Murdoch Gatti (00:02.892)
Simon Klimt, welcome to the rate of change with York wealth management. Thanks very much for having me. It's great to be here. Good to have you here. Simon. Many people are familiar with you some aren't so why don't we begin begin like we always do and tell everyone a little bit about yourself and how you're going to finance how we're going to finance I guess I was a bit of a weird kid always wanted to become a banker. And so so I was lucky in the sense that I was at university around the time of the great deregulation.

the Australian financial markets when a lot of foreign banks were coming into Australia. was sitting in class one day and the economics lecturer asked if anybody wanted to get a job at what we call then a merchant bank at night. And that was UBS Australia, which was one of the precursors to what is UBS now after UBS merged with Swiss Banking Corp. And I was helping them run their end of day systems. It was back in the old days when you actually used to physically have to, it was a mainframe, you had to take big drums out,

big disks out and I was helping them do that. And that really got me into the banking scene and I asked them for a summer job, which turned into a, I guess, a job over in the back office that got me onto the FX desk. And I did a bit of FX trading. Then I really was fascinated by commodities, by the commodity piece. And we had a gold trading business back in those days. So I got into gold option trading, gold forwards.

And then my career sort of took me through the trading businesses of gold, base metals, oil and gas, even started an electricity trading business when I was at Westpac. And so that was really the background I had in commodities. But everything we did in commodities back then was really around hedging, hedging miners risks. And it was sort of a natural progression for me then to move on to the more the financing side.

So in the early 2000s, I moved more onto the financing side, ultimately ended up at Barclays on the oil and gas investment banking piece. And so I did a range of sort of banking things until about 2012. Then I briefly went to join a former colleague of mine at a small mining company. That only lasted a couple of months because he sort of got the shaft. And so I left after he left, I was really only there to support him.

Murdoch Gatti (02:27.179)
And I was sitting there in late 2012, which was really around the time of the end of the last real bull cycle in commodities after the Chinese driven bull market. I was sitting with my now co-manager, James Morrison. He had a very similar background to me. We'd done a number of things in banking together. And we would see he'd also joined a mining company after his banking career.

And we were sitting down having coffee, wondering what to do next. When he came up with the idea, well, if the mining industry is having so much trouble raising capital, why don't we bring our skills and experience to that? And he thought about and understood the Canadian royalty model, which hadn't come to Australia yet. So we thought we'd try and bring that to Australia. So we started literally by finding a deal. Sorry, just for everyone, what is the Canadian royalty? What is it?

So back in 1980s, a brilliant man by the name of Pierre Lassonde started a company called Franco Nevada, which bought and created royalties. And that's been a phenomenal success even to this day. And so they were buying up and creating royalties over mining projects, predominantly gold. it's just over the 30 years it's been in business has just created a monumental business where they

have the right to receive a percentage of gold from a number of mines and they just get this annuity stream of income from these royalties and it's just been a phenomenally successful business. And it's turned out to be the way most Canadian miners now fund themselves versus equity because the equity markets in Canada aren't really that strong and now the royalty business provides a lot of that funding that the ASX in Australia provides here. Take a step back for a sec just for people.

not familiar with the phrase, royalties and miners. We're Australians, we love miners, right? And what's funny about how you went into things is normally 90 % of the people that I know that are in your world, I'd normally go the broaching path or go through a mine. So I find that quite interesting in the banking path. But what is the definition of mining royalties or resource royalties? Yeah, so a royalty in its simplest form is a right to receive a percentage of revenue from

Murdoch Gatti (04:50.412)
a particular area, usually defined as the mining license or the tenement area. Right. And if you think about mining, there are thousands of royalties have been created over the years in mining. Think about the Gina Reinhardt and her father created royalties over Pilbara iron ore, and they've been receiving those royalties for decades. And traditionally what happens, and he was a classic example where you might get a prospector or a small mining company will go out and find a resource in the ground.

but they probably don't have the capital to turn that into a mine. So they'll sell that license or lease or tenement to a larger company that has the capital to develop it. And they'll understand that it doesn't have as much value today as it will have when it comes into production. So as a way of getting compensation for that, often what they'll do is they'll ask the buyer to grant them a royalty over future production.

And so they will then, when it comes into production, get a percent, usually one, two percent of the future revenue from that, from that mine. Now there are thousands of these that have been created over time. Some of them sit with individuals. Some of them sit with large companies that just have them because they had acquired a piece of land or another company. And so we like to buy a lot of those. We like to buy those, especially when they're either in production or about to come into production. And what's evolved over time.

in that Canadian model predominantly, was that companies like ourselves or funds like ourselves will create a new one, go to a mining company and say, you need capital, why don't you grant me a new royalty? And I will give you money upfront for that. So it's now we use them as a financing tool as well. Yeah, it's really quite interesting. That's why I got you here. But why do you mention what a royalty is in your background?

for everyone there, we haven't actually covered, know, who are you currently working for now? You know, what's the firm? What do you, what do you do? And why have you joined Regal? So Regal is an alternate asset manager. As of based in Sydney, as of I think, 31st of December, Regal partners had about $18 billion under management. It's grown quite dramatically over the last few years. Aspiration to be the largest alternate asset manager in Asia, I think well on its way to achieving that.

Murdoch Gatti (07:08.415)
Started predominantly as a long short equities fund by Phil King and his brother Andrew. Over time, they've added a number of businesses to it. Kilter Rural, which does water, businesses like ourselves on the royalty side. It acquired Merix last year. So it's got a pretty large private debt business. We've got our own Regal, started its own.

private debt business as well. So it's added a bunch of real asset and other sort of alternate assets. So it's a really exciting platform to be providing different types of investment opportunities to now broad client base. The way we came into Regal was, I mentioned that sort of back in 2012, I was searching for what to do next in my career and James and I.

sort of came across this royalty business. So we started doing those syndicates. We're trying to work out how to build the business into critical mass. And so in 2019, we actually started this fund in partnership between a private, well, a local investment bank called Gresham and Regal. The three partners got together. That's when Phil was very keen on resources as an asset class and he invested in our fund. And so we started that in 2019.

We bought our first asset, was a royalty over a gas field up in Queensland, which has been very successful. It's part of the AP LNG gas development, which is one of the larger, one of those LNG, CSG to LNG developments. We bought that for about $80 million, funded that with money from Regal and other high net worth and family offices in Australia. And then in 2022,

Regal wanted to bring us in-house. So we made an offer to all of the unit holders and about half of the unit holders came across to Regal. The others got some liquidity and we moved into Regal full-time and continued to build the portfolio and the fund. And it's been a really successful business, I guess, over that period. we've been able to...

Murdoch Gatti (09:25.419)
diversify out of that original royalty and add new royalties to it. We've got gold, we've got bauxite, we've got tungsten. And so we've really been able to further build that portfolio of royalties and streams to provide our investors with a good exposure or different exposure to the resources sector through the royalty space. This is going to be fun. I'm really going to enjoy this conversation.

My mind is just swimming with questions. But before we dig into the fun stuff, like the resources, why these resources, how you cut a deal, and what specific you look for, what's the criteria. But I can definitely understand why the marriage between Regal and yourselves happened. Because Phil loves resources, right? Well, it's been it's been a really successful investment for him. I think he got on the resources trend earlier than a lot of the other fund managers. And I think he's some of his out

Outperformance has been a result of that over the last few years. And we've got a very strong equities platform in resources as well. And so I think coming inside Regal was really beneficial for us because whilst we were getting an entree into corporate Australia, Regal is deeply involved in the provision of capital to the resources sector. And so that flow that we see has been enormously beneficial for us.

not just in access to companies, but just across the board, just by the deal flow that we see. We've got very strong sort of Chinese walls and actually physical walls between us and the equities guys. But nonetheless, Regal is known as a provider of capital to the resources sector. So it's been very helpful for our business in being inside Regal. I can definitely see the synergies there.

Why don't we just quickly unpack the mechanics of the fund? What is the fund? How's it structured? Let's start there. So think the first thing that's really important to note is it's the wholesale fund. So it's only open to wholesale and sophisticated investors. And so the mechanics of it are that we are, I guess, an evergreen fund. are an open-ended or not a closed-end fund. We're a trust.

Murdoch Gatti (11:46.86)
So we distribute all of our income to our unit holders, which is really important for two reasons. One that when we first started investing in royalties and those people, individuals that backed us, we said to them, there were people that had made a lot of money in mining. And when they'd come to take that money and give it to another company and invest it with them through their equity, they'd seen the mine built, but they'd never got any return of capital.

the miner had used that money to either expand or do this or put it in somewhere else. We made the promise that we would recycle that capital directly back. As soon as we got an income from a royalty check, we would redistribute it back to our investors. And we've taken that same principle into this fund, that all of the income we get from receiving royalties, we distribute back directly to our unit holders. So we...

But we also get growth because we were investing in a mining operation that can have exploration extensions or it can convert resources to reserves. So you get capital growth, but you also get a semiannual distribution. currently I think we've distributed, we just did our last distribution for 31 December. Our cash yield is just under 10 % based on the unit price, maybe nine, nine and a half percent. So we're distributing that cash.

But we've also had good strong capital growth in it. So we're a unit trust that takes in wholesale money. also have a couple of the regal multi-strategy funds, our core investors as well. So we've got them as our investors. And as I say, we distribute semi-annually, we provide quarterly liquidity for redemptions. And yeah, we just

trying to build on the portfolio as much as we can. Yeah, because that was actually one of my questions. I was digging through the IM. So had a couple clients in this as well. Just full disclosure. By the way, thank you for that dividend. was very, very healthy. But Klein goes, is this right? Because he's normally used to seeing the lenders paying through like 10, 11, 12%. But so let's just touch on the performance side, because that was very interesting when I came across this a while ago. What's the performance been since inception? know, how's it been going for the past?

Murdoch Gatti (14:09.861)
What's the performance been? know, you know, break it down the month, you know, yeah, so, since inception, I think as of the 31st of Dec, I believe it was around 25 and a half percent annualized return assuming reinvestment of, of distributions, the, so it's been strong performance. And that's been driven a lot by some key factors, as I said, but can we just quickly touch just touching the numbers because sometimes

managers use like, oh, this is done since inception. And then you look at the bell curve and the things like ripped up 400%, dropped 200%. And then you know, it gets come back again, right. But what I've been saying is this is being semi consistent. These numbers. Is that accurate? Yeah. So calendar year 24, I think it was around the 20, just over 26%. We've, it's not to say we've just been going up, we do have, we do have negatives, but

And so I think for financial year 2024, it was 18%. So it's always been a relatively high return. The way I'd sort of describe what we're looking to achieve is maybe a better way to describe our returns. We look to achieve over the long-term cycles, sort of mid-teen returns, if you like. Now we've overachieved that. And the reason we've been able to do that is by the nature of royalties predominant.

As I mentioned earlier, we get a percentage of revenue, but we get a percentage of revenue for whatever is produced from that particular area. And so for example, in our, that gas asset that we bought, we call it the Tlinga Gas Royalty. When we acquired that for $80 million in 2019, we got an independent review on, or an assessment on how many reserves were in the ground and what, in fact, they actually reported those reserves and we got it independently verified.

And we valued that royalty over what we thought would be the production profile of those reserves over the next 20 year life of that asset. Now, what has actually happened with that asset is that roll forward and we've found that of the production that has occurred in that asset since we've owned it, over 80 % has been replaced by new reserves. So we've paid $80 million for that royalty.

Murdoch Gatti (16:32.718)
As of the September quarter last year, because we haven't got the December quarter royalty yet, as of September quarter, we'd received 123 million back royalty income. So we've actually effectively paid off that royalty. But there's still 86 % of the reserves are in the ground, although now 86%. So we've effectively got the whole asset paid off, and we've got the asset still in fund. So how do you price it?

Like when you, if people look at houses or they look at, know, say buying a business, you know, if you look at them, a financial advisory business, you know, it's three X, you'll get by in an accounting book. It's 1.4. So how do you, how do you price, um, multiple for essentially a royalty? So it's really, maybe I'll take one step back about what we're looking to it, why we're buying these things and what we're looking to get out of them. So what we like about the royalty model is the alignment we get with management.

Think about a mining or even an oil and gas company. They're always looking to expand and extend production, right? They're always looking to bring production forward and they're always looking to extend it beyond its life. So what we're looking to do is capture that optionality. initially though, the way we will look at it is we will look at the reserves, the known reserves in the ground and we'll try and price those, call it the DCF, call it, we do a couple of different valuation methodologies, but we'll try and work out.

what is the expected return from the known reserves? And then there's that other optionality. That's the really difficult piece to value in a royalty. And so as best we can, we try and pay for the reserves and get as much upside as we can from that optionality. That makes a lot of sense. Is there anything in the mechanics before we move on that we haven't covered? Because that was a big thing I saw, right? So the distributions are paid every six months.

but it's quarterly in and out or is it monthly? It's quarterly, monthly in, we'll take monthly in from wholesale, we'll take monthly applications and it's quarterly redemptions as of now. We actually had changed that at the end of last year and it's only now turned, we used to be annual, we've moved it to quarterly to be more flexible with a number of hours. My clients, thank you very much for that. So as a result, actually, it's probably an important point.

Murdoch Gatti (18:58.156)
As a result of that change, means we actually have to keep a little bit more liquid assets. So we keep about a 10 % buffer of liquid assets, which is a combination of cash and investments in some of those larger liquid royalty companies, predominantly in North America. So we do have to now keep a proportion of our assets in liquid form to meet those potential redemptions. This is just such an interesting space because as Australians, right?

you know, I worked at a major firm before where they specialize in essentially doing raising for mining companies. I don't know one client that hasn't had you know, an IPO or essentially a cat race pitch them on one particular stage. But the other thing as well, a lot of people have that are probably listening to this, they've probably made a lot of money via miners. But you know, they have a tendency to what's the expression miners like farmers, you know, they don't set the price, they get bloody well told what it is. And the best they can do is try to run it as well as possible.

And hopefully, you when they sell the prices at the apex, you the commodity price at the apex. So what I'm finding very interesting about this royalty space, I'd love to hear your thoughts on the matter is if someone's, as you mentioned, a lot of miners that have made money in this particular area, they love the space. Is this a means of still being exposed to the particular asset class, but decreasing the risk and increasing the returns? Is that why lot of these wealthy families have turned to this particular form of, well,

Income generation? I mean, I understand what you're trying to do. like to describe it as we get we think we get better risk adjusted returns. Okay, yeah, classic kind of fund management jargon. But I think the reason we can kind of claim that is because of the nature of a royalty and what we're giving you. So if you want to have and we think it's important to have exposure to the resources sector, especially in a broadly inflationary environment, where

historically commodity prices have led inflation. And so we think that's a really good inflationary hedge. But we think the royalty, the royalty model itself actually lends itself really well to getting that exposure because we're getting a percentage of revenue. So if you think about the mining company, what tends to happen with the mining company, if you're investing in the equity,

Murdoch Gatti (21:16.405)
Inflation goes up, so the resource price might go up, but their costs go up with it. So you end up with this margin contraction in the equity. Whereas we can avoid that if we're at the percentage of revenue side, we get the uplift in commodity price, but we don't get the margin contraction from higher costs. We don't have a direct exposure to costs in that sense, because we're only getting a percentage of revenue. having said that, the big disclaimer is we ultimately have, we have an ultimate exposure to costs because if

costs go too high and the mine has to stop, then the royalty payments will stop. But in the sense of as the miner is going through the cycle of inflationary pressures, we avoid that initial contraction of margin from higher costs.

Okay, so I used to be in foreign currency, which was great education for how you follow the money, you see how things play out. And on the FX side, they always used to essentially discuss the hedging component. you know, you got no idea essentially where it's going, haven't, you might think you do. the maximum you're hedging out of business is doing like 50 million, you know, turnover, etc. It's like 60%. Right? Because you don't know essentially where spots going. So you mentioned the growth component in the royalty.

So I'm just trying to ascertain essentially where's the risk, where's the volatility. If the commodities which you have royalties on go the way of gas, what was it, 2019, it hit $9 in Australia and then very quickly following in the next 12 months proceeded to come back down to two. So how would a very macro driven events like that essentially impact

royalties you have in say the natural gas space. I don't know if you have any there wasn't predominantly oil but I'm just trying to get in. So it is gas, gas converted to LNG and domestic gas. But just to touch on your actual question. we are offering our investors an exposure to resources. So we are effectively a long only type investment.

Murdoch Gatti (23:29.633)
And so we think the right thing to do is to provide pass through that commodity exposure because, it, yes, gives you all the upside, but also there is downside. Now, how do we mitigate that? We mitigate that. have the ability to do commodity hedging. We don't do it at the moment for a number of reasons, primarily because we want to provide that exposure. But we think we're slightly mitigated from the risk in the sense that we're looking to invest in

underlying operations that have a competitive advantage over the cycle, which usually means they're at the low end of the cost curve. So if you're at the low end of the cost curve, then yes, there will be commodity cycles. We all know that. We all know commodity prices go up and down, but it's a bigger Delta for us for that they're in production rather than sort of where the commodity prices. So we want them to be able to sustain the lower commodity prices and still be able to pay the royalty to us. Admittedly, the royalty checks will be lower.

but we will still be receiving a royalty. So that's how we see the biggest mitigant we can provide. But yes, we absolutely at the end of the day, we'll have some fluctuations because of the commodity prices. Currency is another big thing. historically people will say, and I think there are some studies that will tell you that these Aussie dollar has been somewhat correlated, inversely correlated to commodity prices. So you get some natural hedge there. We do have some

FX hedging, because it's a really big component of ours. But essentially we don't have any commodity hedging in place. So yeah, we've been providing that exposure to commodity prices, both up and down. In the worst scenario we had was during COVID when oil prices went negative, the, you may recall, and our royalty in that Tlinga asset,

70 % of the underlying commodities is converted to LNG and sold on most of it on fixed contract, sorry, long-term contract basis that's linked to the Brent oil price. So when oil prices went negative, that impacted our royalties. And there were two quarters when we didn't actually get royalties. But subsequent to that, we've had the, I guess, the tailwinds of the higher oil prices, higher LNG prices after the Ukraine.

Murdoch Gatti (25:57.582)
The Ukraine invasion, we had a phenomenal, we got a phenomenal kick up from gas prices in Asia that went from $5 to $50. And so, you know, normally you're talking about gas being a big move in 50 cents is a big move or 10 cents is a big move in gas prices. These are phenomenal. So one cargo of LNG had the impact of, you 10 times what we would normally get from it. so we've had, we've had impacts from both.

But as you can see from our returns, it's been a bit, we've had more upside than we've had downside. But yeah, we do have exposure to commodity prices. Yeah, I'm just trying to like hypothetically, right? So say, say you picked up a minor in 2000, I don't know, even 17, 18 with all the noise and the chaos and the volatility, especially these, you know, gas companies or the ones that are expanding, or you're looking at these deals. I think what's the expression that if you compound seven, seven percent over was it

10 years, you get 100 % right? Roughly? yeah, I think that's what's this. Whatever the number is, it something on the 72 rule? it seven times seven? It's the 72 rule or something. Yeah, there's a there's a rule where you're the compounding rule. know what you're getting at. Right. So I'm just trying to tear out. I'm very good at the strategy component. That's how my mind works. Quick math. Let's see how we go with that. But essentially, what I'm trying to ascertain is that's the seven rule. You've been average greater than 21. Right. So

hypothetically, over the same period, if you're averaging, 21 to 24, over that, say, that seven year period, and then you're looking at a minor with the volatility or the potential for essentially a shutdown and all those costs and all the noise and all the headaches. I'm just sitting here just going, you know, someone sells an asset or you get a large portfolio capital and you want to invest in the resource space. It's kind of like difficult from a level of volatility unless like you

you're really quite across and you understand the resources and you know, it's good management, etc, etc. And then you know how to back it. Like, why wouldn't you go down the royalty's path? I'm just looking at nothing is nothing is risk free. Yeah, but I know it's not risk free. But remember, like, you know, when you when we're young in our 20s, you know, we want to find the next major lithium stock that's just got to you know, and have a great time. Yeah, or it goes up fast can come down quite quickly.

Murdoch Gatti (28:18.757)
But when you get older, more wisdom, et cetera, and you're dealing with families, et cetera, they might not have the capacity with an asset, might not have more cash coming through, they're sitting on 10 million bucks, and they're still on a resources exposure. I'm just looking at how your structure essentially works. And yes, obviously there's risks in everything, but it seems like it's a bit more of a smoother scenario. And potentially the results may be incredibly similar, like over a seven year period on the compounding component.

It can be. I'm not blowing smoke by the way. I'm just playing this out of my mind. But I think the probably thing to add to it is how difficult it to find these quality ones. That's what's difficult. Okay. Because I mean, look, look at the Reinhardt family, for example. I mean, it has, and even there are a number of others, you know, there's this famous Weeks royalty over the Bass Strait gas fields. These things have been going for years. They are incredibly valuable. If you can get your, if you can acquire them,

They can be incredibly valuable over time, incredibly valuable. Now, in the early part of the development of the, I call it the commercial or investment royalty space, there were a lot more, there was a greater ability to buy royalties because people weren't aware what they're really worth. And so think people are becoming a lot more aware of the value of owning royalties. So it is becoming more difficult to acquire good ones.

I think our philosophy is very much around, we're far better buying a much better royalty over a great asset that may initially not have such a great return that hopefully will give us the bigger returns in the future than spending a lot of money on smaller mines with shorter lives that may or may not be successful. think that's where you'll get the same sort of volatility. We often get asked, or we get approached by a lot of

small mining companies that go, well, I couldn't raise equity. Why don't you just give me a royalty? And it's sort of the classic situation where it's an old mine, they've found, they've picked it up for nothing. They've got grand hopes of turning something that hasn't been producing for the last 10 years into the next super pit. And very few of them turn into that. We got approached for those all the time. For us,

Murdoch Gatti (30:42.559)
If we were to do those, we'd probably end up with exactly the same volatility that you get from investing in their equity because their likelihood of success is relatively small. very, they're only sort of three to five years on average of mine life. And they don't kind of create the long-term annuities that we're looking for. So the ones we've been investing in and what's helped us generate the returns we've been able to generate is by

carefully selecting and in fact, you know, for times not doing deals because we couldn't find the right transaction, but carefully selecting royalties against assets that we think have those key qualities of long-term quality resource in the ground that has the ability to grow. And that gives us that upside exposure, which hopefully over time smooths out some of that sort of risk you get at the small end of the mining sector. But they're not

they're not that easy to find.

Yeah, finding the right asset, right? Finding the right asset is the challenging part. So with the relationship with Regal, I know there's a Chinese wall, but from a dealer origination perspective, you're vertically integrating, know, does that mean that essentially if a good miner pops up, which Regal's got sway with, they your first, sorry, yeah, they are your first protocol or vice versa, when essentially it comes to exploring and purchasing that.

royalty or is that just a no no in the Chinese world? think I would hope and I would hope that our equities guys realize the value also in their investee companies using royalties as a way of raising capital in a less dilutionary way. I might touch on that for a sec because we haven't actually touched on this point. Why would a mining company use a royalty as a financing tool?

Murdoch Gatti (32:41.673)
rather than rather than equity, or even debt. And the reason the reason really boils down to dilution, right? If you are a mining company that has more than one asset, if you have one asset, probably doesn't work. But if you have more than one asset, if you go and raise equity, then you're diluting your your current shareholders over over a percentage of all of their assets with the new, new equity you raise.

you come to us, we only have the royalty over that one particular asset. And so yes, there is dilution over that asset, but not all the other assets that you own. And so we would argue that it's a much, for those kinds of miners, even if it's just exploration ground that you have, right? Because, you know, that's also valuable asset to a small company. We would argue that provide, raising a royalty over one asset is less dilutionary than raising equity. So we would hope, coming back to the point, we would hope that our equity guys, and this is

proven to be the case, they'll sort of say to the to investing companies, don't go and raise more equity. Why don't you go and do a royalty to as a way of doing that now doesn't happen that often because the Australian market is still sort of hooked on just raising money on the ASX but but they are the some of the benefits that we can get. I'm so happy you brought up this point about delusionary events because we've all experienced it. We've all seen it and I don't know if it's

What's the expression? Show me how someone's been remunerated and I'll show you how they behave. Absolutely. That's exactly right. If you can see the incentives, you'll see the behavior. Right. And we've all been caught in them. One in particular right now, know, Betelgeuse Basin. Regal was in in the beginning. know, Tamborin. I've tried every single fund manager in the street about it everyone's like very difficult right now because they're always pretty

pre-raise. Meanwhile, this thing is a goddamn behemoth and it's the fourth largest gas for fracking in the entire world besides the Masilla space in Saudi Arabia and Russia. And because essentially no one want to touch it, the Australians lost an asset and guess where it's gone? Delaware. And now we have a US regime which is parole on gas. You watch that thing fly. So I'm just saying that finding the problem again comes

Murdoch Gatti (35:04.269)
you know, show me how someone's remunerated and I'll show you how they behave. So it's just so much like a, b, c, d, e, g. And the other problem with some of these scenarios as well is very, very large shareholders, very big players, they're acutely aware about how the game works. So having, wouldn't you agree as well that they use it to their advantage? So essentially let wholesale investors take the brute force, deal with all the risks, and then they find something's really there. Then they take a large chunk.

So they've got a board seat. And then where I'm really going with this is either a royalty or a debt, right? Via a corporate bond, right? Which is probably the single two best ways in my opinion about how to fund miners. Cause they actually look at it in reverse instead of it on a short term cycle period, right? About how to actually fund these things. But what I've found, and maybe you found the same thing is when someone, a very large shareholder that doesn't have enough stock gets a foot in and they can swing a vote.

all of a sudden the conversation for royalties and essentially bonds is dead. And the main reason being to my understanding is the share price, you know, it's all, it's all just chess games, you know, they want to keep it at a particular price. They want to keep doing raise. They're the only bank that exists to an extent. And guess what happens? They just soak, soak, soak, soak, soak. And then when essentially the gas gets turned on on something equivalent, you watch that share price fly. it reminds me up to no extent on top of that, to provide that capital, they'll ask for a discount.

the share price. And that's the incentive that is always seems to be driving, you know, yeah, yeah, yeah, we'll give you as much equity as you want. but we wanted a discount. And that's, that's what's driving their behavior. These, the equity raising discounts. and so, yeah, I totally agree with you that there is a, if you were to, and we do this all the time, we try and present the dilution equivalent from right from, from doing the royalty.

versus raising equity at your current price. We had an example of that very recently with a relatively small company with a potentially great asset in WA. we demonstrated to them, was a, in fact, I'd argue we gave them almost a free kick in terms of, you can actually buy this thing back in 12 months time if you don't wanna keep the royalty.

Murdoch Gatti (37:29.857)
when your share price should be higher because you've gone through the feasibility phase and you'll be able to raise money. If you can raise the money today at X and you go through the feasibility and your share price has gone up to Y, then you have the choice. Raise your equity then and pay us out or just keep the royalty because it hasn't worked. And that would have been so much better to have done our deal and their share price is now high and they could have raised the equity at a

about 50 % higher than when they raised it back to a month ago, but chose to go the straight equity raise method. Do you mind if I ask, since you got a banking experience, see, I should disclose as well for a number of years, we've been working with firm, you know, out of like, know, sovereign royal families in Dubai and that type of stuff, know, German, Swiss bankers, etc. that have tried unsuccessfully to bring corporate bond structures to Australia, right?

And essentially, as you and I both know, the minimum is normally half a day euro or USD. Otherwise, you know, it's just not worth the time up to like $10 billion, right and how they've taught me how to think about this particular topic. You say you take a mind which is what the people that you're working with, and you want the world's component, but there's nothing actually there yet. You know, I mean, they've identified the biggest copper pit or the biggest, you know, cobalt pit or you know, gold or

natural gas or whatever it is, but they know that it'll take six years of essentially to get to the stage where it's producing and the royalty component can kick in. Right. But in that scenario with Australia, they're still doing ABCD, EFG, and everyone's getting diluted and they all get hammered. But to my understanding with the corporate bond is say it's 10 years and then you can roll it for a second one with a 20. They have the capacity to look at, say the mine life is 30, 40 years. They can essentially reinvent the wheel or go backwards.

So if you have essentially a debt book where essentially you know exactly what the costs are and everything is, and you essentially have the facility which builds out, yes, they take 10%, 1 % a year, right? In my understanding on the math side, that mine and all the shareholders associated is essentially a floor. No one's going, hey, we're pre-raised. And then the thing just starts heading north, right? But I suppose, but one phrase is, I'm not suggesting this is competition, in competition to.

Murdoch Gatti (39:48.077)
the royalties component, where I'm thinking on the financing of miners is it may be a solution in the short term. As you mentioned, there's a lot of people that don't have the royalty or anything coming in right now to get a very large mine to a particular stage. Because how many times you and I've seen it, and they try to keep raise, raise, raise, raise, raise as the commodity price goes up, so it's attractive for them. Then the commodity price collapses and they've just, yes, they've gone from something small and they've increased their resource size 100 times. But what happens to the miner?

The miner goes bloody belly up, right? And then essentially, everyone resets, goes cold from them at five years. So what I'm wondering is, is there a universe in Australia where it's just an education piece? Would corporate bonds for a mining company be beneficial, say, from a royalties perspective? Does that, maybe having praise is the right way. Can they work together or are they competing instruments? No, they can work together. But I think the issue we

predominantly had in Australia is that most of the mine lives have been relatively short. So we tend to work on the basis that, or the miners tend to work on the basis, drill only to the point you need to be able to get into production. And so we tend not to have these kind of really long mine lives like you get for the base metal assets in South America, for example, which look like they're 15, 20 year mine lives. Now in Australia, most of those are owned by the super majors. So it's not

really in the hands of the mid and smaller companies. And so the smaller companies in Australia tend to have pretty small short dated assets, which probably don't lead themselves as well to corporate bonds, which like us want long-term. So that's probably been the primary reason why in the mining sector in Australia, we haven't seen the corporate bond market sort of develop as well as we would probably all like. That was certainly one of the factors.

having worked at one of the large commercial banks, middendly was some years ago. they were very, whilst they claimed to have a commercial, you know, a corporate bond desk, they were never keen to, to develop that market versus direct lending. They much preferred to do the direct lending than create a corporate bond. Cause I made far more money out of direct lending than the corporate bonds. That's another, that's another, another issue. but really what's happened in reality, what's happened is.

Murdoch Gatti (42:16.295)
a completely different thing has evolved in Australia, which is the private private debt, credit businesses, that's the right term, which have evolved because the banks have become so difficult to deal with because of regulation and conservatism of whatever, that instead of the bond market developing, we've had the private credit markets develop, which I think is healthy in some respects. again, Regal has done a great job in

helping build that business and as we talked about has Merix and also bought 50 % of Taurus, which is a direct lender to the resources space as well. When did that deal happen? It either 2023 or 2024. 50 % of Taurus as well. So they predominantly lend to the resource space. Yeah. Now the corporate bond was just for me because I've experienced it.

And then essentially, I've just seen no traction. It was a combination of do people not understand how it works? Or maybe it's just the size, maybe it's the length of the mine. Yeah, think it all has a factor into it. And there has definitely been a frustration with us in Australia, with the miners not getting out of their equity and debt model. Do you think it's just short-sightedness? Or do you think it's just the thirst for the short-term sugar hit on the fees?

from a remuneration standpoint? think it's partly ease. It's what we've always done and it's available to us. So the ASX continues to be available, which makes the equity piece easier. Yes, discounts. Yes, there's incentives from certainly the brokers to try and push that. But you tend to find that boards of mining companies are engineers and geologists and

and occasional banker, but the banker usually is an ex equities guy rather than an, an ex something else. So I guess there's a bit of inertia in terms of their thinking. and, and in classic form, you're never going to get sacked for doing the same thing everybody else does. Right. On a fun one for yourself, right? If you, you're working with a minor and they had the three forms, credit equity or bond, right.

Murdoch Gatti (44:38.613)
Everything else being equal.

which one would be more beneficial to make more money out of royalties? It's a hypothetical. don't know, maybe you can look at it. You know what I mean? I'm just trying to think of like long lines. Like, well, we actually, in terms of competing with them and taking one of them out or in terms of competing as in like, you know, working together to essentially, you know, get this mine up and running and get it producing and hiding and the cost down and you know what I mean? It's so much so that you then you got the income from the, the royalties component.

know, because what I'm understanding from this conversation, what you're saying, it sounds like the biggest risk to royalties is is mine going to go under? well, mean, which means essentially, it's a cash flow problem and the capacity to raise debt or equity, you know, so at the right particular point in time, so my question becomes, you know, a longevity of an asset, say an asset is 10 years or becomes 20 capacity to roll, what, you know, balance or maybe a balance of instruments is, I suppose, most financially beneficial for your business.

Yeah, we're kind of indifferent to how they fund the rest of it. If we're going in pre-production, then we're most interested in them getting enough capital to get into production. And usually the issue with a miner is only getting enough capital. They don't want to over capitalize the business. And so they run into cashflow problems during ramp up. That's the biggest issue we see in mining. Huge issue. Is the lack of working capital during ramp up.

So anything, any form of capital that can be flexible enough to give them the additional capital we know they're going to need that they haven't budgeted for during the ramp up phase is of great benefit to us. Now we would argue that we kind of, we argue we kind of sit somewhere in somewhere between debt and equity in the capital stack, right? Because if we've structured the deal correctly,

Murdoch Gatti (46:36.045)
And we've got rights and we've got inter-creditor agreements with say senior debt that if they take control of the operation, they're not going to try and blow up our royalty, but that royalty will be passed on to the next owner. We can survive when say debt doesn't in some circumstances, right? So think about an administrator gets appointed because it's got too much debt. It doesn't got enough cash to play its debt. If they're obliged to not

to sell that asset. And the main asset a miner has is the license, right? Because that's their ability to extract. So an administrator will try and sell that license to another party, pay out the debt, and then the mine goes on in a different form. If we've structured it properly and we've gone along with that to the new owner, which we should do, then we can survive your normal kind of restructuring as a royalty holder when maybe equity's been

been wiped out, and maybe some debt has been restructured or something, that's the position we try and get ourselves into. So we're a bit indifferent, provided we can get that core position of being able to be assigned with the new owner. We're pretty indifferent to what kind of capital I have. Yeah, right. So I did not realize that. essentially, you survive essentially a minor collapsing.

Well, if we structure your contracts, we we never say never right? Because if if there's nothing, there's nothing. It's like it's like a, you know, it's like a mixed use. It's like the building we're in is mixed uses apartments have stopped, you know, there's a bottle shop down the bottom, you know that there's one still for vacancy, right? If the bottle shop leaves, and they can't find a tenant, the rule essentially the income is essentially to that particular shopfront, right? So then only survives if you can find someone else to keep going, you know, finding your tenant. Yeah.

on a high level, is that essentially what you're So we never say never, because of course, our royalty will only, they're contractual in nature here in Australia. So our royalty will never survive the forfeiture of the license, right? They forfeit the license, there's nothing there. The royalty disappears. the key risk is keeping the license and maintaining our right

Murdoch Gatti (49:01.025)
whilst that license is in existence to keeping that right to a royalty, no matter who owns that license. there are, I'm not saying they can't be extinguished and people try to extinguish them. There's a case in WA at the moment where someone's trying to extinguish a royalty, but we try and build in a specific thing with financiers in our royalty contracts, in our ones where we're using it for financing, where the financier has to acknowledge upfront.

And if they appoint a trustee, an administrator or something, that they will keep our royalty on foot and that it will be assigned to the next owner of the license. You brought us something interesting, the WA one, I extinguishing a royalty, correct? Are there cases of that occurring? Was that incredibly rare? It's incredibly rare. We've seen ones that have survived. There are some famous ones that have been traded.

that survived even the Sons of Gualia liquidation. We've seen ones that are still live post that Sons of Gualia owned. actually saw the, we've seen the novation agreement that the liquidator did to the new owner of the underlying asset. So they have traditionally survived administrations and the like, but there is someone trying to challenge that at the moment. We'll see how that goes. But as I say, we try and structure around that to the best we can, but we never say never.

We never say that they space just becomes more and more interesting. It's like, just keep hearing all the risks associated to mining. It's kind of like, yeah, they're associated to the mining, but you know, with us, as long as the license survives, and essentially there's a new tenant taken over the thing that keeps reducing, you know, the royalties just keep going. That's, that's what we're trying to achieve. not saying we achieve it every time. know, but I'm just saying from a longevity that is wild.

And that's why we, that's why we see it as such a powerful tool for investing in mining. Really considering the level of volatility and danger associated with mining. that's just for the same from an stockbroker, you know what I mean? Which is not to say that we won't have periods. If that mind gets into trouble, we may have periods like we've had where we don't receive a royalty check, but when mining starts up again, we would hope that our royalty has survived and that we'll be able to start getting those royalties again.

Murdoch Gatti (51:23.149)
Well, I think that's actually a very good pivot into a bit of good old fashioned politics and macro. Well, COVID just happened, right? And essentially government policies have particularly happened. There's been a massive change in the States, you know, you know, you know, regulations, policies, tariffs, wow, unpack the tariffs one, but let's just stay on the Australian topic for a standpoint. The whole move towards like green energy saw, coal mines being shut down, right? So

Have you got any exposure to royalties over coal mines? you know, essentially, you know, how would that have impacted your business? So we don't have anything at the moment in coal, not to say we wouldn't have something. Prime, if we were to get something in coal, we'd be looking more at met coal for steelmaking than thermal. But we don't have anything in coal at the moment. Our actual gas is coal seam gas.

And so the gas, interestingly, the whole gas industry had some disruption or potential disruption when the Labour government came in and tried to impose domestic caps and domestic reservations and the like. And it turns out that gas is an important and vital energy fuel that the government now realizes we can't stop. And so I think we've kind of taken that view of what is the right thing to get involved in.

We believe that there is going to be a transition to renewable over time, but we think there are a bunch of commodities that are absolutely crucial to getting the world there. We think gas is one of them. The biggest reduction in carbon emissions actually happened in the US when they basically transitioned out of coal for electricity to gas for electricity. And that was the biggest single reduction in CO2 emissions that we've actually seen anywhere. And so we don't understand why we're not embracing

similarly here in Australia, a transition from coal to gas as the intermediate fuel. talked about that sort of five years ago, we were talking about gases in intermediate fuel. I think even in the papers today, it's sort of being reiterated that it's got to be the intermediate fuel. And so that's the kind of exposure we look for. We think it would probably really difficult to do a thermal coal deal, although if there were some, and primarily because

Murdoch Gatti (53:42.743)
the returns have actually reduced significantly in that the risk premium you were getting for thermal coal has actually reduced somewhat. There's a lot more capital available for thermal coal than there was in the past. Now, having said all of that, yeah, it's, you know, as I say, we're looking for, we think there are a bunch of commodities out there that are gonna be really important for the transition. And that's what we're looking to get exposure for, to rather. It's an interesting,

perspective that they put like I some remember the explore we said before you know look at some how someone's remunerated and I was going to show how they behave you know a lot of these people have interests in essentially these renewables to be built and I look

Let's use the use a Woolworths example, right? Remember the plastic bags fiasco? I was carrying groceries and paper bag recently and a freaking jar of pickles like through the, there's a reason why they got rid of paper bags, right? And this whole plastic thing, I just find ridiculous considering people are tweeting about with their plastic phones using, and you can't make a phone these days without cobalt. And where does the 75 % of cobalt come from? Artesian mines. Where's the artesian mine? Congo, babies in the back, cancers everywhere. You know, so just find it very hypocritical to a particular extent.

Well, there's some massive hypocrisy in the stop oil now or the whatever they call themselves. As you say, nearly every, well, you've got to remember that everything we touch is either grown or mined, right? Everything, right? And so, and so much comes from oil. So much of it comes from oil, fabrics that we wear, as you say, the mobile phone, you couldn't have your mobile phone if you didn't have any oil production because there's so much plastic involved in it. you can't move goods around the world without

without oil. So it's just, you know, just fascinating. They're tweeting in their beautiful, very, beautiful little lemon pants, their puffy jackets and everything. Meanwhile, don't they realize this all essentially like, exactly, That's not to say, that's not to say we shouldn't, we shouldn't make the world a better place over time. No, of course. Again, full disclosure, obviously we are for, you know, save the whales and we want us essentially live a better world than for our kids, which is drives me a little bit nuts is my family members live in Newcastle, right?

Murdoch Gatti (55:53.869)
and they watch the numbers quite closely to my understanding and you're in the space, not me, my numbers might be off. So I won't quote them. But my understanding is we're shipping more coal based on the mines that still exist to China, right? highest levels, nearly the highest level, cold demand was high as just just in continues to how many, how many, how many combines and essentially are they opening up in China whilst we're being taught what just makes no sense to me is we being told half the world that we have to do a particular thing and we're doing it.

which I think is fantastic. But the other problem is when the other half of the world isn't doing it, is it having any impact and essentially is costing us money? Yeah, look, it's, you know, it's just, we've all lived through the we're all going to die scenarios, right? The Y2K was going to kill us. The bomb was going to kill us. Everything's going to kill us. They were all overhyped to some degree. You know, from what I understand, global warming,

isn't actually a genuine existential threat to the globe. But absolutely, we should do everything we can to minimize it. But we've just never been able to get a system in place that's actually going to lower the temperature. And so we have to find ways to mitigate it. Absolutely. We have to find ways to fund the repercussions for it. But we've got to be reasonable in our debates. I mean, I think the

You know, the fact that everyone has become so idealistic on both sides of the equation, let the markets work out what is the right way to mitigate these risks. If it's nuclear, it's nuclear. If it's wind, it's wind. But there is actually, we have mechanisms to actually solve these problems in the most economically long-term sustainable way. The other point I'd make is that

that I think is missing on a lot of the activists is that access to cheap and abundant energy has been the biggest driver of increase in human wellness, quality of life. That's there you go.

Murdoch Gatti (58:15.359)
Historically, right? Every time, every economy has got access to cheap energy. It's been the way to bring their people out from poverty into higher quality of life, higher living standards. And that's still true today. And so if you cut off access to cheap energy to those that are less fortunate than us, then you're actually stopping them getting a better life. And so I think that's a real issue that I see.

in this debate that we're not really addressing that cheap energy and getting the cheapest, best form of energy is the best way to get to advance human well-being. the nuclear ones. Okay, a simple question. Is there a means to essentially get royalties from the business of nuclear energy? Or is it predominant? There is actually a royalty company that specializes in uranium.

So it's uranium, uranium from the purely extract out of the ground. Well, they've actually, think, acquired some, some actual uranium as well. But, but there are some, there are some vehicles out there where you can get access to that. We don't have any. Would you consider it? Well, it's an interesting point, because James, my co portfolio manager has long advocated for uranium that we think you should listen to James. Yeah, exactly. should have.

I should have. I mean, I took the view and ultimately we took the view that, you know, we take a lot of risk in mining. We are taking a lot of exposure to commodity price and mining. And in uranium, when we were looking at it, the trouble with uranium is at the stroke of a pen, it's either in or it's out. And so you have that political overlay. And I took the view that getting involved in uranium was probably once an additional risk that would be difficult for us to manage. I was wrong.

James is right, we should have done some uranium royalties way back when when he thought it was a good idea. But we just don't have any. But we would do them if we found one that made sense. Well, yeah, okay. You would do it if that makes sense. absolutely. Absolutely. Would you say with everything that's happening in the world right now with the terrorists and essentially, you know, the cutting off Russia to Germany with the gas and you know, the

Murdoch Gatti (01:00:31.437)
pipeline been blown up and all this type of stuff. of the greatest stories that's never been told. Yeah, 100%. Look, Mike, look, if you want to put your tinfoil hat on, listen to way too much Joe Grogan, which I love, you know, they 100 % record that decision, the states blew it up for George Soros to essentially access all the apparently is a huge amount of natural gas near Crimea.

which no one wants to keep private. it's all I can't remember the name of the entity. It's like Nova or something. But another one. But it's privatized by chromies and trying to get his hands on the years. But apparently, if you can get that up and running, you can actually cut off Russian gas. And then essentially kills a military complex conversation for another day. Yeah. Someone fact check that for me. But that's my understanding. But anyway, back on check in the other royalties component. How is this tariff war which is playing out?

potentially going to commodities and your business with the royalties? Cause it's really starting to head up. absolutely is. Look, I, when people ask me, what's the best way to, to sort of position yourself for a Trump administration, my only sort of response was belong volatility, right? It's going to be volatile and you just don't know how it's going to, how it's going to play out. Now we are lucky that we have a significant about 24%, 25 % of our

exposure is gold. And so that's been a very beneficial for us in in recent times. Actually, I don't know what gold did overnight, but it was over 2800 yesterday. So it's been when we did that investment, I think was 1900. So it's been a very good, good investment for us to have an exposure to gold, we always wanted an exposure to gold. So that to me, that's been the safe haven, if you like, during this volatility, and I think it will continue to be. It's so hard to predict

what Trump's going to do and who's actually going to impose tariffs on as to what is, which commodities are going to be impacted in what way. So I find it really difficult to give a straight answer other than be long volatility where you can in the commodities. But being exposed to gold has been, has been positive for us during this period. It's an interesting policy, which he's bringing in. think he's taking, there's some bloke or some president called the Tariff King back in the seventies, where he's essentially pulling this from.

Murdoch Gatti (01:02:45.857)
And I think he worked out that there was so much money coming in through tariffs that essentially there was no reason to essentially tax their citizens. I think he's one of these trying to bring back and then essentially leverage off. But I suppose from where you were exposed, you mentioned the majority of the royalties you have, like what percentage of domestic and I like, do you have any that's you mentioned the Canadian model, right? Do you have any gold miners that are in other areas? And I suppose what I'm thinking along the lines is yes, if you have a manufacturer in the States from

the legislation, which I read, your tax corporate tax rate goes from 25 % down to 15%. Clearly, he's trying to bring the chip makers back in and you know, do particular things. So if you're internally you benefit if you're externally, your costs just go through the roof. And from what I read from your IAM, you're saying on a royalty standpoint that you kind of avoid the know, the cost of production. do we do we do in the sense that for example, gold

you the gold is fungible. So gold doesn't need to go through the States or anything. You know, our investment is in, in Canada. We actually, in that particular one, it's it's a stream. we actually physically receive gold. give us, they pay us a percentage of their gold production every month. So we get that delivered to us in our London, London, gold account, and we sell that gold instantly. So, so there's no kind of direct impact from a tariff perspective. Now, having said that we've got a bauxite investment. Now at this point, that bauxite

won't go anywhere near the States, but ultimately bauxite gets converted into alumina, which gets converted to aluminium. So in the long term, there might be, if there's some impact on aluminium, then there's some impact on alumina and down to bauxite. Now, I don't know how much of the ultimate aluminium that's produced ends up in the US or otherwise, excuse me, but I think it'll be more an impact on these tariffs if they ultimately stay for a long period of time.

how much it'll impact global economic demand and economic activity. I think the world has changed dramatically since the 70s on being able to fund yourself on tariffs because the world is more global today, right? And it seems to me that he's using these tariffs as a classic negotiation tool and we'll see where those go. And there's a real chance also that Trump might be the one that comes up with the grand bargain.

Murdoch Gatti (01:05:08.791)
with China and Russia and everyone and sorts out the world, right? And we go on to live happily ever after. So I think anything can happen. is the, some of the beauty and risk of Trump is that literally anything can happen. We have no idea what it's gonna be, positive or negative. It's funny, I discuss this topic with all of the clients and friends and whatever. And what I've realized is just don't use the word adjectives. I found if I use the word Biden or Trump, people get kind of angry or pissed off.

what I've tended to do is just, you know, and maybe just anyone else there that's having these conversations at home, like, especially my family, you don't want to piss people off to an extent. What I've found is if you remove the agitators, they'll say left and right or blue or red or whatever, and you just discuss the policies and how they impact. Really interesting dialogues come out like the one which we're having right now, like, you know, how does this impact? How does it all work? And essentially, where would we land? What do think is happening within new regime policies in comparison to Australia? And how will that? You mean Trump?

a US policy. Yeah, I use the T word or the B word, but I do not care. Like I'll happily do it all day long. Like a lot of your stuff which is doing you know, the food side's great, know, re bringing in, you know, hiring for, you know, someone's actually good at their job on merit. You know, there's a lot of good things, you know, but a lot of polarizing things as well. But I'm just trying to work out in my mind, with your business and the royalty side and the resources. So discussing all fair, sometimes it's difficult to find really good content, podcasts, whatever it is.

So if anyone's got a great podcast out there that on the Australian side that discusses stuff, I'd love to hear it. There's a lot of us component coming through. We're trying to get my head around is how will these changes dramatically, you know, impact us? Um, and then there's a byproduct, like you mentioned the aluminum component, like how, how do you think that's going to impact us? Yeah, look, I think we are, have been historically so, so tied to China, certainly for the last two decades, basically now that, um,

China demand and now to some extent, Indian demand is really the thing that is driving the commodities that we produce. And so I think that probably has a bigger impact on us directly than what the US is doing just at the moment. That's not to say what the US does isn't going to impact those markets and therefore impact us. But I think there's a lot so much noise coming out of the US at the moment that you're better to sort of

Murdoch Gatti (01:07:34.295)
try and focus on where the fundamentals lie in where those commodity trades actually go. And so, China has been a drag and India hasn't quite yet got to that level where it can fully compensate for any Chinese drag. But to me, that's probably more, especially on the bulk commodity side, where we need to focus our attention on the long-term, then some of these short-term noise that's coming out of the US.

Maybe that's being naive, but I think we as investors in royalties are really looking at the long-term, right? Because we're looking at these long 10, 20-year assets, what happens over the next six months? it might impact our royalty check or two, but really the fundamental value we're trying to deliver investors is over the five to 10-year horizon. And that's more important to us than

than the short-term volatility. So I think it's still important that whoever's in power anywhere is focused on driving long-term economic growth. hopefully Trump, sorry to mention the T word. hopefully, um, his policies will actually drive economic growth rather than curtail them. I just think.

all that all the tariff talk to me is far more about about negotiation than it is about actual imposing tariffs. And, and I think he's a dealmaker. think hopefully he'll do good deals for everybody. But it'll be America first. Yes, it's gonna be very interesting to see. Let's just, what I realized we actually really haven't gone through is can you list go through exactly what's currently in the portfolio? Yep. And

some people find this incredibly interesting. Like, you know, what's in the portfolio? What are the royalties? Like, you know, who are they? And what are the deals? How many how many royalties are actually in the fund? Yeah, so we've got in total exposure to about over 30 royalties, directly and indirectly. Let me explain that we've got five direct investments, and an equity investment in a Canadian royalty company that we helped helped fund that that gives us exposure, broad exposure to

Murdoch Gatti (01:09:59.885)
to another 30 odd royalties. So all of the direct ones we've got, we've got two gas royalties in Queensland. We've got a tungsten royalty in Queensland. We've got the gold stream in Canada and we've got the bauxite royalty also in Queensland. Funnily enough, it'd be more successful in Queensland than in WA for some reason, but it's been, they've been very successful investments for us. So that's the direct portfolio indirectly through

our investment in Canada. It's currently an unlisted royalty company. I'm on the board of that company because we have a core shareholding in it. They've got a range of royalties over gold in South America, North America, and also some in Africa. They've got some good royalties over some of West Africans assets in Burkina Faso, which are about to come online, Tiaka.

They're an interesting company and we don't want to have direct exposure, say, to West Africa, but we've got it indirectly through our equity investment. We think that's the right way for us to get that exposure. And so we've got base metals through them. They've also got some exposure to graphite, a small exposure to graphite, but more base metals and precious metals through our interest in the Canadian Royalty Company. How much is in the fund? I don't think we covered that.

So I think total assets are about $260 million as of the end of the month. that's the, we've grown from 80 to 260 million over the life of the fund. okay. So then assuming say you find yourself another $80 million asset and you're holding 10 % cash. So 26 million, well, you're short a bit. So essentially what do do there?

So yeah, what we tend to do or done in the past is we tend to do campaign raises. So we don't like to actually have too much cash sitting in the fund because it'll cash drag. Yeah, exactly. And so we, what we tend to do is we try and arrange the transactions that we've got a period four to six weeks, if not more to fund the transaction. Then we'll go out to our existing and potentially new investors and say, we've got this new fund. We've got this new investment to fund. well, would you subscribe for new shares at the end of the month?

Murdoch Gatti (01:12:25.517)
And so we tend to do it on a campaign basis. We also have money coming in on a sort of monthly basis from the multi-strat regal funds, which have been successful. This is in RF1. This is, I think of the last RF1 report where 15 % of RF1. Really? And they're our sort of single largest unit holder. And there's another multi-strat fund, the Partners Fund, which we're also 10, 11 % of that fund.

It's through the Partners Fund that we are getting some monthly inflows. And so we're building up the ability to acquire another asset. But as I say, we tend to do these campaign raises so we don't have too much cash drag. Makes sense. We thank you for that. So, okay, so the cash drag, So with the pipeline, obviously don't discuss the actual deals you're looking at, but like how many deals are in the pipeline and what stage are they at?

currently to look at. So, we're, the pipeline is always changing because deals come, deals go. we've got some, some fairly chunky ones at the moment, bulk commodities, base metals as well that would really like to add. so we're pretty, pretty active in that regard, but you've got to understand that I think in the last two years, we've looked at 150 deals and we've done four, right? So we're very, very selective.

gold, the gold, the bauxite, tungsten were too gold really. And so we're really very selective. Now, when we say a hundred and 150 deals, that's everything that people have shown us, asked us to look at and we get rid of most of them upfront, but we've done diligence on probably another.

maybe half dozen, slightly less of a voice. I've always thought of a great analogy when it comes to looking at deals is people are like, these are the deals you said no to us. I know we've never said no, we have a criteria of what we're to say yes to. So we're just going to keep getting showed days and we want to say yes. So please use our criteria. And if you got it, we'll happily say yes. Yeah, well, and that's, everyone, it's a good point, because everyone thinks they know what we want. But we're very, very particular on what we think suits this fund.

Murdoch Gatti (01:14:48.504)
Well, there's a lot of deal makers out there currently, you know, I'm finding this podcast has been picked up in, you know, international countries and you don't know when things pop up. So maybe to help you guys, what specifically are you looking for in a royalty deal? Cause you never know. What are you looking for exactly in a royalty deal? So we're looking for, as I say, something that is long dated. We're really looking for 10 plus year initial mine life, something that can grow beyond then, something that

is either in or very close to production. We're not really good at the ones that are exploration and might become an asset sometime down the track. We're very interested in base metals, bulk commodities. guess bauxite is a good example of one where we're particularly good at. It's kind of a niche commodity where we spend a lot of time trying to understand the market before we invested in it. So if it's not, say, precious metals, which is a highly competitive market,

But if it's one of those sort of specialty minerals that we can get our mind around, then that's good for us. And if it is a bulk commodity, it really needs to have a competitive advantage. It really needs to be either at the low end of the cost curve or have other some kind of advantage in where it is. So it's close to market or something that makes it something that we think we'll be able to survive as we say, as I said earlier.

the inevitable commodity cycles that will happen over such a long, such a long mine life. So that's, that's kind of the key criteria. So if anyone's listening, got one of those assets, give them a call. Yeah, probably not direct. We wouldn't probably invest directly into say West Africa, but we are of course regional. Yeah, we would go, we would go most anywhere where we can get comfortable with the legal jurisdictional risk. That's, that's the key thing, because if we have a royalty,

We want to know that it's going to be honored and that there's a process for us being able to, to get our money. So no conflict zones. we try and avoid them as best we can. If we, if we want to go there, we won't invest there. If we went, if we want to take our kids there, we won't invest. So it's just a pretty good policy. Yeah. That makes a lot of sense.

Murdoch Gatti (01:17:01.112)
We've been chatting for quite a while and this has been a very interesting conversation. Is there any points or anything that we've missed that comes to mind? No, I think we've covered most of the sort of the royalties piece and why we like royalties and why we think they're really a good way to get exposure to the resources sector and commodity cycles. Everything I say, I'm coming from the...

prospectives from the side of saying that it's, you know, it's fantastic and wonderful. have, there are, there are risks in our business that we've got to be, got to be conscious of. and you can't, you know, we think we can deliver, good quality returns over the longterm. but you know, we are in the commodity business. So you've got to, got to accept that, that, that we have exposure to commodity prices. we think that's positive. Some people don't like it, but we think it's a positive.

positive component of our, of our fund. Uh, but other than that, um, you know, I think the other, the other thing I just highlight is, the vast majority or not majority, the vast sort of, uh, range of products that regal regal has a wholesale and investors. Um, and there's a, it's a really good platform for people for investors to look at, uh, to see if there's a product that suits them. No, I really like what our regal doing this number of, um, great.

asset managers in the market. And this we're covering here asset and the ability, you know, in a firm when someone's working with a firm, they're to good relationships have asset classes available depending on, you know, ice hockey reference, right skate to where the puck's going. no, where the puck has been so have a you know, I always say to clients as well, you know, we're trying to turn a super tanky and not a speedboat, right. So if you can make tactical decisions based on macroeconomics, and various regulation changes like this massive ones happen in the past month.

know, you'd be better off than. Yeah, isn't the old saying that you, you make your wealth from concentration and you keep your wealth from diversification, right? I think that's exactly what it is. And everyone's like, I you know, you get, think Regal has that ability with the, the, with the range of products that we have to provide that diversification. People get Berkshire Hathaway wrong as well. It's like, Oh, you know, he diversified so well. And he's great as they know, mate, did phenomenally well because he bought one company and then made a

Murdoch Gatti (01:19:23.543)
fortune that gave him the basis to essentially expand and retain his wealth. exactly. Yeah, excellent. Well, Simon, it's been a pleasure having you on. great to be here. Really enjoyed the chat. Thank you for having me. It's been fascinating. I've been wanting to have this conversation for a while and honestly, it's been great. If anyone wants to specifically find yourself or the fund, how can they get in contact with you? Best to go to the Regal Partners and then Regal Funds Management websites.

get through our salespeople or directly to be happy to talk to wholesale investors that are interested in the fund and we can take them through it. What's the website? I guess it's regalpartners.com. Just Google regal everyone. regal. Google regal. All right, Sam, well thank you very much for coming on the rate of change with your cloth management. I really appreciate it. That was brilliant. It's great. Thanks for having me. Appreciate it. Take it easy.