Gold Royalty Corp. (“Gold Royalty”, or the “Company”) is pleased to provide an update on its growth plans, and its proposed acquisition of Elemental Royalties Corp. (“Elemental”). Continuing its trajectory of disciplined expansion and growth over the past year, Gold Royalty has offered to acquire all of the issued and outstanding Elemental common shares (the “Elemental Shares”) for consideration of 0.27 of a Gold Royalty common share (a “Gold Royalty Share”) per Elemental Share (the “Offer”) as set forth in Gold Royalty’s Offer and Circular dated January 11, 2022Â (the “Offer and Circular”).
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“The acquisition of Elemental will be the fourth corporate transaction undertaken by Gold Royalty within the last 12 months, representing an unprecedented pace of accretive growth and resulting in a diverse and well-balanced portfolio of high-quality precious metal royalty assets with peer-leading growth. Since our oversubscribed US$90 million initial public offering in March 2021, we have successfully acquired Ely Gold Royalties, Abitibi Royalties and Golden Valley. Additionally, we declared our inaugural dividend, secured a flexibility-enhancing credit facility from the Bank of Montreal and achieved strong trading liquidity for our shareholders”, said David Garofalo, Chief Executive Officer and Chairman of Gold Royalty.
“We are excited to welcome Elemental shareholders into the Gold Royalty family and with the acquisition of Elemental’s nine royalties, Gold Royalty will hold 200 royalties anchored by our existing gold-focused royalties in two of the best mining jurisdictions in the world, Quebec and Nevada. Our large, diversified portfolio will generate significant cash flows over a long life cycle, support future dividend growth, and position us to aggressively pursue acquisitions and further consolidation in the royalty sector, all for the benefit of our shareholders.”
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Together, we believe Gold Royalty and Elemental will create value for all stakeholders through the following:
- Continued Growth – Gold Royalty possesses sector-leading growth driven by its existing royalty portfolio, with research analysts[1] estimating a compounded annual growth rate in revenue in excess of 60% over the next 3 years. Instead of incurring equity dilution in a highly competitive and scarce market for precious metal royalty acquisitions, the shareholders of Elemental will benefit from and contribute to Gold Royalty’s strong organic growth platform.
- Diversification –The combined portfolio will be anchored in Tier 1 jurisdictions, including Quebec, Nevada and Australia. Diversification protects shareholders against asset concentration risk as well as geopolitical risk. Illustratively, one of Elemental’s nine royalties is located in a jurisdiction which is currently experiencing significant political upheaval. In a small royalty portfolio, such as Elemental’s, such turmoil poses material risk to shareholders. Within Gold Royalty, Elemental shareholders will be less exposed to such risk.
- Dividends – Despite only completing its IPO less than 12 months ago, Gold Royalty declared its first quarterly dividend on January 18, 2022, demonstrating a firm commitment to returning capital to shareholders. Conversely, Elemental’s current level of indebtedness has likely restricted its ability to return cash flow to shareholders. With the anticipated production timelines for the mines underlying the Company’s royalty holdings, the Gold Royalty board intends to periodically reassess the level of dividend payments with the goal of returning additional cash flow to shareholders in the future with or without the addition of the Elemental portfolio. The proposed acquisition of Elemental has the potential to accelerate the pace of future dividend increases.
- Financial Strength – Gold Royalty had approximately US$38 million in cash and marketable securities with no debt as at January 21, 2022. Additionally on January 24, 2022, the Company announced a revolving credit facility with the Bank of Montreal for up to US$25 million. Conversely, as of September 30, 2021, Elemental had high-cost net debt of US$19 million. Within Gold Royalty, Elemental shareholders will benefit from our strong, debt-free balance sheet, which provides enhanced flexibility to pursue accretive acquisitions.
- Trading Liquidity – Gold Royalty enjoys peer-leading trading liquidity on the NYSE American. In part, this liquidity benefits from the Company’s inclusion in the Junior Gold Miners ETF (GDXJ). As recently as December 17, 2021, Gold Royalty’s weighting on the GDXJ was increased three-fold, which drove significant increased demand for Gold Royalty Shares. Over the six months leading to Gold Royalty’s announcement of its intention to make the Offer, Elemental’s average daily share trading liquidity represented less than 2% of Gold Royalty’s. Within Gold Royalty, it is expected that Elemental shareholders will benefit from significantly improved trading liquidity and a potential re-rating as a result of Gold Royalty’s GDXJ index membership.
- Scale – The benefits of consolidation, in addition to talent and asset quality, are best measured in terms of capital markets and operating scale which combine to drive more predictable earnings, lower G&A (as a percentage of revenue), increased trading liquidity, lower cost of capital and, ultimately, higher valuations. This creates a virtuous cycle in which capital can be more efficiently deployed on an accretive basis to drive further growth. It is this dynamic which we believe the market is recognizing and rewarding in our recent acquisitions. We firmly believe that a combination between Gold Royalty and Elemental will result in a similar outcome, which will continue to benefit all shareholders.
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