Elemental Royalties (ELE) - Why Takeover Bid Was Rejected!

Elemental Royalties is a Canadian listed, royalty company with a portfolio spanning four continents composed of predominantly producing precious metal royalties. The company began publicly trading in July 2020 and boasts that what Elemental Royalties Corp. is today is due to hard work and building the company from the ground up.

Matthew Gordon spoke with Frederick Bell, CEO of Elemental Royalties to discuss the company’s recent activities from exciting portfolio developments to the unsolicited all-share hostile takeover bid by Gold Royalty Corp. 

Company Overview

The company believes in its quality acquisition model, built on the principles of discipline, rigorous analysis and a highly selective approach. The company’s rigorous analysis has resulted in assets that are of high quality with long term growth potential on four various continents.

The company recently experienced an unsolicited all-share hostile takeover bid by Gold Royalty Corp., which the company’s board unanimously determined was not in the best interest of the company or its shareholders. The board believes that more value lies in the company continuing with its business plan. The company believes that the bid undervalues Elemental Royalties Corp. and has recommended to its shareholders to reject the hostile bid and not tender their shares. The disproportionate benefits that shareholders of Gold Royalty Corp. stand to gain at the expense of the shareholders of Elemental Royalties Corp. stands amongst the reasons why the hostile bid is not in the best interest of the company.

Elemental Royalties expects a record revenue year, which is accredited to developments at its assets. The highlights of the company’s assets include the steady-state production at the Karlawinda gold project operated by Capricorn Metals Ltd. The Karlawinda project contributed a first royalty revenue to Elemental Royalties of AUD$ 1,067,929 from the sale of 21,964 ounces of gold in Q3 of 2021. The Wahgnion gold mine, in which the company holds a 1% NSR royalty, also announced a discovery target of 1.5 to 2.0 million ounces of indicated resources over the next five years. The Mercedes gold-silver mine in which the company holds a 1% NSR royalty is also planned to undergo extensive development to increase production.

Management

Leading this goal-orientated and dynamic company is Frederick Bell, who serves as both CEO and Director. Bell is co-founder of Elemental Royalties and started the company n 2016 after serving as managing director (MD) of Goldcrest Resources plc. Bell, during his time at Goldcrest Resources plc., was responsible for assembling the company’s portfolio of gold licences in Northeast Ghana and developing them to an AIM-stock exchange listing. Bell is somewhat of a protege when it comes to mining, as he served as general manager (GM) for an ASX-listed uranium company when he was only 25, his receipt of the Mines and Money 2018 “Young Rising Star” award is testament to this.

Richard Evans is the Senior Vice President (VP) of Technical and has more than 35 years of technical and commercial resource industry experience. Evans spent 18 years handling exploration, underground mining, feasibility, business development and audits for Western Mining Corporation. He was also a founding shareholder of Mantra Resources which was later acquired for AUD$ 1.2 billion by ARMZ.

David Baker is VP of Business Development and has more than 10 years of experience in the mining and mine finance industry. He has held positions at BMO Capital Markets as well as Kulczyk Investments, where he was part of the establishment of QKR Corporation, a private mining investment company.

Greg Owen is in charge of the company’s operations as VP of operations and has experience in both publicly and privately traded companies within the mining sector. Owen was involved at Altus Strategies Plc from 2011 to the beginning of 2018 as its VP of Corporate Development. He was part of the team that managed the initial public offering (IPO) of the company to the AIM stock exchange in January 2018.

The task of Chief Financial Officer (CFO) falls to Matt Anderson, Anderson is a chartered financial accountant (CFA) and has served as CFO for publicly traded companies in the mining industry for more than 10 years.

Matthew Tack serves as ERAPL Director and has previous royalty experience serving as CFO for Anglo Pacific Plc. He has experience in finance, tax optimisation and compliance, accounting and governance, opportunity assessment and negotiation.

Meghan Sharp and Robert Barlow are business development analyst and junior business analyst respectively. Barlow joined the company as an intern and has made himself a cardinal part of the team since his first day. Sharp has experience in a variety of transactions through her time at RBC Capital Markets’ Metals and Mining and Energy divisions. She holds an MSc in Metals and Energy Finance through Imperial College Business School and the Department of Earth Science and Engineering as well as a bachelor’s degree in Geological Sciences from the University of Leeds.

This dynamic and experienced team are tasked with the management of the company’s portfolio of assets.

Assets

The portfolio of assets that Elemental Royalties holds royalty of are nine in total, of which one is an exploration project, namely the Western Queen project of Rumble resources limited in Western Australia, two are projects in their feasibility stage and six are in production.

The company’s two largest royalties are the 1% net smelter return (NSR) royalty it has held since 2019 at Endeavour Mining Corporation’s Wahgnion project and the 2% NSR it has held since 2021 at Capricorn Metals Limited’s Karlawinda project. The Wahgnion and Karlawinda projects are still in their early years and are both large scale and long-life assets.

Endeavour Mining Corporation allocated USD$ 12.5 million to exploration at the Wahgnion project in 2021 and has allocated USD$ 9 million for 2022. The company believes that the Wahgnion  asset has tremendous future potential with Bell stating:

“…when you have a top 10 Goldmine globally, putting their second-biggest exploration budget, into our Royalty that covers an entire district of 1000 km2, there is years and years of exploration to come, and Endeavour has actually announced an exploration target by the end of 2025 of 1.5 to 2 million ounces in measured and indicated resources at Wahgnion .”

The Karlawinda project has recently been put into production and holds large exploration potential as well according to Bell.

“…like Wahgnion when you bring the mine on stream, your immediate focus is getting it up and running, commercial steady-state production. And once you hit that, you then start to gradually build out exploration, which is exactly the playbook they have done.”

The company believes that its early entrance into royalties at these projects will serve them well in the future, with its portfolio delivering USD$ 10 million in diversified revenue annually.

Takeover bid and why it was rejected

The company has however recently experienced a challenge in the form of an unsolicited hostile takeover bid by Gold Royalty Corp. to acquire all the common shares of Elemental Royalties Corp.

According to the company, the hostile bid is an opportunistic attempt to acquire Elemental Royalties Corp in a manner that undervalues the company’s high-quality portfolio of revenue-generating royalties. The hostile takeover would see the company’s shareholders own approximately 12% of the combined company, despite Elemental Royalties Corp. contributing 97% of the total revenue on a trailing 12-month basis. The company also believes that the bid undervalues Elemental Royalties Corp. with it falling shy of the company’s target price according to equity analysts as well as taking into account near-term revenue growth. The company believes that further to the list of reasons the bid is to be rejected, the portfolio of Gold Royalty Corp is much less attractive than that of Elemental Royalties’.

Frederick Bell had the following to say regarding the hostile bid:

“This bid does not offer compelling value for Elemental shareholders, it's not compelling on a relative or an absolute basis, and I think that has been really clearly communicated by the fact that an absolute majority of Elemental shareholders have told us that they do not intend to accept this bid.”

The company also outlined 13 reasons why, including those mentioned above, the bid is to be rejected in its Directors' Circular.

The attractiveness of the company is due, amongst other things, to the steady year on year growth of the company with Elemental Royalties Corp. publishing record revenue for the fourth quarter (Q4) of 2021. 

2021 Revenue and highlights

2021 was an exciting and eventful year for the company, with Elemental Royalties releasing its preliminary quarterly revenue on the 22nd of February 2022, which boasted an approximate 53% increase since Q4 2020. The revenue of the company increased to USD$ 2.3 million in Q4 2021 from USD 1.5 million in Q4 2020 and is based on the sales volume of approximately 1,300 gold equivalent ounces (GEOs) from royalty contracts.  

The company also acquired a portfolio of precious metal royalties from a wholly-owned South32 subsidiary as well as the developments at both the Wahgnion and Karlawinda projects.

The company plans to diversify its 80% producing portfolio of assets in the future to include more development and early-stage assets.

Frederick Bell is very excited about the future of Elemental Royalties Corp and believes that the hostile bid has had the great advantage of showing the company’s value. He states:

“One thing that this hostile bid has done is it has highlighted the value in Elemental. And I think we have spoken … in the past and said that these are high-quality assets, you rarely see them in a junior Royalty company”.

‍To find out more, go to the Elemental Royalties website