Applying one of the 'best business models in the world' to nascent carbon markets - Vida Carbon
(Kitco News) - Vida Carbon wants to bring the royalty and streaming business model to carbon markets.
Company chair Jamie Keech spoke to Kitco on Thursday. Keech also heads up Resource Insider, which guides investors on opportunities in the mining space.
As companies seek to lower emissions, they are going to have to buy offsets to meet their commitments. It's a market set to grow exponentially, wrote McKinsey in a report analyzing the sector. The consultancy projected that demand for credits in the voluntary carbon market could increase by 100 times by 2050.
"You have supply and demand dynamics I have not seen in any other industry," said Keech.
Vida Carbon is building a portfolio of projects generating carbon credits in both the voluntary and compliance carbon credit markets . The company raised $15 million in January. Keech believes the royalty and streaming model works in the carbon market, especially since companies offering the carbon offsets need capital.
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"We started this because we saw the value of royalties and streams," said Keech, noting the Franco Nevada model which has a high market capitalization, high margins and low staff levels. "This is one of the best business models that exists in the world."
The day Keech talked to Kitco, the markets sold off with technology and cryptocurrency taking big falls. The Nasdaq and Bitcoin were both down 30% year to date. Keech said the drops had been building.
"I suspect we are getting a proper wash out, which is long overdue in my opinion," said Keech. "That is something that has been in the works for many, many years now. The problem is that that has broader implications for the rest of the economy."
Keech said one of his favorite areas in the mining sector is royalties and streaming, since these companies are protected from inflation. Energy costs have risen at the miners, which has crimped margins.
"I know we are entering an extremely inflationary environment. I know the cost of operating mines is going to go up. I want to own royalty companies, since they are not going to be overly affected by rising energy costs."