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David Garofalo and Gold Royalty followed through with a formal offer to Elemental Royalties, which it is taking directly to shareholders after being rebuffed by Elemental’s board.DARRYL DYCK/The Globe and Mail

Gold Royalty Corp. GROY-A is charging ahead on a $130-million takeover bid for Elemental Royalties Corp. ELE-X a few weeks after the small Canadian royalty firm said it didn’t want to be acquired by its bigger rival run by former Goldcorp Inc. boss David Garofalo.

Vancouver-based Gold Royalty said in December it was willing to pay 0.27 of its common stock for each Elemental share, a 37-per-cent premium to its market price that valued the firm at $1.78 a share. Elemental, which is also based in Vancouver, subsequently said it intended to reject the approach as opportunistic.

Gold Royalty on Tuesday followed through with a formal offer, which it is taking directly to shareholders after being rebuffed by Elemental’s board. Since shares in Gold Royalty have lost value since it announced its initial approach on Dec 20, the offer is worth less now. As of the close of trading on Tuesday, it was worth approximately $1.62 a share.

In a statement on Tuesday, Elemental reiterated its contention that the approach from Gold Royalty is opportunistic and added that it “substantially undervalues the company’s portfolio of revenue-generating royalties.”

Royalty and streaming companies provide financing to mostly gold and silver companies in exchange for either a percentage of revenue, or a share of the actual metal production. Unlike miners, royalty firms don’t bear the massive capital costs of building mines.

If consummated, the acquisition of Elemental will give Gold Royalty significantly more exposure to revenue-generating mines to offset its portfolio of mostly non-producing assets on development-stage projects. While Elemental is much smaller in market value, it books a lot more revenue than Gold Royalty.

Elemental recorded US$4.2-million in revenue for the first three quarters of 2021, versus only US$192,000 for Gold Royalty.

Gold Royalty’s chief executive officer is Mr. Garofalo, a Canadian mining veteran and the former head of Goldcorp, a onetime high flier in the Canadian gold sector that hit hard times under his leadership. Until recently, he was chair of gold and silver company Great Panther Mining Ltd. Mr. Garofalo stepped down last month on the same day it became public that the miner was being fined by Brazil for a cyanide leak at one of its operations there. The regulator said the toxic chemical poisoned local waterways and killed significant fish populations. At the time, the company said Mr. Garofalo’s departure was related to his other business commitments.

Mr. Garofalo did not respond to a request for comment.

Last month, one analyst pointed to Gold Royalty’s weak revenue profile, and Elemental’s future expected internal growth as a reason to be wary.

“Elemental has considerable revenue growth in the next year, and is a unique small-cap royalty player, as most of the assets in their portfolio are cash-generating, Kerry Smith, an analyst with Haywood Securities Inc., said in a note to clients. “Gold Royalty is the opposite.”

Mr. Smith, however, pointed to Gold Royalties’ superior trading liquidity as a positive. Unlike Elemental, which is closely held by several large shareholders, Gold Royalties has a much bigger public float, making it easier for shareholders to both buy and sell.

Jacques Wortman, analyst with Laurentian Bank Securities Inc., was more enthusiastic about the deal, calling the premium on the table “compelling.” He wrote in a note that higher bids for Elemental could also emerge from other Canadian industry players, such as Maverix Metals Inc. MMX-T, Nomad Royalty Co. Ltd. NSR-T, Metalla Royalty and Streaming Ltd. MTA-X, and EMX Royalty Corp. EMX-X

“The board will review alternative strategic options that might represent more compelling value to the company’s shareholders,” Elemental said in its Tuesday release.

Shares in Elemental closed at $1.67 a share on the TSX Venture Exchange, about 5 cents above the offer, suggesting investors believe a moderately higher competing bid may be coming.

Over the past decade, royalty companies have far outperformed traditional miners, and as a result have attracted a large following from investors. The success of royalty companies has also seen a rush of new entrants into a market that was once dominated by a handful of companies, including Franco Nevada Corp. and Wheaton Precious Metals Corp. Both Elemental and Gold Royalty came to market only in the past two years.

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