10:29:58 EDT Mon 23 May 2022
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Ely Gold Royalty Inc
Symbol ELY
Shares Issued 162,800,643
Close 2021-06-25 C$ 1.37
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Ely Gold assures holders of time to decide re merger

2021-06-25 07:43 ET - Shareholders Letter

Mr. Trey Wasser reports


Ely Gold Royalty Inc. shareholders:

On June 21, 2021, we announced the business combination of Ely Gold Royalty and Gold Royalty Corp. The transaction values Ely Gold at approximately $295-million and ranks as one of the most significant royalty mergers in recent years. This also represents an exciting chapter in the growth of Ely Gold. I would like to provide some background on the genesis of the deal as well as address some questions regarding the announcement.

First, Ely Gold shareholders do not need to do anything immediately regarding the transaction. You will have a few weeks to fully understand your options and decide on how you want your Ely Gold shares treated in the transaction. We will be posting more information on our website and we have established a hotline where you or your broker can call and ask questions by calling 1-833-261-9730.

The record date for voting at the Ely Gold shareholder meeting to consider the transaction is July 14, 2021. Holders of record on that date will have the right to vote their shares at the special general meeting scheduled for Aug. 17, 2021.

Ely Gold shareholders will have the choice to tender their shares for either all cash at $1.46 per share or all Gold Royalty stock at a ratio of 0.2450 per Ely Gold share. However, there is a maximum amount of cash that can be distributed and that is $84-million and there is a maximum amount of Gold Royalty shares that can be distributed and that is 41,455,194. The deadline for shareholders to make an election as between the Gold Royalty stock and the cash option is 4:30 p.m. on Aug. 12, 2021.

Ely Gold, in co-operation with Gold Royalty, is preparing a management information circular to be mailed to Ely Gold shareholders in mid-July, together with proxies/voting instruction forms to allow shareholders to vote on the transaction. To proceed, the transaction must receive a special majority of at least two-thirds of the votes cast at the Ely Gold shareholder meeting.

We cannot predict, at this time, what all shareholders will choose but, consider these ratios:

  • If between 16 and 28 per cent of shareholders choose the all-cash option, everyone will receive all cash and all stock as requested.
  • If less than 16 per cent of shareholders choose all cash, those that choose all cash will receive all cash. Those that choose all stock will receive mostly stock and an increasing amount of cash (as the percentage drops).
  • If greater than 28 per cent of shareholders choose all cash, those that choose all cash will receive less cash and an increasing amount of stock (as the percentage increases). Those that choose all stock will receive all stock (less the minimum 0.01 cent per share).
  • Also important is that at 16 per cent or less all cash, Gold Royalty will only be paying out $46.8-million in cash, leaving $37.2-million in the treasury.

Again, no action is needed at this time. The hotline is open now for questions and once you receive your documents with instructions we will be here to help. You will have ample time to make your election.

To track the implied current value of the all-stock option, multiply the price of Gold Royalty times 0.2450. This would equate to the price of Ely Gold on the OTCQX. Because Gold Royalty only trades in U.S. dollars, to compare the price of Ely you must multiply the price of Gold Royalty by 0.2450, and then by approximately 1.245 (the approximate current Canadian-U.S.-dollar exchange rate).

The transaction has been structured with the Gold Royalty stock/cash option to ensure that Gold Royalty, with its management and its New York Stock Exchange listing, will be considered as the surviving entity resulting from the business combination. At the transaction valuation, had Gold Royalty agreed to acquire Ely Gold in an all-stock transaction, Ely Gold shareholders would end up owning over 50 per cent of the combined entity.

I have always strived to be an accessible chief executive officer. My direct office line and e-mail address are on every press release, and I continue to speak with Ely Gold shareholders daily. We will continue to host regular town hall meetings to answer shareholders' questions during this process.

I want to make it clear that this transaction is not a takeover or a sellout. Jerry Baughman and I will both be joining the new Gold Royalty as consultants, and I will also join the board of directors. Mr. Baughman and I will continue to generate and purchase royalties for the Nevada portfolio through our Nevada connections. The key difference is that now we will have the capital to participate in larger deals that could be more accretive to shareholder value. In Nevada, it will be business as usual and the combined company will have two talented groups focused on royalty origination and acquisition.

This transaction was a joint effort of both companies, not an unsolicited takeover by Gold Royalty. In the past couple of years, we have seen the emergence of several new junior royalty companies and, as a consequence, the royalty business has gotten much more competitive. The prices being paid for royalties today exceed the value that the market currently places on Ely Gold's assets. Purchasing royalties at current prices has the effect of diluting the value of our current holdings, in most cases, for lower quality assets. Given these competitive market conditions, Ely Gold's board of directors elected to start a process to explore strategic alternatives in December, 2020. We engaged Laurentian Bank and ran a process to explore potential merger and acquisition alternatives. We looked at acquiring smaller companies and being acquired by larger ones. We signed several non-disclosure agreements and worked through various scenarios. After this process ran its course, we decided that Gold Royalty would be the best merger partner with which to create a combined entity with a growth profile that we believe will benefit all shareholders.

Gold Royalty was formed last year as a spinoff from Goldmining Inc. that owns the asset properties underlying the majority of Gold Royalty's interests. In March of this year, Gold Royalty completed a very successful initial public offering, which was so successful, that it had to increase the financing twice from $30-million to $90-million due to demand. The management team at Gold Royalty is very seasoned: CEO David Garofalo was the former CEO of Goldcorp and led the largest merger in gold mining history when Goldcorp was sold to Newmont. Ian Telfer started Wheaton Precious Metals when he was chairman of Goldcorp. He serves as chairman of the Gold Royalty advisory board. Top to bottom, this is a very capable, experienced and respected team in mining industry circles. While Gold Royalty's assets are longer term, relative to Ely Gold's, it is very well endowed with gold and copper resources. Its key assets are now being advanced and developed. Alastair Still, former vice-president of development at Newmont (also Goldcorp, Kinross, Placer Dome, Agnico Eagle), joined Goldmining as CEO in March, 2021. He has already updated two resource estimates since taking over and announced additional work. Mr. Still is also VP of technical services at Gold Royalty.

The hidden story with this transaction is the coming consolidation in the royalty space. There are too many junior royalty companies and not enough good royalty deals to go around. In addition, the majors are competing for smaller transactions due to reduced deal flow. Ely Gold has chosen to partner with a company that is complementary to us on every level to create a platform to compete in this coming consolidation.

For all of the reasons stated above, I respectfully ask for all shareholders to give this transaction their thoughtful consideration. In this regard, I urge you to review all of Ely Gold's public disclosures regarding the transaction, including the Ely Gold management information and the arrangement agreement. As they become available, Ely Gold's disclosures will be available under its issuer profile on SEDAR.

And please tune in Friday, June 25, at 11 a.m. EDT for our town hall meeting.


Trey Wasser, president and CEO

About Ely Gold Royalty Inc.

Ely Gold Royalty is a Nevada-focused gold royalty company. Its current portfolio includes royalties at Jerritt Canyon, Goldstrike and Marigold, three of Nevada's largest gold mines, as well as the Fenelon mine in Quebec, operated by Wallbridge Mining. The company continues to actively seek opportunities to purchase producing or near-term producing royalties. Ely Gold also generates development royalties through property sales on projects that are located at or near producing mines. Management believes that due to the company's ability to locate and purchase third party royalties, its strategy of organically creating royalties, and its gold focus, Ely Gold offers shareholders a favourable leverage to gold prices and low-cost access to long-term gold royalties in safe mining jurisdictions.

Qualified person

Stephen Kenwood, PGeo, is a director of the company and a qualified person as defined by National Instrument 43-101. Mr. Kenwood has reviewed and approved the technical information in this press release.

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