Elemental shareholders reject Gold Royalties’ hostile takeover bid 

Gold Royalties (NYSE-AM: GROY) failed to acquire Elemental Royalties (TSXV: ELE) as its all-share hostile takeover bid expired on May 12, bringing an end to a saga that began in October.  

Less than 5% of its shares were tendered to the bid, Elemental said, adding that Gold Royalty had failed to meet the statutory minimum tender condition of more than 50%. 

“This hostile bid has been an unfortunate and unnecessary drain on Elemental management’s time and resources,” Elemental’s CEO, Frederick Bell said in a press release.  

“Elemental shareholders have again overwhelmingly chosen to reject the hostile bid, which was never a compelling proposition and currently represents a material discount to Elemental shareholders rather than the premium announced by Gold Royalty,” he added.  

On Dec. 20, Gold Royalties said it was taking its offer to acquire Elemental directly to the company’s shareholders, after its two previous approaches to the junior — the first on Oct. 21 and the second on Dec. 15 — failed to engage Elemental’s board of directors.  

Elemental said that the offer — 0.27 common shares of Gold Royalty for every one share of Elemental Royalties — was not in the best interests of the company and repeatedly recommended over the last few months that shareholders reject the bid.  

The company told The Northern Miner that the final value of the bid was a discount of approximately 29% to the value of Elemental’s shares, based on May 12’s closing prices of US$2.78 for Gold Royalty and $1.37 for Elemental, and a Canadian dollar exchange rate of $0.77. 

“While we strongly believe in the merits of a combination with Elemental, we were ultimately unable to obtain the engagement and accord required to reach a board-supported, mutually-beneficial transaction,” David Garofalo, Gold Royalty CEO said in a press release.  

The CEO, however, said that the company won’t waiver from its “pursuit of value-enhancing acquisitions.” 

Ever since going public in March 2021 Gold Royalty has been an active acquirer, amassing a portfolio of more than 190 royalties through the acquisition of royalty companies including Ely Gold Royalties, Abitibi Royalties, and Golden Valley Mines and Royalties.  

One of the reasons the bid failed was Gold Royalty’s “little revenue and a big market cap,” one analyst told The Northern Miner following the takeover bid. “Elemental has much more revenue and is smaller. So, Elemental and their shareholders didn’t see the economic justification for a merger,” the analyst said.  

The analyst believes Elemental is undervalued, but still reckons that the company should merge to get some scale and market attention. 

Jacques Wortman, a mining analyst who covers Elemental Royalties at Laurentian Bank Securities Equity Research, described Gold Royalty’s offer as a “compelling proposition” for Elemental’s shareholders in a research note sent to clients in December.  

But Wortman also expected a competing bid to emerge due to Elemental’s “compelling combination of quality, high-value royalty positions and near-term revenue growth and critical mass.” 

In a research note published in December, Kerry Smith, a mining analyst at Haywood Securities, pointed out Elemental’s small shareholder list with about half of the shares in “friendly hands,” a factor that would require any bid to be cordial.  

At press time in Toronto, shares of Gold Royalties were trading at $3.03, up 25¢ or 9%, while shares of Elemental Royalties were trading at $1.39 within a 52-week trading range of $1.21 and $1.78.