The 6ix Report - Douglas Silver: Rise of the Mining Royalty Companies

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0:36 Hello everyone, and welcome to The 6 Report. I'm here with Douglas Silver to discuss his newly published book, Rise of the Mining Royalty Companies. Doug, it's always nice to chat with you and please correct me if I'm wrong but this is the first book you've published right if that statement is correct what was your experience taking on this venture? Actually it's not I worked for the old metals economics group where we publish studies all the time and when I was at Pincock, Allen & Holt, I also published studies but in both of those cases they were self-published. This is the first time I've published a book using an outside publisher and it was a wonderful experience. Publishing people really know their business and taught me an awful lot about my poor writing style.

1:23 And the process took a year. We started in November of 2021 and it took me a while to get the mining the royalty companies to to commit to it and then of course when you're dealing with CEOs and chairmen they're very very busy people and this this is not their mainstay so the project took longer than I thought but during the interim I built a database

1:47 of everybody's assets going back to 1986. So I have a really comprehensive database of what the royalty and streaming companies own and it was literally 8 or 10 hours a day for a year to put the whole book together and we got it off to the printers in November, but due to supply chain delays it didn't show up until the beginning of February. Wow, and what drove you to feel the need to write a book about royalty companies? You know that's a great question. If you look at the modern mineral royalty industry, it started in 1986 with Franco Nevada converting itself from an exploration company to the 1st mineral royalty company. Since then, all of the founders of the major royalty companies have retired but they're still alive and the industry has evolved tremendously over the same time period and because I know all of them because I built one of the larger royalty companies.

2:47 I thought it'd be good to write a book and capture their stories. So I got 11 companies to write their stories, what was going on at the market time, why they think their business model was good. And I asked them to give me, you know, give me a couple good stories, a couple bad stories, because books are supposed to be educational and entertaining. And if you know these people the way I do, they're very entertaining and they all did a great job in writing up their sections. And for people who are not of the royalty industry, it'll give you a real flavor about these founders and these extremely successful people and what drives them and what their strategies were.

3:27 Perfect. The title is kind of self-explanatory and you did explain even further right there but what can people expect about purchasing when they purchase rise of the mining royalty companies is it like them in their own words like it's a like a bio for each chapter there's not so much a bio But each chapter is written by a different company. In the case of Franco, Pierre Lassonde, who's really the founder of the mineral royalty industry, he wrote the old Franco story, and Dave Harcourt wrote the modern. Same thing with royal gold. Stan Dempsey wrote the early years, and Tony Jensen wrote the latter years. The book was not intended to be a primer on royalties, but my overview section, I do a pretty good job in offering it up for people who don't know.

4:13 But whether you're a prospector or you're an institutional investor, this book will give you a sense of how these royalty companies think, how the business has evolved over the last 30 odd years. And we do have a section where we talk about where the business is going. So it's really handy. And I wrote an overview section, which is about 30 pages. And there's statistics in there that nobody's ever seen because I went back and compiled all the financials and balance sheets back to 1986 and Franco-Nevada was extremely helpful in digging out the really old ones, because they've actually consolidated, built and consolidated about 4 royalty companies. So what I'm hoping is, is that this book will be a platform, and that 10 years from now, somebody else will write the sequel and show how the business is changing because it's changing a great deal and I don't think most royalty investors whether you're a prospect or a fund manager understand that.

5:15 Thank you yeah it's changing a lot even based off your chapters there. You have Mavericks Meadows and Triple Flag Precious Meadows, 2 royalty companies that recently

5:25 combined to create a new one. So I was just wondering, You also, for people that don't know, were part of a large merger back in 2010 with Royal Gold and International Royalty Corp. So what typically happens with these consolidations and mergers with businesses that use the royalty and streaming model, in terms of synergies and general and administrative expenses? And general and administrative expenses? So you have to understand that the reason the royalty model is so successful is because we offer more optionality than any other way you can invest in mining. And what's interesting is that over the years, the big royalty companies have gotten huge. So what happened was in 2004, the streaming model was invented by Wheaton, and it's now become the predominant mechanism or the predominant instrument used by the royalty industry. If you look at the cover of the book it has the revenue that graph there is the revenue of royalties versus the revenue of streams and streams are definitely definitely the future of the business because the companies are so large. And a 2% royalty might pay a couple million a year, but when your market cap is $30 billion and you're generating 500 million a year, 2 million doesn't move the dial.

6:46 So this is part of the big evolution of where the business is going. And the other thing too is that in 2009, when the markets crashed, the big banks sort of went through their list and said, well, we need to reduce our risks. So let's get rid of risky industries. I guarantee you mining was the first one to go. And so all these companies that still need capital, where are they going to get it? And what happened was the royalty companies stepped up to the plate and the streaming model is extremely effective. And the private equity firms got created and as you know there's there's now about 30 private equity firms that are providing capital financing. So the role of the royalty company is has expanded but having said that and to go back to your question, optionality is why royalty companies are so valuable. So if you combine 2 companies, you have 1 larger basket of optionality.

7:43 And that's part of what they do. And of course, there's also strategic reason. They're trying to have their company's revenues grow at a certain rate and they've got a hole and this other company might be able to fill that hole. I mean, there's always synergies in what they're doing, but bulk traditionally was the name of the game. I mean, when I built International Royalty, we were buying everything that moved because you know we wanted that optionality in that growth that organic growth profile. Now it's a little bit more subtle because these companies are so big and they're providing capital financing for new mines. It's changed quite a lot. And I actually, that leads perfectly into my next question. Looking at today's landscape compared to the past, what are your thoughts on the current landscape regarding finance and projects and investments in the sector?

8:35 Yeah, the mining industry has some huge headwinds facing it when it comes to project financing. As I mentioned, the big banks pulled out. Private equity and royalty companies are doing their darndest. But because of the invention of the ETF, it's completely undermined the ability of small companies to do private placements, because ETFs can't participate in a private placement. They'll buy your stock once you have your money from somewhere else, but it's just totally devastated the smaller companies about where do you raise capital. And if you're not building a mine, it's even harder because, you know, there aren't really mining brokers anymore.

9:22 Everybody's doing it online. It's creating a huge problem for the smaller companies. For the bigger companies, It kind of depends what you're doing. I mean, we've been watching Franco and what's happened in Panama. But in general, you know, up until a couple of years ago, the royalty companies didn't show up on project financing that was measured in billions of dollars. We're much more successful in the hundreds of millions of dollar capital racing. So we've got headwinds coming from the ETFs, we have headwinds coming from the lack of brokers, we've got headwinds coming from the lack of big banks getting serious about mining,

10:01 and the royalty companies have been having a heyday because they can cherry pick. I mean, they're looking for near-term revenue and if there's probably over 100, maybe 200 projects a year that are looking for money to build, and they get to put their nose under the tent and figure out whether these are the best projects, and if they are, then they go lock them up with a streamer or royalties. So the value for royalty companies going forward is gonna be even greater, because they're not buying royalties off the shelf anymore. The bigger companies are tending to create them now rather than, well, most of the big royalties have been purchased by one of the big companies. So it's a whole different game now. Perfect, And Doug, I always appreciate your insight.

10:46 I'm just wondering, you spent, you were saying like 8 hours a day for 2 years on this book. What's going to keep you busy now that the book's published? Only 1 year. Only 1 year. So I'm thinking about another book. I mean, the publishing experience was so good for me that I'm very encouraged

11:09 to write something else. So people who know me know that I always do my own research projects, always have, even when I was running international royalty. I'm always curious about stuff. I read stuff in the news that doesn't make sense. So I go and do the original sourcing of information. I mean, I'm basically a CEO analyst. I like studying stuff. And I have 3 or 4 projects right now I'm doing. I'm sitting on a couple boards. And then the rest of my time has been fully dedicated to fly fishing. Perfect, perfect. Thank you so much for your time there, Doug. And where can people learn more or purchase the book? Oh, thank you for asking. The book was published through the Society of Mining, Metallurgy and Exploration, which is the largest professional society for the mining industry in the United States.

11:59 All of the proceeds from the book go to the Society was my way of giving back. So yeah I encourage everybody buy multiple copies send them to all your relatives everybody in the world should know about royalties so an SME would appreciate the revenues. Perfect that's great thank you so much Doug.