RECOMMENDED ALL-SHARE MERGER OF EQUALS
OF
ALTUS STRATEGIES PLC
AND
ELEMENTAL ROYALTIES CORP.

to be implemented by means of a scheme of arrangement
under Part 26 of the Companies Act 2006

 

The Board of Altus Strategies plc (“Altus” or the “Company”) notes the announcement issued by Elemental Royalties Corp. (“Elemental”) at 7 a.m. on 14 June 2022 regarding the recommended share-for-share offer for Altus by Elemental (the “Rule 2.7 announcement”).

 

 

 

RECOMMENDED ALL-SHARE MERGER OF EQUALS
OF
ALTUS STRATEGIES PLC
AND
ELEMENTAL ROYALTIES CORP.

to be implemented by means of a scheme of arrangement
under Part 26 of the Companies Act 2006

Summary

The boards of Elemental Royalties Corp. (ELE.V) (“Elemental”) and Altus Strategies plc (ALTS.V) (“Altus”) are pleased to announce they have reached agreement on the terms and conditions of a recommended share-for-share merger of equals of Elemental and Altus with the entire issued and to be issued share capital of Altus being acquired by Elemental (the “Merger”). It is intended that the Merger will be implemented by way of a court-sanctioned scheme of arrangement under Part 26 of the Companies Act 2006.

Under the terms of the Merger, each Altus Shareholder will be entitled to receive:

0.5940 New Elemental Shares for each Altus Share

This exchange ratio (the “Exchange Ratio”) has been agreed between the boards of Elemental and Altus taking into account the relative market capitalisations of both companies.

Upon completion of the Merger, Elemental Shareholders will own approximately 52.9 per cent. and Altus Shareholders will own approximately 47.1 per cent. of the total issued share capital of the New Elemental Altus Group (based on the undiluted issued share capital of Elemental and Altus on the Last Practicable Date).

The boards of Elemental and Altus believe that the Merger has compelling strategic logic and represents an attractive opportunity for both companies to create a global gold royalty company.

Background to and reasons for the Merger

Substantial benefits for all Altus and Elemental stakeholders as a result of the creation of the New Elemental Altus Group

The Elemental Directors and Altus Directors believe that the creation of the New Elemental Altus Group will deliver substantial benefits for all stakeholders of both Elemental and Altus, including:

• Increased scale and diversification: a combined portfolio of 69 assets across 13 jurisdictions, concentrated in tier-1 mining jurisdictions, of which 11 are in production, and primarily focused on gold;
• Transformed adjusted revenue profile: estimated combined adjusted 2022 revenue of the New Elemental Altus Group of US$19.6 million with significant near term growth potential from first expected revenue from Ming, Bonikro and Mercedes in 2022 estimated to lead to combined adjusted 2023 revenue of the New Elemental Altus Group of US$24.6 million, combined with opportunities to add further portfolio revenue and duration*;

* see “Non-IFRS financial measures – (i) Adjusted Revenue” below. The sources and bases for the calculation of the estimated combined New Elemental Altus Group adjusted revenue for FY 2022 and 2023 are set out in Appendix 2.

• Strengthened asset portfolio: centred around 3 cornerstone royalties, the majority of the New Elemental Altus Group’s NAV will be based on producing assets, providing investors with exposure to the top line revenue of underlying assets (without direct exposure to the operating costs / capex of those assets and associated inflationary risks) while keeping long dated optionality from existing development pipeline and organic royalty generation portfolio;
• Strong shareholder support: recognised strategic investors have supported the Merger, in La Mancha and Condire having provided shareholder irrevocable undertakings over 44.6 per cent. of Altus’s issued share capital; and South32 and La Mancha having entered into voting and support agreements in respect of 25.96 per cent. of Elemental’s issued share capital. Additionally, EuroPacific Asset Management and Adrian Day Asset Management have provided letters of intent to vote in favour of the Elemental Shareholder Resolution in respect of a further 10.42 per cent. of Elemental’s issued share capital;
• Enhanced capital markets profile: increased scale and liquidity for enhanced market relevance and financial flexibility and a lower cost of capital, with wider investor appeal, analyst coverage and M&A potential coming with a larger market capitalisation; providing the opportunity for a re-rating of the shares of the New Elemental Altus Group;
• Complementary management skills: an experienced management team with Elemental’s proven history of accretive royalty acquisitions being a natural fit to the disciplined royalty generation and royalty acquisition track record of Altus;
• Potential cost synergies: opportunity to deliver cost efficiency synergies at the corporate level through simplification of operations and listings; and
• Canadian tax election: the disposition of Altus Shares on the Merger by a Canadian resident holder will constitute a taxable disposition for purposes of the Income Tax Act (Canada) (the “Tax Act”) resulting in the realisation of any accrued gain that the holder may have in the Altus Shares. Elemental will permit an ‘eligible holder’ to partially or fully defer a gain that would otherwise be realised, if any, by making a joint election with Elemental pursuant to section 85 of the Tax Act (in accordance with all applicable rules). An ‘eligible holder’ refers to (i) a person who is resident in Canada and not exempt from tax under Part I of the Tax Act or (ii) a ‘Canadian partnership’ no member of which is exempt from tax under Part I of the Tax Act.

Fair value for both sets of shareholders

The Exchange Ratio has been agreed between the boards of Elemental and Altus taking into account the relative market capitalisations of both companies and offers fair value for both sets of shareholders consistent with valuations expected in an all-share merger of equals.

Key Highlights of the Merger

Upon completion of the Merger, it is intended that:

• An eight (8) member board will be constituted from a combination of existing directors from both Elemental and Altus (including four (4) Elemental representatives and four (4) Altus representatives);
• Steven Poulton, current CEO of Altus, will be appointed as Executive Chair and Frederick Bell, current CEO of Elemental, will be appointed as Chief Executive Officer;
• Martin Turenne, a current non-executive director of Elemental, will be appointed as Chair of the Audit Committee and Robert Milroy, a current non-executive director of Altus, will be appointed as Chair of the Compensation Committee;
• After the Merger, Elemental will continue to be listed on TSX-V and will be headquartered in Vancouver, Canada and have teams located in Canada, the United Kingdom and Australia; and
• Elemental’s name will be changed to Elemental Altus Royalties Corp. shortly after Completion.

Altus Recommendation and Irrevocable Undertakings

The Altus Directors, who have been so advised by UBS AG London Branch (“UBS”) as to the financial terms of the Merger, unanimously consider the terms of the Merger to be fair and reasonable. In providing its advice to the Altus Directors, UBS has taken into account the commercial assessments of the Altus Directors. UBS is providing independent financial advice to the Altus Directors for the purposes of Rule 3 of the Takeover Code.

Accordingly, the Altus Directors intend to recommend unanimously that (a) Scheme Shareholders vote in favour of the Scheme at the Altus Court Meeting; and (b) Altus Shareholders vote in favour of the Special Resolution to be proposed at the Altus General Meeting, as the Altus Directors who are interested in Altus Shares have irrevocably undertaken to do in respect of their own beneficial holdings (and those of their connected persons) in respect of which they control the voting rights amounting to 15,550,327 Altus Shares representing, in aggregate, approximately 13.25 per cent. of the ordinary share capital of Altus in issue on the Last Practicable Date.

In addition to the irrevocable undertakings from Altus Directors described above, Elemental has also received irrevocable undertakings to vote (or, where applicable, procure voting) in favour of the Scheme at the Altus Court Meeting and the Special Resolution to be proposed at the Altus General Meeting (or in the event that the Merger is implemented by an Offer, to accept or procure acceptance of such Offer) from:

• La Mancha Explorers; and
• Condire Resource Master Partnership, LP,

in respect of 41,158,454 and 11,170,102 Altus Shares, respectively, representing in aggregate approximately 44.6 per cent. of the existing issued ordinary share capital of Altus and 44.6 per cent. of the Scheme Shares being eligible to vote at the Altus Court Meeting, in each case, as at the Last Practicable Date.

Therefore, Elemental has received irrevocable undertakings in respect of, in aggregate, 67,878,883 Altus Shares, representing approximately 57.9 per cent. of the Altus Shares in issue on the Last Practicable Date.

Further details of the irrevocable undertakings are set out in paragraph 8 of this Announcement.

Elemental Recommendation, Voting and Support Agreements, Letters of Intent and Break Payment

The issuance of the New Elemental Shares pursuant to the Merger requires the Elemental Shareholder Resolution to be approved by a simple majority of the votes cast by Elemental Shareholders represented in person or by proxy at the Elemental Special Meeting.

The Elemental Directors, after an extensive review and thorough discussion of all facts and issues they considered relevant with respect to the Merger, unanimously determined that the issuance of the New Elemental Shares pursuant to the Merger is fair to the Elemental Shareholders, and authorised Elemental to enter into the Co-operation Agreement and recommend to Elemental Shareholders that they vote in favour of the Elemental Shareholder Resolution. In connection with making this determination, on 13 June 2022 the Elemental Directors received a fairness opinion from Canaccord Genuity Corp. to the effect that, as of such date, and subject to the analyses, factors, assumptions, qualifications and limitations set forth in such opinion, the Exchange Ratio is fair, from a financial point of view, to Elemental Shareholders. The full text of Canaccord Genuity Corp.’s fairness opinion will be included in the Elemental Information Circular.

The Elemental Directors who are interested in Elemental Shares and certain shareholders of Elemental have agreed to vote their own shareholdings in Elemental representing 11,207,575 Elemental Shares, being approximately 14.32 per cent. of the Elemental Shares in issue on the Last Practicable Date, in favour of the Elemental Shareholder Resolution.

In addition to the voting and support agreements with the Elemental Directors and certain employees of Elemental who are interested in Elemental Shares, Altus has also entered into voting and support agreements to vote in favour of the Elemental Shareholder Resolution at the Elemental Special Meeting with:

• La Mancha Investments; and
• South32,

in respect of 7,250,000 and 13,065,100 Elemental Shares, respectively, representing in aggregate approximately 25.96 per cent. of the Elemental Shares in issue on the Last Practicable Date in favour of the Elemental Shareholder Resolution.

EuroPacific Asset Management and Adrian Day Asset Management have also given non-binding letters of intent to vote (or, where applicable, procure voting) in favour of the Elemental Shareholder Resolution at the Elemental Special Meeting in respect of a further 6,296,529 and 1,861,700 Elemental Shares respectively, representing approximately 10.42 per cent. of the Elemental Shares in issue on the Last Practicable Date.

Therefore, Altus has received voting undertakings and letters of intent in respect of, in aggregate, 39,680,904 Elemental Shares, representing approximately 50.7 per cent. of the Elemental Shares in issue on the Last Practicable Date.

Further details of the voting and support agreements and letters of intent are set out in paragraph 8 of this Announcement.

Elemental has agreed to pay to Altus a break payment in the amount of US$2,000,000 in certain circumstances, as agreed in the Co-operation Agreement and described further in paragraph 9.3 of this Announcement.

General

Under the terms of the Merger, Elemental and Altus have agreed that if, on or after the date of this Announcement and before the Effective Date, any dividend and/or other distribution and/or other return of capital is declared, made or paid or becomes payable in respect of Altus Shares, Elemental reserves the right to reduce the consideration payable under the terms of the Merger by an amount up to the amount of such dividend and/or distribution and/or return of capital, in which case any reference in this Announcement to the consideration payable under the Merger will be deemed to be a reference to the consideration as so reduced. Any exercise by Elemental of its rights referred to in this paragraph shall be the subject of an announcement and, for the avoidance of doubt, shall not be regarded as constituting any revision or variation of the terms of the Merger. In such circumstances, Altus Shareholders would be entitled to retain any such dividend, distribution or other return of capital declared, made or paid or which becomes payable.

Under the Co-operation Agreement, Elemental has agreed that until the Effective Date, except (i) with Altus’s prior written consent (not to be unreasonably withheld, conditioned or delayed), (ii) as required by applicable law, or (iii) to the extent the relevant matter is expressly permitted by or in the Co-operation Agreement or this Announcement, Elemental shall not and shall procure that no member of the Elemental Group (provided the actions are not at the direction of Elemental) shall agree, resolve, commit or announce any agreement or intention to authorise, declare or pay any distribution or reduction or return of capital on or with respect to the Elemental Shares (whether in cash, assets, shares or other securities).

It is intended that the Merger will be implemented by way of a court-sanctioned scheme of arrangement under Part 26 of the Companies Act 2006 (although Elemental reserves the right to effect the Merger by way of an Offer, subject to the consent of the Panel and the terms of the Co-operation Agreement). Accordingly, the terms of the Merger will be put to Scheme Shareholders at the Altus Court Meeting. In order to become Effective, the Scheme must be approved at the Altus Court Meeting by a majority in number of Scheme Shareholders, present and voting to the extent permitted pursuant to the Takeover Code, applicable law or the Court whose sanction is required for the Scheme, whether in person or by proxy, representing 75 per cent. or more in value of the Scheme Shares held by those Scheme Shareholders. The Altus Shareholders will further be asked to vote in favour of the Special Resolution to be proposed at the Altus General Meeting (which is expected to take place immediately following the Altus Court Meeting) to authorise the Altus Directors to give effect to the Scheme and deal with certain ancillary matters, which requires the approval by Altus Shareholders representing at least 75 per cent. of the votes cast at the Altus General Meeting (either in person or by proxy). The Scheme is expected to become Effective in the third quarter of the calendar year 2022, subject to the satisfaction (or, if applicable) waiver of the Conditions and further terms set out in Appendix 1.

The Merger is conditional, amongst other things, on:

• the Scheme becoming unconditional and Effective including, without limitation, its approval by a majority in number of Scheme Shareholders present and voting (in person or by proxy) representing 75 per cent. or more in value of the Scheme Shares held by those Scheme Shareholders; and
• the requisite approval of the Elemental Shareholder Resolution by the Elemental Shareholders at the Elemental Special Meeting.

The Merger will be on the terms and subject to the Conditions set out in Appendix 1 and to be set out in the Scheme Document. It is expected that the Scheme Document, containing further information about the Merger and notices of the Altus Meetings, together with the associated forms of proxy, will be posted to Altus Shareholders within 28 days of this Announcement (or such later time as Altus, Elemental and the Panel agree). An expected timetable of key events relating to the Merger, including the dates of the Altus Meetings, will be provided in the Scheme Document.

It is expected that the Elemental Information Circular, containing further information about the Merger and notice of the Elemental Special Meeting, will be mailed to Elemental Shareholders at or around the same time as the Scheme Document. It is also expected that the Elemental Special Meeting will be held on the same day as the Altus Meetings.

Comments

Commenting on the Merger, Steven Poulton, Chief Executive of Altus, said:

“Combining Altus and Elemental will create a new, strong and dynamic income-generating champion in the mining royalty sector. The transaction will bring significant benefits to all current shareholders and establish a compelling investment proposition to potential new institutional and other investors. Our enlarged scale and combined revenues will not only enhance our access to further high-quality royalties, but will also potentially reduce our cost of capital going forward. Shareholders of the enlarged group will also benefit from its differentiated strategy of low-cost and potential high-return royalty generation. As we succeed, we look forward to targeting medium-term capital distributions, as well as participating in further accretive consolidation opportunities in the royalty sector.”

Commenting on the Merger, Frederick Bell, CEO and Director of Elemental, said:

“We are very pleased to announce a compelling merger with Altus Strategies that delivers materially increased revenue, scale and market relevance to both companies. The complementary nature of the portfolios and management teams alongside fast growing revenue from a portfolio of predominantly producing royalties will deliver significant benefits to shareholders. In addition, the combined company will have a low-cost royalty generation business arm to complement the continuing acquisition of producing royalties. We see continuing consolidation in the royalty space as an opportunity for the enlarged group. We expect to be able to demonstrate the benefits through this merger of equals with a lower cost of capital, greater diversification and growing liquidity for shareholders.”

This summary should be read in conjunction with, and is subject to, the following full Announcement and the Appendices. The Merger will be subject to the Conditions and other terms set out in Appendix 1 and to the full terms and conditions which will be set out in the Scheme Document. The sources and bases of calculation of certain information contained in this Announcement are set out in Appendix 2. Details of irrevocable undertakings, voting and support agreements and letters of intent received or entered into by Elemental and Altus are set out in Appendix 3. Certain terms used in this Announcement are defined in Appendix 4.

In the TV clip, CEO Steve Poulton provides an overview Altus and its unique strategy