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Low Carbon Royalties offers new model to fund clean energy transition

Brian Paes-Braga, chairman and CEO of Low Carbon Royalties. (Courtesy SAF Group)
Brian Paes-Braga, CEO of Low Carbon Royalties and managing partner of SAF Growth. (Courtesy Low Carbon Royalties)

Low Carbon Royalties (LCR) is a new investment capital company committed to taking a pathbreaking approach to fund the clean energy transition.

Launched in February, Calgary-based LCR was founded with the mission of investing in the evolving green energy sector. The company is led by Brian Paes-Braga, managing partner of SAF Growth – the equity investment arm of SAF Group, one of Canada's largest alternative asset managers.

Under his guidance, LCR is looking to take significant stakes in companies involved in low-carbon-emitting energy production and technologies, as well as those responsible for the mining of transition metals and minerals required for energy storage and electrification.

"The world's transition to a low-carbon future requires a generational change in our energy production and infrastructure," Paes-Braga, chairman and CEO of LCR, said in a statement accompanying the launch of the company.

Paes-Braga: Canadian energy investment wunderkind

LCR is the brainchild of its CEO Brian Paes-Braga, and backed by the SAF Group, a company with an extensive track record in resource-focused structured credit solutions that has deployed over $4 billion of capital in related investments.

The 33-year-old Paes-Braga is something of a wunderkind in the Canadian investment sector.

Prior to joining SAF in 2018, the Vancouver native made his mark as an entrepreneur who, in his early 20s, partnered with Frank Giustra, a Canadian mining financier and founder of Lionsgate Entertainment.

Then in 2015, Paes-Braga became founder and CEO of Lithium X Energy Corp. The firm was acquired in March 2018 for $265 million, giving Paes-Braga a substantial amount of capital with which to explore new investment opportunities.

Paes-Braga was also an investor and director in DeepGreen Metals, which in 2021 was transformed into The Metals Company (TMC), the result of a $2.9 billion merger with Sustainable Opportunities Acquisition Corp., a special-purpose acquisitions company.

In addition to his concentration in low-carbon mining, Paes-Braga has focused on the entertainment industry and philanthropy, much like Giustra.

In 2019, he succeeded Ivan Fecan as chairman of Vancouver's Thunderbird Entertainment, a film and TV production company, before departing the post in December 2019 to focus on his other business interests.

This included becoming one of Canada's youngest philanthropists. His Quiet Cove Foundation supports various charities and is dedicated to providing solutions to large-scale social issues. He is also an advisory council member of the International Crisis Group.

Closing the funding gap for energy transition metals mining

Noting that global investment in the mining of energy transition metals is badly lagging behind the funding of other links in the value chain, Paes-Braga is committing LCR to closing this financing gap. He believes his company can help trigger "an unprecedented ramp-up in metal production and other low-carbon energy sources (that) is needed to enable" a shift toward lower emissions energy generation.

Accordingly, LCR used the occasion of its official launch to announce it was entering into a complex partnership deal with TMC, a major figure in the exploration and mining of some of the world's most extensive deposits of energy transition metals: nickel, copper, cobalt, and manganese.

LCR will provide the Vancouver-based TMC with a $6.9 million (all figures CAD) cash injection in exchange for two per cent of TMC's gross royalties on future revenues generated by its massive NORI-D nickel field in the Clarion Clipperton Zone of the Pacific Ocean.

In addition, TMC will receive a 35 per cent equity stake in LCR.

Paes-Braga said, "We believe TMC's polymetallic nodules offer a promising low-carbon alternative source of energy transition metals. We are not naïve to the potential risks of pioneering new industries such as deep sea minerals and we are closely following NORI's ongoing assessment of environmental and social impacts of their offshore operations."

LCR cash injection vital to development massive Pacific Ocean nickel field

The capital investment in TMC will enable the ambitious Canadian exploration company to accelerate its efforts to mine what is believed to be the world's largest undeveloped nickel deposit 4,000 to 5,000 metres below the surface of the Pacific Ocean.

The mineral field contains vast quantities of polymetallic nodules which contain cobalt, nickel, copper, and manganese - vital to the production of batteries, particularly those used in rapidly expanding global electric vehicle production.

The NORI-D deposit lies approximately 1,000 kilometres south of the Hawaiian island group.

Gerard Barron, chairman and CEO of TMC, is highly optimistic about the potential benefits of his company's strategic partnership with LCR.

"NORI and Low Carbon Royalties are a great fit," Barron said. "As the world's No. 1 largest undeveloped nickel project, NORI can move the needle on energy transition metals both in terms of volume as well as low carbon cost of production, and the NORI Royalty can become the cornerstone asset as LCR builds its portfolio of other royalty streams in the coming years.

"In the short term, this strategic partnership with LCR helps us progress the development of the NORI-D project by bolstering our cash balance without issuing new equity in TMC."

Barron added that in coming years, LCR has the potential to be an important additional source of capital to bring NORI-D and other TMC projects into production. The transaction, Barron said, offers TMC shareholders exposure to a royalty company that will be a market leader under Paes-Braga's leadership.

As part of the interlocking investment deal, TMC retains the right to repurchase up to 75 per cent of the NORI Royalty at a mutually agreed-upon capped rate that may be exercised in two stages within the next two to 10 years. This would allow TMC to reduce LCR's remaining gross overriding royalty on the NORI project revenue to 0.5 per cent.

The NORI Royalty is the second major addition to LCR's energy investment portfolio. It also includes a 1.6 per cent royalty on a producing natural gas field in Latin America that also furthers the company's interest in lower-carbon transition fuels.

Leading as a low carbon miner

For the time being, Paes-Braga is intent on pursuing his commitment to a low-carbon future by applying his royalty funding model to TMC and other companies geared to transitioning the world from fossil fuels to clean energy.

"We applaud companies like TMC, who strive to set a new standard in the metals industry by investing heavily in data and consultation to make informed decisions inclusive of all stakeholders," Paes-Braga said.

"Our extensive experience in building, developing and financing natural resource assets and companies allows us to consider trade-offs of resource projects thoughtfully. We think TMC's NORI project could provide a meaningful supply of energy transition metals and we are excited to serve as a source of long-term capital to TMC's projects."

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