The drive to transition the world to clean energy from fossil fuels is now in full swing and has created many business opportunities.
In mining, for example, it has meant a renewed interest in copper and nickel - both of which are forecast to be in critical deficit by 2025, or sooner.
Copper, particularly, will become vital as governments budget for their infrastructure and energy spending. The industrial metal, among other applications, is used in virtually every component of an electric car. Nickel too is used in such vehicles, and is also an integral component of wind and solar technologies.
Few and far between
Copper production has been growing at only 1% a year in the last five years, and mines are few and far between - it takes on average 30 years for a copper project to move to production from discovery -so the question is how will this future demand be met?
One firm, which has recognized the significance of future copper mines is Nova Royalty Corp (CVE:NOVR) (OTCMKTS:NVARF).
The company was founded in 2018 and went public on the Toronto Venture Exchange in October, last year, having secured financing from Canadian institution Beedie Capital. It recently struck an amended and restated convertible loan agreement with Beedie, which increased the loan facility to C$28.5 million, so it can buy new royalties.
Nova has been building value by buying third-party royalties on major copper projects being advanced by premier miners, such as Antofagasta and Rio Tinto.
Such major projects are potentially the only ones likely to see the light of day, due to the large cost and effort of developing them, explains Nova Royalty's founder and chief executive Alex Tsukernik.
Nova now holds 18 royalties, 5 of which are on development projects.
"We are creating a diversified portfolio of rare projects," he explains. "We've locked down the key priorities of Antofagasta, Teck Resources, First Quantum Minerals and Newmont in the copper space and I think that's incredibly valuable."
Such huge mines of these majors are "generational' projects, he says, with an average life span of the top 16 copper mines in the world being 77 years.
There is also the potential upside of resource upgrades and expansions at these huge projects later down the track.
Tsukernik compares buying into these mega projects as dealing in luxury real estate. "When you buy oceanfront properties and you buy them at reasonable prices today, it's very hard to lose money ... and that's what we've done," he says.
Royalty companies are, of course, not new, but a focus on energy metals, rather than say, gold and silver, makes Nova unique. Overall, the royalty company sector is now said to be worth around US$75 billion.
Exposure to growth
Such companies appeal to investors because they offer exposure to growth (revenue) but less of the development risk (costs) attached to traditional mining firms.
Nova also notably buys its royalties, in essence, a percentage of the output of a mine over its life, not from the miners themselves but from third parties who own these royalties.
This means it gets exposure and involvement with huge projects around the world but does not have to deal directly with major companies.
And the company has made some eye-catching deals. In December last year, it completed the acquisition of an existing 0.24% net smelter return (NSR) royalty on First Quantum Minerals' world-class Taca Taca project in Argentina.
And in January, this year, it announced it had increased its royalty interest in the project to 0.42% after it agreed with First Quantum to buy a further combined, existing 0.18% NSR.
Notably, First Quantum recently reported a maiden proven and probable reserve at Taca Taca of a huge 7.7 million tonnes of copper metal, making it one of the globe's premier development projects. It is also the first of Nova's royalty projects likely to go into production.
Nova has also purchased a 2.4% NSR on Antofagasta's Twin Metals nickel, copper project in the USA, where measured and indicated resources stand at 1.293bn tonnes at 0.57% copper and 0.18% nickel. In Chile, it has a 2% NSR on Teck/Newmont's NeuvaUnion copper, gold project.
On February 10 this year, the group also announced it had struck a deal on an NSR for 0.98% on open pit operations and 0.49% of underground operations at part of the Vizcachitas project, set to be Chile's next copper mine, owned by Los Andes Copper Ltd (CVE:LA).
Among the terms of the deal, which was struck with an affiliate of Resource Capital Funds, Nova must pay US$6.5 million in cash upfront on closing and up to US$9.5 million in its shares, upon the achievement of certain project milestones.
Vizcachitas is currently undergoing permitting for an expanded drilling program, the results of which, will be used to complete a pre-feasibility study, earmarked to be completed by the first half of 2022.
Exploration projects too
Nova also has a clutch of royalties on mining exploration projects, including for Transition Metals’ Wollaston copper project in Canada and Rio Tinto's Janice Lake, also in Canada.
Tsukernik notes that as Nova becomes increasingly embedded in these assets belonging to the majors, in the longer term, the company should have other ways of generating more value.
"I think we'll have opportunities come to us on the deal-origination side eventually, which will be really compelling, but for now we're very happy to buy third party stuff and we've got a full pipeline here to grow the company," he says.
Tsukernik, an experienced mining industry executive, came to put together Nova after meeting co-founder Brett Heath and seeing the success he had building up Metalla Royalty & Streaming Ltd (CVE:MTA).
Like Metalla, Nova Royalty focuses on buying third party assets.
"We both grew very bullish on the whole electrification thing but we didn't want to go buy these speculative metals like lithium and cobalt and graphite ... we wanted to get things that were really the core to the supply chain and that was really copper, nickel," says Tsukernik.
On February 16, and to further grow the company, the group said it had raised over C$5.5 million following an earlier announced warrant acceleration exercise.
So with an innovative strategy, yet using a tried-and-tested royalty model, Nova Royalty could be one way to play this nascent energy metals sector in forthcoming years.
Time will tell.
Contact the author at giles@proactiveinvestors.com