.
Yeah, yeah, yeah, yeah, yeah,

718
00:41:40,800 --> 00:41:43,760
yeah, yeah.
Which wouldn't be great for IGO

719
00:41:43,840 --> 00:41:47,200
and Regis, but yeah.
Yeah.

720
00:41:47,200 --> 00:41:50,440
I mean, look, it's an
interesting example where you

721
00:41:50,440 --> 00:41:53,280
can create royalties through a
number of different methods.

722
00:41:53,280 --> 00:41:56,760
You don't only need to sell
tenements in that case, you

723
00:41:56,760 --> 00:42:02,200
know, WMC had, you know, one of
the most prolific geochem sort

724
00:42:02,200 --> 00:42:05,200
of databases, you know, in
Australia or probably in

725
00:42:05,200 --> 00:42:10,400
Australian geoscience history.
So, you know, that's a piece of

726
00:42:10,400 --> 00:42:14,880
IP that has, you know, infinite
future value.

727
00:42:14,880 --> 00:42:18,600
So creating a royalty structure
on the back of that, I think

728
00:42:18,600 --> 00:42:22,400
it's brilliant.
And so, you know, it's, it's not

729
00:42:22,400 --> 00:42:26,360
dissimilar to to, you know, in
the Pharmaceutical industry, if

730
00:42:26,360 --> 00:42:30,760
someone comes up with a new sort
of, you know, formula that can

731
00:42:30,760 --> 00:42:33,880
be the base of a number of
different vaccines, you know,

732
00:42:33,880 --> 00:42:38,320
getting a royalty on that, you
know, that's that it's very

733
00:42:38,320 --> 00:42:40,720
comparable.
Like if you create some some

734
00:42:40,720 --> 00:42:45,960
valuable IPA royalty is a
perfect way to sort of extract

735
00:42:46,240 --> 00:42:49,640
rental value where you don't
even know what the future use

736
00:42:49,640 --> 00:42:54,400
cases could possibly be.
So, yeah, look, I'm having been

737
00:42:54,720 --> 00:42:57,760
at South 32 for a number of
years and a lot of friends that

738
00:42:57,760 --> 00:43:01,680
are still, you know, at South
32, I'm obviously, you know,

739
00:43:01,720 --> 00:43:07,080
very invested in how that one
plays out, you know, very strong

740
00:43:07,080 --> 00:43:09,280
team at South 32.
So I'm sure they've got their

741
00:43:09,280 --> 00:43:12,320
fact base fairly well put
together.

742
00:43:12,320 --> 00:43:15,800
But here we'll have to wait and
see how that one, how the chips

743
00:43:15,800 --> 00:43:18,400
fall on that one.
I think we should touch on

744
00:43:18,560 --> 00:43:21,920
briefly why there's a bit of a,
you know, a relative lack of a

745
00:43:21,960 --> 00:43:26,440
royalty sector in Australia.
Obviously, like you've said,

746
00:43:26,440 --> 00:43:29,920
heaps of royalties over assets
here in Australia.

747
00:43:29,920 --> 00:43:32,320
But when it comes to the big
companies you mentioned earlier,

748
00:43:32,320 --> 00:43:36,000
Trev, they're not listed here.
We've got the terror, but the,

749
00:43:36,000 --> 00:43:39,640
you know, the combined market
cap of ASX listed royalties is

750
00:43:39,640 --> 00:43:42,280
relatively small.
So it'd be worth you just

751
00:43:42,760 --> 00:43:45,880
glossing over why, why you think
that sort of is, and why the

752
00:43:45,880 --> 00:43:50,840
market formed that way.
Yeah, it's one of the most

753
00:43:50,840 --> 00:43:54,800
common questions we get from
investors, JD, is why isn't

754
00:43:54,800 --> 00:43:58,360
there, you know, a sort of a
royalty industry on the ASX and

755
00:43:59,480 --> 00:44:05,200
you know, why, why is it sort of
a bit of a forgotten sector, you

756
00:44:05,200 --> 00:44:07,760
know, until I guess the terror
hit the market.

757
00:44:09,280 --> 00:44:13,320
Look, something I've given
countless hours of thought over.

758
00:44:13,520 --> 00:44:17,920
I don't think there is anyone
sort of logical reason for it.

759
00:44:17,920 --> 00:44:22,880
I think there was an element of
first mover advantage in, you

760
00:44:22,880 --> 00:44:25,840
know the likes of Toronto and
North America generally where

761
00:44:26,200 --> 00:44:31,640
you know, you had the likes of
Franco and Royal Gold just

762
00:44:31,960 --> 00:44:34,880
aggressively mopping up
royalties, you know, in

763
00:44:34,880 --> 00:44:37,240
Australia, you know, and
globally.

764
00:44:38,040 --> 00:44:42,640
And so if you look at some of
the largest royalties by sort of

765
00:44:42,640 --> 00:44:47,200
square kilometre coverage in
Australia, a number of them are

766
00:44:47,200 --> 00:44:50,600
owned by Franco and Royal.
And so it's a.

767
00:44:50,640 --> 00:44:54,840
Pretty big run out by Gina.
Yeah.

768
00:44:54,840 --> 00:44:57,280
So, well, but I mean,
particularly royalties that have

769
00:44:57,400 --> 00:45:00,160
that have sort of transacted,
yeah.

770
00:45:01,200 --> 00:45:04,040
But yeah, I mean, Gina's no
stranger to royalty checks,

771
00:45:04,040 --> 00:45:08,880
obviously, but so, but yeah, no,
going back to why, why have

772
00:45:09,000 --> 00:45:10,560
hasn't there been more of an
industry?

773
00:45:12,000 --> 00:45:18,040
Yeah, I think it's just that
people started to make from when

774
00:45:18,040 --> 00:45:22,040
Franco came out of the gates in
2007 on on equity markets, you

775
00:45:22,040 --> 00:45:24,240
know, it was up and to the
right, the share price chart.

776
00:45:24,520 --> 00:45:27,280
And so as you know, they were
successful.

777
00:45:27,600 --> 00:45:31,000
It sort of created, you know, it
was a bit of a self fulfilling

778
00:45:31,000 --> 00:45:32,920
prophecy in North American
equity markets.

779
00:45:33,160 --> 00:45:35,760
More royalty companies were
created in North America trying

780
00:45:35,760 --> 00:45:38,640
to replicate that same success
and that same multiple and

781
00:45:38,640 --> 00:45:41,880
investors were recycling capital
that they that made from

782
00:45:41,880 --> 00:45:44,640
Franco's appreciation.
So I think it was this, this

783
00:45:44,640 --> 00:45:51,360
sort of, you know, this this
virtuous cycle that was heavily

784
00:45:51,360 --> 00:45:56,560
North American centric and that
ecosystem was picking off

785
00:45:56,640 --> 00:46:00,960
Australian royalties, you know,
over, over that, that history.

786
00:46:00,960 --> 00:46:05,040
So yeah, there were a couple of
attempts, you know, we speak to

787
00:46:05,040 --> 00:46:08,160
different entrepreneurs around
the traps and they said, oh, I

788
00:46:08,160 --> 00:46:11,600
tried to launch a royalty
company in Oz 10 years ago, but

789
00:46:12,040 --> 00:46:14,600
investors couldn't understand
why I should, you know, they

790
00:46:14,600 --> 00:46:18,760
should value it at 20 times when
BHP trades at 7 times.

791
00:46:18,960 --> 00:46:22,520
And look, I think that's sort of
lack of understanding around the

792
00:46:22,520 --> 00:46:25,960
option value in royalties is
part of the equation where you

793
00:46:25,960 --> 00:46:29,880
know, let's say you started, you
built a royalty portfolio in

794
00:46:29,880 --> 00:46:32,480
Australia 10 years ago.
Where are you going to go?

795
00:46:32,480 --> 00:46:37,200
You're going to list on the ASX
where instos don't understand

796
00:46:37,200 --> 00:46:40,400
the valuation dynamics as well?
Or are you going to go to North

797
00:46:40,400 --> 00:46:46,000
America where the same size
institutions have made 3X4X5X on

798
00:46:46,000 --> 00:46:49,200
Franco already and they've got
extra change in their back

799
00:46:49,200 --> 00:46:51,600
pocket to fund your new royalty
company.

800
00:46:51,600 --> 00:46:55,440
So I think part of it is that
the capital, you know, there's

801
00:46:55,440 --> 00:46:57,640
been momentum in the capital
markets in North America and

802
00:46:57,640 --> 00:47:01,240
it's just been an easier
proposition to, to, to insert

803
00:47:01,240 --> 00:47:04,560
new companies into that
slipstream and not have to deal

804
00:47:04,560 --> 00:47:08,120
with educating capital markets
that haven't profited from that

805
00:47:08,120 --> 00:47:11,920
industry, which I think, you
know, for companies like the

806
00:47:11,920 --> 00:47:15,000
Terra, that's the challenge is.
And you know, we've got some

807
00:47:15,320 --> 00:47:18,200
investors in Australia, but you
know, some new investors in

808
00:47:18,200 --> 00:47:22,440
Australia say, well, I can buy
Fortescue at 8 * 9 times.

809
00:47:22,720 --> 00:47:25,920
You know, why would I buy a
senior royalty company at, you

810
00:47:25,920 --> 00:47:28,120
know, 20 to 30 times?
It's so.

811
00:47:28,400 --> 00:47:31,760
It's so fascinating and and kind
of counter intuitive what what

812
00:47:31,760 --> 00:47:34,640
you're saying there, because on
the other side of that, we see

813
00:47:34,640 --> 00:47:37,280
mining companies come and list
here in Australia because

814
00:47:37,280 --> 00:47:40,240
they're like Aussies and the ASX
get mining.

815
00:47:40,280 --> 00:47:43,120
They understand that there's
still relative to other

816
00:47:43,120 --> 00:47:45,880
countries around the world,
dedicated mining, investment

817
00:47:45,880 --> 00:47:48,520
funds and these sorts of things.
So as a miner, you, you'll come

818
00:47:48,520 --> 00:47:51,080
here to get a better multiple,
you know, especially comparing

819
00:47:51,080 --> 00:47:53,480
to the LSE and these things.
I think it's linked.

820
00:47:54,040 --> 00:47:56,360
I reckon it's I think, I think
you you come and list in

821
00:47:56,360 --> 00:48:00,000
Australia because we have like
greater access to equity capital

822
00:48:00,040 --> 00:48:02,080
markets.
Our like you know, the the

823
00:48:02,160 --> 00:48:06,320
forthcomingness of investors to
provide equity capital is what

824
00:48:06,320 --> 00:48:07,400
it's actually way better than
Canada.

825
00:48:07,400 --> 00:48:10,480
I think, correct me if I'm
wrong, Spencer, but I think I

826
00:48:10,480 --> 00:48:12,920
think like you know, the equity
checks come a lot easier on the

827
00:48:12,920 --> 00:48:17,120
ASX and they do in in your neck
of the woods and as a result.

828
00:48:17,120 --> 00:48:20,200
Being a, as a result, being a
proud Australian, I, I feel like

829
00:48:20,200 --> 00:48:23,440
I can say this, there's probably
more of a, a gambling culture,

830
00:48:23,520 --> 00:48:25,320
yeah, there's more degenerate
gamblers in.

831
00:48:25,320 --> 00:48:29,760
Australia way more, yeah.
Well, love making having a punt.

832
00:48:29,760 --> 00:48:33,200
So yeah, no, but I think Trevor,
I think you've hit the nail on

833
00:48:33,200 --> 00:48:35,520
the head there.
Like I think as with any

834
00:48:35,640 --> 00:48:38,800
industry, whether it's tech in
Silicon Valley or, you know,

835
00:48:38,800 --> 00:48:42,720
mining in part in Australia,
it's where is the, the largest

836
00:48:42,720 --> 00:48:46,160
sort of pool of risk capital at
the lowest possible cost.

837
00:48:47,160 --> 00:48:51,880
And if investors don't believe a
certain valuation paradigm, say

838
00:48:51,880 --> 00:48:55,240
in the royalty industry or in
African gold producers or you

839
00:48:55,240 --> 00:48:58,760
name the sub sector, you know,
if there's not sufficient risk

840
00:48:58,760 --> 00:49:01,280
capital or it's at the wrong
price, you'll just go to a

841
00:49:01,280 --> 00:49:04,360
different capital market.
So, you know, that's probably a

842
00:49:04,640 --> 00:49:06,520
quarter.
Why isn't there a royalty

843
00:49:06,520 --> 00:49:09,360
industry here?
And why is this such a thriving

844
00:49:09,560 --> 00:49:12,960
mining industry in in Oz still?
Yeah, Yeah.

845
00:49:12,960 --> 00:49:16,840
Like why would you put a royalty
on your on your project if you

846
00:49:16,840 --> 00:49:20,600
could just raise capital in the
company level instead in

847
00:49:20,600 --> 00:49:23,640
general, you know, assuming you
don't have egregious pricing

848
00:49:24,040 --> 00:49:27,240
dynamic supply, But yeah.
But but I still think, you know,

849
00:49:27,440 --> 00:49:30,600
the mining investment funds
understand how hard mining is,

850
00:49:30,760 --> 00:49:32,200
yes.
And they understand that a

851
00:49:32,200 --> 00:49:37,120
royalty is a Better Business.
Like it's just it's a kind of

852
00:49:37,120 --> 00:49:39,360
interesting feature of the the
market.

853
00:49:40,600 --> 00:49:42,800
Yeah.
I think also, and this is maybe

854
00:49:42,800 --> 00:49:46,800
a more left of centre
perspective, but there's a

855
00:49:46,800 --> 00:49:51,240
natural friction between
specialist lining funds and

856
00:49:51,240 --> 00:49:55,800
royalty companies in the sense
that royalty companies are, you

857
00:49:55,800 --> 00:49:58,480
know, capital allocators by
nature.

858
00:49:59,120 --> 00:50:02,840
And so they're almost in, yeah,
correct.

859
00:50:02,840 --> 00:50:05,320
It's effective a listed
investment company.

860
00:50:05,320 --> 00:50:09,680
But if you're, you know, a
discretionary, you know, APM at

861
00:50:09,680 --> 00:50:13,640
a mining fund, you're charging
fees on the basis that you're

862
00:50:13,640 --> 00:50:17,320
picking the right mining assets.
And so the minute you put

863
00:50:17,320 --> 00:50:20,680
capital into a royalty company,
you're effectively becoming a

864
00:50:20,680 --> 00:50:24,640
quasi fund of funds.
You know that it's sort of a

865
00:50:24,640 --> 00:50:28,000
little bit derivative, but that
is the way that some, you know,

866
00:50:28,080 --> 00:50:30,280
mining PMS view the royalty
industries.

867
00:50:30,480 --> 00:50:33,840
Well, I can pick my own assets,
you know, directly and directly

868
00:50:33,840 --> 00:50:36,040
invest in them.
So I don't need the portfolio

869
00:50:36,040 --> 00:50:40,600
approach of a royalty company.
So that is some pushback from

870
00:50:40,600 --> 00:50:44,480
some mining PMS.
But you know, for every one of

871
00:50:44,480 --> 00:50:47,320
those, there's, there's, there's
plenty of other investors that

872
00:50:47,320 --> 00:50:50,120
are, you know, very excited to
invest in the royalty industry.

873
00:50:50,720 --> 00:50:55,240
That touches on like a yeah,
another development in the, in

874
00:50:55,240 --> 00:50:58,920
the royalty space and that's
like, you know, hedge funds who

875
00:50:58,920 --> 00:51:03,720
participate a lot in, in the,
the equity participation of, of

876
00:51:03,800 --> 00:51:06,560
junior mining.
Like here in Australia, Regal,

877
00:51:06,800 --> 00:51:10,320
Regal Regal started their own
royalty fund a few years ago.

878
00:51:10,320 --> 00:51:14,440
They, they also acquired 50% of
Taurus more kind of private

879
00:51:14,440 --> 00:51:17,480
equity project financing, but
they had a big royalty portfolio

880
00:51:17,480 --> 00:51:19,840
themselves.
You know, I'll probably see some

881
00:51:20,000 --> 00:51:22,760
synergies with that, but there's
that, but also emergence of the

882
00:51:23,000 --> 00:51:25,960
new players in the royalty
market who aren't, you know, a

883
00:51:25,960 --> 00:51:30,360
listed, a listed royalty company
per SE, but they are instead,

884
00:51:31,480 --> 00:51:34,320
yeah, investment managers, fund
managers or, or or private

885
00:51:34,320 --> 00:51:36,680
equity who are, who are bolting
together these portfolios.

886
00:51:36,880 --> 00:51:40,840
What's the what's the rationale
for for them you say in in doing

887
00:51:40,840 --> 00:51:44,280
this?
Look, I'm, you know, talking a

888
00:51:44,280 --> 00:51:47,320
little bit out of school here,
given I'm, you know, not on the

889
00:51:47,320 --> 00:51:50,880
buy side per SE.
But you know, I think if you

890
00:51:50,880 --> 00:51:54,360
look at most asset management
shops, you know, whether they're

891
00:51:54,360 --> 00:51:58,440
private, public equity, hedge
fund or something else in

892
00:51:58,440 --> 00:52:01,880
between, you know, you've got to
be good at two things.

893
00:52:02,160 --> 00:52:05,680
One, you've got to be good at
sourcing deals and investments

894
00:52:05,680 --> 00:52:08,920
and vetting them and, you know,
actually allocating the capital.

895
00:52:08,920 --> 00:52:10,720
That's obvious.
The other thing you've got to be

896
00:52:10,720 --> 00:52:14,440
good at is raising money and,
you know, bringing the money

897
00:52:14,440 --> 00:52:16,920
into the door so you can invest
it and get it out the door.

898
00:52:17,120 --> 00:52:19,360
You're not saying they're just
trying to offer a new product,

899
00:52:19,360 --> 00:52:24,360
are you?
Well, JD, that's a fairpoint.

900
00:52:24,360 --> 00:52:25,400
I think there's the element of
that.

901
00:52:25,400 --> 00:52:30,000
But I think, you know, there are
some synergies where if you are

902
00:52:30,000 --> 00:52:32,400
offering a credit product
through your credit fund and

903
00:52:32,400 --> 00:52:36,400
then, you know, maybe there's a
royalty kicker, maybe you know,

904
00:52:36,400 --> 00:52:40,120
your credit, your lending ratios
are maxed out with that issuer.

905
00:52:40,280 --> 00:52:44,520
But hey, an extra 1% royalty,
you know, doesn't sort of breach

906
00:52:44,520 --> 00:52:47,400
covenants and you know, you can
slot that into your royalty

907
00:52:47,400 --> 00:52:50,800
fund.
But likewise, you know, if you

908
00:52:50,800 --> 00:52:54,320
have access to proprietary deal
flow and you know, if you have

909
00:52:54,320 --> 00:52:58,160
access to capital, you know, the
more that you can keep that sort

910
00:52:58,160 --> 00:53:01,600
of flywheel spinning, whether
that's requiring other asset

911
00:53:01,600 --> 00:53:04,720
managers or, you know, spinning
up extra funds.

912
00:53:05,520 --> 00:53:09,160
Happy days.
You know, we're, we're obviously

913
00:53:09,360 --> 00:53:12,960
at the smaller end of town as a,
you know, $200 million Aussie

914
00:53:12,960 --> 00:53:18,360
company, you know, US 1:20-ish.
You know, we're essentially in a

915
00:53:18,360 --> 00:53:21,760
similar business of allocating
capital investors investments,

916
00:53:22,000 --> 00:53:25,560
but then also attracting
investors to buy, you know, our

917
00:53:25,560 --> 00:53:29,000
listed, our listed stock.
So yeah, I think if you can

918
00:53:29,000 --> 00:53:33,720
marry those two ends of ends of
the like 2 barbells and scale it

919
00:53:33,720 --> 00:53:37,120
up, you know, logically, you
know, all power to I've.

920
00:53:38,240 --> 00:53:43,360
Got yeah, 22 last questions for
you, Spencer, as a as someone

921
00:53:43,360 --> 00:53:46,160
who has probably studied plenty
of mining history as a result of

922
00:53:46,160 --> 00:53:50,520
looking at the the deals that
created royalties, worst, worst

923
00:53:50,520 --> 00:53:57,120
deal you've come across?
Worst, Worst royalty deal, do

924
00:53:57,120 --> 00:53:57,720
you mean?
Yeah.

925
00:53:57,840 --> 00:53:58,520
Go for it.
Yeah.

926
00:53:58,520 --> 00:54:06,760
Interpret it like that, yeah.
Look a funny one maybe like not

927
00:54:06,760 --> 00:54:10,400
ha ha funny, but funny, you
know, if you weren't involved in

928
00:54:10,400 --> 00:54:17,680
the deal was if you look at so
it's it's it's well understood

929
00:54:17,680 --> 00:54:22,960
that, you know, BHP historically
held the ground at at Paleo

930
00:54:22,960 --> 00:54:26,080
Tolgoi.
I guess what's sort of less

931
00:54:26,080 --> 00:54:34,080
known is that, that, that BHP
actually retained when that when

932
00:54:34,080 --> 00:54:37,160
they sold well, they effectively
gave that ground away to Robert

933
00:54:37,160 --> 00:54:42,040
Friedland.
They retained, they retained a

934
00:54:42,040 --> 00:54:47,120
2% NSR on the projects on
basically all of oil Tolgoi.

935
00:54:48,720 --> 00:54:53,360
So and then the decision was
made I think back in sort of

936
00:54:53,680 --> 00:55:00,560
November 2003 to sell that 2%
royalty back to Ivanhoe Mines

937
00:55:00,680 --> 00:55:06,160
for like 37 million.
You know, so I think that

938
00:55:06,160 --> 00:55:10,520
royalty would easily be doing
sort of circa 40 million bucks a

939
00:55:10,520 --> 00:55:16,360
year, 30 to 40 at a minimum,
plus have sort of the Stardust

940
00:55:16,360 --> 00:55:21,080
of oil togos sprinkled on it.
So you know whether that would

941
00:55:21,080 --> 00:55:25,560
be be easily I think a sort of a
billion dollar.

942
00:55:25,800 --> 00:55:28,080
I think you'd probably get a
billion dollars for that today.

943
00:55:28,080 --> 00:55:32,880
But yes, so selling that for 37
million even when the initial

944
00:55:32,880 --> 00:55:37,040
sort of discovery drill holes,
you know, the, the discovery was

945
00:55:37,040 --> 00:55:39,880
humming along.
So I think that's, that's a

946
00:55:40,680 --> 00:55:44,280
cautionary case study of if
you've got, you know, absolute

947
00:55:44,280 --> 00:55:47,800
elephant size deposit and
intersections and you've got a

948
00:55:47,920 --> 00:55:53,080
uncapped 2% NSR on, on the
asset, don't go and sell it for

949
00:55:53,080 --> 00:55:56,560
$37 million.
So that was that was probably

950
00:55:56,840 --> 00:55:58,600
one of the more unfortunate
deals.

951
00:55:59,600 --> 00:56:02,520
But you know what that.
Reminds me of is, do you

952
00:56:02,520 --> 00:56:06,600
remember hearing the story about
that the royalty that the terror

953
00:56:06,600 --> 00:56:09,320
is built on Maxi?
It's like I, I heard that in

954
00:56:09,320 --> 00:56:13,320
that, that, you know, when when
that mine was sort of, you know,

955
00:56:13,360 --> 00:56:17,960
progressing, yada, yada.
It was still uncertainty, but

956
00:56:17,960 --> 00:56:22,920
but a few times BHP had had had
offered to buy back the royalty

957
00:56:23,160 --> 00:56:30,920
and, and and and basically by
Luca who who owned it came, came

958
00:56:30,920 --> 00:56:32,840
back and said no, not, not 10
million.

959
00:56:33,480 --> 00:56:35,800
My numbers could be wrong here.
We want we want 50 million for

960
00:56:35,800 --> 00:56:36,960
it something.
Like that ten.

961
00:56:36,960 --> 00:56:39,760
I remember that #2 Gabriel spoke
about that on the show.

962
00:56:39,760 --> 00:56:45,080
And and and BHP said no and now
like fuck look at the valuation

963
00:56:46,160 --> 00:56:48,120
Tara.
Anyway, have you heard similar?

964
00:56:48,200 --> 00:56:50,520
Yeah.
Well, well, yeah.

965
00:56:50,520 --> 00:56:54,280
So I have, I guess, heard
similar anecdotally.

966
00:56:55,520 --> 00:56:57,560
Yeah.
So the flip side of that coin

967
00:56:57,560 --> 00:57:01,080
is, you know, not to be BHP
bashing because I'm, you know, a

968
00:57:01,080 --> 00:57:04,720
proud former BHP alumni and, you
know, I I had a good experience

969
00:57:04,720 --> 00:57:06,560
working for the company.
And so I've got a lot of respect

970
00:57:06,560 --> 00:57:10,120
for the big fella.
So the other side of that coin,

971
00:57:10,120 --> 00:57:14,240
Trav, is probably the best
royalty deal in history was a

972
00:57:14,240 --> 00:57:17,880
little known deal that if you if
you're obsessive about tracking

973
00:57:17,880 --> 00:57:21,120
public records, you can find
this, you know, in the archives.

974
00:57:21,120 --> 00:57:25,760
But in 2001 there was a
duplicate of the of doterra's

975
00:57:25,760 --> 00:57:29,560
Mac royalty that BHP
successfully bought back for

976
00:57:29,560 --> 00:57:33,560
about 10 mil.
So from a company from a company

977
00:57:33,560 --> 00:57:36,880
called Cyprus.
So I did not know that.

978
00:57:36,880 --> 00:57:38,520
So yeah.
So they get credit yeah, yeah,

979
00:57:38,520 --> 00:57:41,280
yeah.
They tried to buy reportedly

980
00:57:41,280 --> 00:57:43,400
they tried to buy the other one,
the doTerra one back.

981
00:57:43,400 --> 00:57:46,920
But so I think you know, to to
for a balanced scorecard for my

982
00:57:47,000 --> 00:57:51,960
my former alumni at BHP, worst
deals selling the Oyo Togoy 2%

983
00:57:51,960 --> 00:57:55,800
NSR, but probably one of the
best deals in in buying back a

984
00:57:56,040 --> 00:57:58,520
duplicate Mac royalty for 10 mil
thereabouts.

985
00:57:58,680 --> 00:58:01,400
So, yeah, yeah.
You can't win them all, hey?

986
00:58:01,520 --> 00:58:03,280
You can't you can't win them
all.

987
00:58:03,400 --> 00:58:04,960
You can't win them all.
Yeah, they get they get some

988
00:58:04,960 --> 00:58:08,080
points for buying back.
Yeah, the the duplicate totally.

989
00:58:08,280 --> 00:58:10,560
Yeah, right on BHP.
Yeah, win some, you lose some.

990
00:58:10,560 --> 00:58:12,760
What's that?
That's that Michael Jordan

991
00:58:12,760 --> 00:58:13,560
quote.
You can't.

992
00:58:13,920 --> 00:58:15,440
You can't make a shot you don't
take.

993
00:58:15,440 --> 00:58:19,280
So just got to just keep
throwing those those bricks at

994
00:58:19,520 --> 00:58:21,240
the ring.
What's the best royalty you've

995
00:58:21,240 --> 00:58:23,520
bought?
The.

996
00:58:24,480 --> 00:58:27,680
Best deal?
I don't I don't like to be too

997
00:58:27,680 --> 00:58:35,400
promotional, I guess.
You know, we so look 11.

998
00:58:35,400 --> 00:58:41,840
That's that's the sort of near
and dear to the heart was yeah,

999
00:58:41,840 --> 00:58:45,920
we we acquired a royalty from an
automotive company.

1000
00:58:46,960 --> 00:58:49,360
It was the bottom drawer
royalty.

1001
00:58:49,360 --> 00:58:52,800
They've historically been, you
know, a mining exploration

1002
00:58:52,800 --> 00:58:56,560
company hollowed out as an ASX
shell, an automotive company was

1003
00:58:56,560 --> 00:59:00,360
dropped into them.
You know, a high grade discovery

1004
00:59:00,360 --> 00:59:03,320
is made.
And then we saw that this this

1005
00:59:03,320 --> 00:59:07,040
shell still held a royalty.
So we're able to buy the royalty

1006
00:59:07,040 --> 00:59:11,000
for a couple 100 grand.
And you know that that royalty

1007
00:59:11,000 --> 00:59:14,880
has just come into production in
the last in the last couple of

1008
00:59:14,880 --> 00:59:18,920
months.
So that's been in the timeline

1009
00:59:18,920 --> 00:59:22,480
from discovery drill hole to 1st
gold bar port was about six

1010
00:59:22,480 --> 00:59:25,400
years.
So pretty rapid development on

1011
00:59:25,400 --> 00:59:28,440
that asset.
So that's one that is sort of a

1012
00:59:28,440 --> 00:59:32,400
more recent highlight reel is
that there's a few others mount.

1013
00:59:32,440 --> 00:59:34,000
Ida one or am I thinking
different?

1014
00:59:36,120 --> 00:59:38,680
No, no, but.
That was a shell as well, right?

1015
00:59:39,160 --> 00:59:41,280
Yeah.
Man, it was from a hearing aid

1016
00:59:41,280 --> 00:59:43,720
company.
From that a different shell.

1017
00:59:44,800 --> 00:59:48,360
But yeah, so that was that was
another, another fun deal.

1018
00:59:48,880 --> 00:59:51,960
But no, like we've got a few
royalties where what I get

1019
00:59:51,960 --> 00:59:55,200
really excited about, and this
shows just how much of A

1020
00:59:55,200 --> 00:59:57,640
colossal mining nerd, royalty
nerd I am.

1021
00:59:57,640 --> 01:00:02,000
But what what our team gets
really excited about is, you

1022
01:00:02,000 --> 01:00:05,680
know, if we can buy royalties at
really attractive prices, you

1023
01:00:05,680 --> 01:00:11,680
know, let's say 50 to 200 K on,
on stranded deposits that we

1024
01:00:11,680 --> 01:00:15,560
could see ultimately feeding.
You know, adjacent mills, I

1025
01:00:15,560 --> 01:00:19,080
mentioned it from the outset,
but in WA, you know, it's a

1026
01:00:19,080 --> 01:00:21,760
dynamic that's really attractive
and it's something we've had

1027
01:00:21,760 --> 01:00:25,000
quite a bit of success with.
So I think, you know, ultimately

1028
01:00:25,000 --> 01:00:29,400
our best return return deals are
deals that have that

1029
01:00:29,400 --> 01:00:33,560
characteristic where it's
difficult to see exactly how

1030
01:00:33,560 --> 01:00:36,400
that comes into the mind plan.
But with some Intel and with a

1031
01:00:36,400 --> 01:00:40,240
bit of analysis from our team,
technically, you know, that's

1032
01:00:40,240 --> 01:00:43,240
how we can, we can see a line of
sight around, you know, it's,

1033
01:00:43,400 --> 01:00:48,160
it's you can see a path to 5000
X on some of those investments.

1034
01:00:48,360 --> 01:00:50,480
They don't grow on trees and
you've got to work hard to find

1035
01:00:50,480 --> 01:00:52,480
them.
But you know, we've been out

1036
01:00:52,480 --> 01:00:55,360
this for quite a long time.
So those are the deals that get

1037
01:00:55,360 --> 01:00:58,800
us get us most excited.
Before you call Spencer, if you

1038
01:00:58,800 --> 01:00:59,960
got one of those royalties, call
me.

1039
01:01:02,520 --> 01:01:06,320
Money mine royalties.
Hey Spencer, this is this has

1040
01:01:06,320 --> 01:01:08,520
been awesome mate.
I've learnt a heap about

1041
01:01:08,560 --> 01:01:11,360
royalties and yeah, I always
love talking to someone who goes

1042
01:01:12,040 --> 01:01:13,920
very deep on a a sort of
particular niche.

1043
01:01:13,920 --> 01:01:17,400
It's always awesome to to speak
with those sorts of folks.

1044
01:01:17,400 --> 01:01:19,120
So appreciate you sharing your
wisdom with us.

1045
01:01:20,720 --> 01:01:24,600
Appreciate that JD, I I wish my
beloved California wife shared

1046
01:01:24,600 --> 01:01:27,760
the same enthusiasm about my
passion for mining royalties,

1047
01:01:27,760 --> 01:01:30,960
but that's probably that's a
separate conversation with the

1048
01:01:30,960 --> 01:01:32,960
beer in hand.
You can talk to us whenever you

1049
01:01:32,960 --> 01:01:36,920
need that.
Yeah, I appreciate that, guys.

1050
01:01:37,120 --> 01:01:39,200
Right now you are.
There you go.

1051
01:01:39,320 --> 01:01:42,280
Royalty, royalty royalties and
mate, we'll hand out the

1052
01:01:42,280 --> 01:01:46,640
royalty, the royalty worth of
companies that keep the lights

1053
01:01:46,640 --> 01:01:49,120
on for us.
GC Mineral Mining Services

1054
01:01:49,120 --> 01:01:52,560
grounded, CNV ground support.
Oh, the royalty of underground

1055
01:01:52,560 --> 01:01:55,200
conferences, the Aussie MMM
Underground Operators

1056
01:01:55,200 --> 01:01:58,920
Conference, which you can get
$100 off your tickets with MOM

1057
01:01:58,960 --> 01:02:01,400
100.
The early bird continues.

1058
01:02:01,720 --> 01:02:04,240
Oh, the royalties of insurance.
CRE ground support.

1059
01:02:04,440 --> 01:02:10,520
CRE insurance.
It's CRE ground support idea

1060
01:02:11,720 --> 01:02:15,000
anyway, I'll probably said Sam
big ground sport K drill.

1061
01:02:15,360 --> 01:02:16,920
They don't do ground sport at
all.

1062
01:02:16,920 --> 01:02:20,440
Saltbush Contracting, they haul
all.

1063
01:02:20,520 --> 01:02:23,120
If you've got even busted up
ground sport in the blown up

1064
01:02:23,120 --> 01:02:25,200
rock, they'll haul that for you.
Yep.

1065
01:02:25,320 --> 01:02:30,560
Oh Miles is well he gets ground
support out of like crushes and

1066
01:02:30,560 --> 01:02:35,440
shit like Miles contracting.
The Mike sponsor, the Maddie

1067
01:02:35,440 --> 01:02:39,680
Mike sponsor, Maddie Mike
sponsor and sweat bloody

1068
01:02:39,960 --> 01:02:42,720
underground exploration gurus.
Quadrant project engineering.

1069
01:02:42,960 --> 01:02:46,160
Holy shit there's heaps of
people in and cross boundary

1070
01:02:46,160 --> 01:02:47,720
energy.
Give Timmy Taylor a call.

1071
01:02:49,640 --> 01:02:52,400
Go Gold.
Information contained in this

1072
01:02:52,400 --> 01:02:55,160
episode of Money of Mine is of
general nature only and does not

1073
01:02:55,160 --> 01:02:57,800
take into account the
objectives, financial situation

1074
01:02:57,840 --> 01:02:59,840
or needs of any particular
person.

1075
01:03:00,160 --> 01:03:03,200
Before making any investment
decision, you should consult

1076
01:03:03,200 --> 01:03:06,240
with your financial advisor and
consider how appropriate the

1077
01:03:06,240 --> 01:03:09,920
advice is to your objectives,
financial situation and needs.