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Nova To Be Acquired by Metalla at 25% Premium

Source: Adrian Day


September 14, 2023 ( Newswire) Global Analyst Adrian Day discusses the recent offer by Metalla Royalty for Nova Royalty Co.

Nova Royalty Corp. (NOVR:TSX.V) board has accepted an offer to be acquired by Metalla Royalty & Streaming Ltd. (MTA:TSX.V; MTA:NYSE American) following an M&A process sparked by the sudden departure of founding CEO Alex Tsukernik. Metalla is a related party being instrumental in founding Nova.

MTA's CEO Brett Heath is chairman of Nova, while there are significant joint shareholders. Under the terms of the offer, each Nova shareholder will receive 0.36 of a share of Metalla.

This represents a 25% premium on the day prior to the bid. As usual, however, the bidder's shares have fallen, with MTA down from CA$4.05 the day before the announcement (and from CA$4.37 at the end of the month), while Nova shares rose, so as of Friday's close, the bid is valued at CA$1.67. The transaction will be subject to a vote of Nova shareholders (66 2/3rds in favor).

The vote is expected in November, with closing by the end of the year.

Beedie Increases Line of Credit and Buys More Shares

At the same time, Beedie Capital will subscribe to an additional C$15 million in Metalla shares at a price of CA$5.29, a meaningful premium; following the transaction, Beedie will own 9.7% of the shares of the combined company (as well as a convertible loan that, if converted, would put then at 12.7%).

It is also increasing its loan facility from CA$25 million to CA$50 million, giving Metalla the firepower to pursue more transactions. During the process, run independently by PI brokerage firm, Heath and fellow joint director E. B. Tucker were excluded from any discussions on Metalla's bid. Although there was initially much interest from multiple companies in acquiring Nova, one must conclude that no bids were deemed acceptable.

Acquisition Solves Nova's Main Problem

Metalla holds gold and silver royalties, including six currently producing, with three more scheduled to start generating revenue next week. The combined company will provide more scale and a solid growth profile, with 105 royalties combined and revenue through till when Nova's far-dated and long-life royalties come into production in the next decade.

This gap was a major factor affecting Nova's stock and prompting the M&A process. There will be an estimated CA$2.5 million in cost savings. The combined company's NAV will be nearly 40% copper, with the rest mostly gold and silver. CEO Heath sees more opportunities now in gold, so the percentage of copper is likely to go down in coming years to perhaps 20-25%.

However, Nova shareholders will see cash flow for the next eight years or so until the major copper assets start, avoiding ongoing dilution to raise funds for G&A while retaining meaningful exposure to the copper assets. Had another company bought Nova, we would likely have lost that exposure, with Nova's assets being lost inside a large company.

Theoretically, one might have preferred Nova to remain independent. But the shortfall in revenues in coming years, until the major copper royalties come on stream, would require ongoing share issuance to cover costs, while large-scale copper royalties are becoming more difficult (and expensive) to acquire.

Nova built its world-class portfolio at the right time and could not be replicated now. I am sure that some shareholders would be hoping for a better price-the shares were CA$1.80 in July and even traded close to CA$6 in early 2021.

However, this transaction allows Nova shareholders to retain meaningful exposure. I am sure also that there will be some gold-focused Metalla shareholders who will not like the addition of copper, and this no doubt partly accounts for the stock price decline after the deal was announced. We would buy Nova here, given there remains a discount from the offer price, and anticipate holding our Metalla shares.

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