David Garofalo’s Gold Royalty to acquire Ely Gold Royalties

Gold Royalty (NYSE-AM: GROY), which has a portfolio of 18 net smelter return royalties ranging from 0.5% to 2.0% covering 12 projects in the Americas, is acquiring Ely Gold Royalties (TSXV: ELY; US-OTC: ELYGF) in a deal valuing the company at about $300 million. 

Ely Gold Royalties is focused on Nevada and has royalties on three of the state’s largest gold mines— Jerritt Canyon, Goldstrike and Marigold — as well as on the Fenelon mine in Quebec operated by Wallbridge Mining (TSX: WM). 

 Under the proposed deal, shareholders of Ely Gold Royalties have the option of receiving $1.46 per share in cash for each share they own, or 0.245 of a Gold Royalty share. The transaction represents a 42% premium to Ely Gold shareholders based on the 30-day volume weighted average price of the shares of Gold Royalty and Ely Gold ending on June 18. 

If the transaction closes at the maximum aggregate cash consideration of $84 million, shareholders of Gold Royalty will own about 55% of the combined company and Ely Gold shareholders 45% on a fully diluted basis. 

 The combined company will have about US$33 million in cash, as well as “greater access to equity and debt capital markets and the critical mass to drive significant growth through acquisitions,” the companies stated in a press release. 

Trey Wasser, Ely Gold’s president and CEO, noted that the transaction is a “great outcome” for his company’s shareholders, and “provides an immediate, compelling premium, a significant cash component and the opportunity to continue to participate in the growth of an outstanding combined asset portfolio.” 

Wasser, who will join the combined company’s board of directors, also noted that the deal “provides the scale, balance sheet, access to capital and management team to drive significant growth and creates an excellent platform for further consolidation in the royalty space.” 

Ely Gold will hold a shareholders’ meeting in August to seek approval for the deal. 

In an email to The Northern Miner, David Garofalo, Gold Royalty’s president, CEO and chairman, noted that the two companies began their discussions and extensive due diligence on each other late last year before Gold Royalty went public, and then renewed discussions in March after Gold Royalty raised US$90 million during its IPO.  

“Ely did run a targeted process but the industrial logic and complimentary nature of our portfolios made the combination with Gold Royalty a perfect fit,” he noted. 

Shareholders of the combined entity will benefit through their participation in a larger, well-funded, and more diverse company, he said, and the acquisition could lead to a re-rating. 

Garofalo also noted that he expects there will be greater consolidation in the royalty sector. 

“I do believe that this is the first of a number of M&A deals likely to occur in the gold royalty space as investors seek scale and liquidity and gold royalty companies look for ways to drive down their cost of capital and improve their competitive position for royalty positions.’ 

Garofalo declined to comment on specific opportunities, or whether Gold Royalty has signed any confidentiality agreements with other companies, but said “we are in a constant process of evaluating opportunities to add to our royalty portfolio.” 

Gold Royalty’s goals over the next few years, he added, are “first and foremost to make accretive transactions that grow net asset value per share.” 

“Scale and diversification are paramount to the royalty industry and we will aim to have a market cap exceeding US$1 billion in the medium term. We also note that a large and well-diversified portfolio will provide reliable cash flows, which will allow Gold Royalty to seriously consider introducing a dividend policy in the future.” 

Heiko Ihle, an analyst at New York investment bank H.C. Wainwright & Co., said the deal is “likely to go through” given the strong premium it offers Ely Gold shareholders, and the transaction will give Gold Royalty access to near-term cash flow.  

“Unlike any of GRC’s current royalty holdings, Ely Gold maintains a series of interests on producing precious metal operations,” he wrote in a June 22 research note. “As an example, we highlight that Ely Gold holds a gross revenue royalty of 0.75-2.50% on the Isabella Pearl project, which is expected to provide a $0.3 million payment to the company in FY21 and FY22, with payments ramping up to approximately $1.3 million in FY23. Additionally, Ely Gold maintains a 0.50% net smelter returns royalty on the Jerritt Canyon mine, which is slated to provide annual payments of $1.9 million from FY21-FY23. … GRC’s prospect of generating near-term cash flow through these assets should warrant a price re-rating in the market as the company’s scale, asset diversification, liquidity and general growth profile increase.” 

Gold Royalty was spun out of GoldMining (TSX: GOLD; NYSE:GLDG) after its IPO on the NYSE American in March.  

Before joining Gold Royalty in August 2020, Garofalo  served as CEO of Goldcorp between 2016 and 2019 until its merger with Newmont (TSX: NGT; NYSE: NEM). Before that, he was president and CEO of Hudbay Minerals (TSX: HBM; NYSE: HBM) (2010-2015) and vice president finance and chief financial officer at Agnico Eagle Mines (TSX: AEM; NYSE: AEM) (1998-2010). 

A Wallbridge Mining employee logs core samples at the company’s Fenelon gold project. Credit: Wallbridge Mining.