“Joining forces with Royal Gold will amplify the strengths of Sandstorm’s portfolio and unlock new opportunities for our shareholders,“ said Sandstorm CEO Nolan Watson.
Royal Gold Inc. RGLD-Q is bidding $5-billion for Vancouver-based Sandstorm Gold Ltd. SSL-T and Horizon Copper Corp. HCU-X in a pair of friendly takeovers meant to create one of North America’s largest gold royalty companies.
Early Monday, Denver-based Royal announced a US$3.5-billion, all-share bid for Sandstorm and a separate $196-million cash bid for Horizon. Sandstorm is the largest shareholder in Horizon, with a 34-per-cent stake.
Royal, Sandstorm and Horizon are royalty companies that provide upfront financing to miners in return for the right to a percentage of production from a mine, for the life of the project. The transactions, which Royal called Project Helix, give Royal significantly more geographic diversity and lessen the company’s reliance on any one gold mine.
Precious metal prices are currently soaring on geopolitical unrest with investors paying a premium to own the largest mining companies.
“This is a milestone transaction for Royal Gold – it will significantly increase the company’s scale, diversification and potential for organic, long-term growth,” said Royal Gold chief executive officer Bill Heissenbuttel in a press release. “We’re looking forward to building on our investments in the Canadian mining sector.”
Royal offered 0.0625 of its shares for each Sandstorm share, a 21-per-cent premium to the closing price on the New York Stock Exchange ahead of the July 4 weekend.
Royal also bid $2 a share in cash for Horizon Copper, an 85-per-cent premium to the company’s closing price last Friday on the TSX Venture Stock Exchange. In 2022, Sandstorm sold a number of royalty interests to Horizon and took shares in the company as part of the payment.
Royal has 171 royalties on gold, silver and copper mines and a US$11.6-billion market capitalization. The company’s largest stake is in the Mount Milligan mine in British Columbia, operated by Centerra Gold Inc., which accounts for roughly 25 per cent of Royal’s net asset value.
If the Sandstorm and Horizon takeovers are approved by shareholders and the Canadian government, Royal’s largest royalty will be worth just 13 per cent of the company’s net asset value. Royal said if the transactions go forward, it would increase gold equivalent ounce production – a measure that wraps in royalties on all metals – by 26 per cent.
Sandstorm has 230 royalty agreements, including rights to revenues from 40 operating mines. Its major assets include stakes in the Mara project in Argentina, which is being developed by Glencore plc; the Antamina copper mine in Chile, owned by BHP plc, Teck Resources Inc., Glencore and Mitsubishi Corp.; and Rio Tinto’s Oyu Tolgoi mine in Mongolia’s Gobi Desert.
“Joining forces with Royal Gold will amplify the strengths of Sandstorm’s portfolio and unlock new opportunities for our shareholders,“ said Sandstorm CEO Nolan Watson.
Royal will continue to be a gold-focused company after the takeovers, with 75 per cent of revenues coming from the precious metal. The company said 41 per cent of production will be at mines in the U.S. and Canada, “and the remainder from countries where mining is a welcome and well-established contributor to local economies.”
Royal and Sandstorm executives have held informal merger talks for several years, according to a company executive. The two companies, along with Horizon, started serious negotiations in February, at a Bank of Montreal mining conference in Florida. The Globe and Mail agreed not to name the executive because they were not authorized to speak publicly about the transaction.
Both takeovers require the approval of two-thirds of shareholders in the target companies. The boards of all three mining companies endorsed the transactions. If approved, the deals are expected to close by the fourth quarter of 2025.
The largest royalty companies are Vancouver-based Wheaton Precious Metals Corp., which has a $56-billion market capitalization, and Franco-Nevada Corp., which is headquartered in Toronto and has a $44-billion market capitalization. Historically, investors in gold, silver and royalty stocks and index funds have gravitated toward the largest players in the sector, with frequently traded shares.
As industry leaders, Wheaton and Franco-Nevada have market valuations significantly higher than Royal Gold’s on metrics such as their stock price compared to their net asset value, cash flow and earnings before interest, taxes depreciation and amortization (EBITDA), according to a recent report from RBC Capital Markets.
Over the past 18 months, mergers and acquisitions have reshaped the gold mining industry, while there were relatively few transaction in the royalty sector.
Royal’s financial advisers are Bank of Nova Scotia and Raymond James Ltd., while the firm hired McCarthy Tétrault LLP; Skadden, Arps, Slate, Meagher & Flom LLP; and Richards, Layton & Finger, P.A. as legal advisers.
BMO Capital Markets is Sandstorm’s financial adviser and Cassels Brock & Blackwell LLP and Crowell & Moring LLP are serving as legal advisers.
National Bank of Canada and CIBC World Markets Inc. are advising the special committee to the Sandstorm board, along with lawyers at Fasken Martineau DuMoulin LLP.
Horizon hired Fort Capital Partners and Cormark Securities Inc. as financial advisers and Gowlings WLG as legal adviser.