Ely Gold CEO: We Own a Royalty and Option Portfolio of 42 Development Properties Being Explored by Third Parties

Ely Gold CEO Trey Wasser (TSXV:ELY,OTCMKTS:ELYGF) believes that beyond the company’s portfolio of over 70 properties, primarily in Nevada, its most valuable asset is its proprietary geological database.

Ely Gold uses this database to identify properties open for staking or acquisition and to determine claim consolidation opportunities.

In the interview below, Wasser describes the company’s history and provides insight into how it is developing its position as a player in the emerging royalty space. Below is a transcript of our interview with Ely Gold CEO Trey Wasser. It has been edited for clarity and brevity.

Investing News Network: Please give our investor audience an overview of Ely Gold and how the company entered the royalty business.

Ely Gold CEO Trey Wasser: Prior to our current business model, Ely Gold was a typical development exploration company. With a partner, we developed the Mount Hamilton mine outside of Ely, Nevada and advanced that through full feasibility and permitting. In 2015, the project was sold to Waterton Global for $30 million, of which our share was $6 million.

We then transformed the company into a royalty generator business model. Under this new model, we acquired the assets owned by a longtime prospector and royalty generator, Jerry Bachman. Jerry is president of our new royalty subsidiary. In 2017, we engaged in a similar transaction with Bill Sheriff, another longtime prospector with experience generating royalties in the Western US. Bill is now a member of our board. Most importantly, we also acquired an extensive database in both transactions that we have since expanded by purchasing additional data. We run this proprietary database and I believe it stands out against any other in Nevada.

INN: What is the value of Ely Gold’s proprietary database and how does the company structure its royalty and option agreements?

TW: The database is key to generating properties as it allows us to first identify properties with a history of production or exploration that are open for staking or acquisition. It also gives us an actionable understanding of which claims in the area should be consolidated, giving us the opportunity to generate projects that haven’t been explored in the current gold cycle. Once we consolidate these fragmented claims, we option them or sell them outright, keeping the royalty. Our option contracts will all retain a royalty, if exercised. The database also allows us to create much more attractive projects because we can provide potential partners with a full database on fresh, drill-ready projects.

Our royalty agreements usually carry up to a 3-percent net smelter return royalty. If a property has existing royalties, we cut that number back so that the total royalty burden is 3 percent. Many of our royalties will carry advance minimum royalty payments.

Our option agreements are what really set us apart. We do most deals on a four-year option contract with escalating payments and no work commitments. We feel that as long as the partner is making those payments, they will work the property. These option agreements are contracts for 100-percent ownership. Unlike joint ventures, which have to be actively managed and overseen, with our option agreements we only need to review annual reports and follow news flow. As a royalty company, we can operate with low overhead and have the leverage of owning a large portfolio, managed by our partners.

INN: What progress has the company made since its transformative transaction in 2016 and who are some of your key partners?

TW: When we started with Bachman, we purchased one royalty and five option properties from him, as well as 24 available properties that we worked on and consolidated. Today, our property portfolio covers over 70 properties, primarily in Nevada. Of those, 42 are being developed by a who’s who of junior explorers, mid-tier producers and majors. In 2018, the royalty and option portfolio will generate over $2 million in revenue and approximately $1 million in free cashflow. Our partners include Fremont Gold (TSXV:FRE), VR Resources (TSXV:VRR) and Orla Mining (TSXV:OLA).

Within the group of mid-tier producers, we have closed three transactions with Gold Resource (NYSE:GORO), a producer based in Mexico. They are currently fast tracking their Isabella Pearl project to production and awaiting final permitting. They have an ADR plant that is 95 percent completed and have purchased other mining equipment. We feel that they will be our first producing royalty. We have royalties on three of five properties in their Nevada mining unit. We sold these to them and kept the royalty on the expansion ground at Isabella and two other projects, Mina gold and County Line. The latter two have historic resources left in the pit, which Gold Resource has been sampling, and are within hauling distance of processing facilities.

Another producing company from Peru, Hochschild Mining (LSE:HOC), is becoming active in Nevada. We have optioned them three properties. The fact that we have done multiple transactions with several companies speaks to the quality of our project generation and the acceptance of our option/royalty deal structure.

INN: What does Ely Gold’s corporate structure look like and how does the company compare to its peers in the emerging royalty space?

TW: We currently have 76 million shares outstanding and approximately 90 million fully diluted. The stock is trading at $0.11 or $0.12, giving us a $10-million market cap. We have over $2 million in cash and over $1 million in securities, giving us an approximate enterprise value of $7 million. We compare very favorably against other royalty companies like EMX Royalty (TSXV:EMX). They have a few more royalties than we do, but we have positive cashflow and they do not. More importantly, they are trading at an enterprise value of $85 million, more than 15 times our enterprise value. While we do not claim to be EMX Royalty today, we are fast tracking in that direction. We also think that the spread between their enterprise value and ours is too great, and people just need to get to know Ely Gold and our portfolio to understand the value proposition.

INN: What is next for Ely Gold and how does that align with upcoming catalysts in the industry?

TW: We’re expecting a lot of news flow coming up. In 2017, we conducted over a dozen deals, including consolidation deals that were not press released. This year, we will have more deals on the table and these, as well as any news from the partners exploring our 42 properties, will be communicated through our different channels.

As far as catalysts for the upcoming year, we are aggressively looking for a producing royalty. We believe this is what it would take for investors to understand the value in our business model. While we have been very successful at generating exploration and development royalties, having a producing royalty would put us on the map, causing a rerating in our stock to get closer to our peers in the emerging royalty space.

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