Metalla Royalty & Streaming Ltd. (MTA) Earnings Call Transcript & Summary

Welcome to the Metalla Royalty & Streaming and Nova Royalty Joint Conference Call. Listeners are reminded that certain matters discussed in today's conference call or answers that may be given could constitute forward-looking statements that are subject to risks and uncertainties relating to Metalla Royalty & Streaming and Nova Royalty's future financial or business performance. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are detailed in each company's annual information forms, Q2 2023 management's discussion and analysis and other periodic filings and registration statements. You can access these documents under each company's profile at SEDAR. I'd like to remind everyone that this conference call is being recorded today, September 8, 2023. On this call, management of Metalla and Nova will be quoting dollar figures. All figures are in U.S. dollars unless otherwise noted, except for per ounce and per share amounts. Participating on this call will be Brett Heath, President and CEO of Metalla and Hashim Ahmed, Interim CEO of Nova. At this time, I would like to introduce Mr. Brett Heath to provide an update on the transaction. Please go ahead, Mr. Heath.

Thank you, operator, and good morning, everyone. Thank you for joining us here today. With me on the call is Hashim Ahmed, Nova's Interim CEO, who will be discussing the benefits of the transaction for Nova shareholders. Now as you have seen this morning, we are extremely excited to announce a transformational transaction combining our 2 companies. We will get into the details shortly. But first, I wanted to walk you through some of the key highlights. First, the transaction combines Metalla and Nova's complementary portfolios, enhancing Metalla's scale and growth profile. With 105 royalties and streams on assets held by top-tier operators, the combined company will have upwards of 2 decades of sustainable growth. Additionally, nearly all assets are in Tier 1 mining jurisdictions in Latin America. This improved scale and quality supports Metalla strategic positioning as the leading emerging intermediate royalty company and is expected to enhance trading liquidity and attract greater support from institutional investors. In addition, the Metalla shareholders will benefit immediately from the increased cash flow from the operating Aranzazu royalty. Another highlight of this transaction is the exposure to 5 of the top 10 largest open pit copper projects in the Americas in the lowest quartile of the cost curve, all of which we would classify as cornerstone Tier 1 asset as they are advanced towards production. Copper is undeniably the most critical metal to the global economy for the 21st century. And when combined with gold and silver, they create the ideal blend of monetary, strategic and inflation resilient metals to preserve a purchasing power and grow value over the long run. This is consistent with the overall trend in the industry as we see other precious metal royalty companies and major precious metal mining -- miners steadily increased their exposure to copper in recent years. And of course, another compelling rationale is the tangible synergies. We expect annual cost savings of approximately $2.5 million per year, mostly from optimization and integration of G&A expenses. Finally, a key highlight of this transaction is our strategic partnership with Beedie Capital. Beedie has committed to an equity investment of CAD 15 million and to increase the existing convertible loan's facility to $50 million from $25 million, thereby strengthening Metalla's balance sheet and boosting the company's ability to pursue value-enhancing growth opportunities and royalty acquisitions. This is a tremendous validation of our combination with Nova. As disclosed in our press release, Metalla will acquire all of the issued and outstanding shares of Nova through plan of arrangement. I will go through the terms of this transaction shortly. But first, I'd like to turn the call over to Hashim.

Thank you, Brett, and hello, everyone. This is an exciting day for both Nova and Metalla. As Brett mentioned earlier, the case for a combined company is extremely compelling and gives both Nova and Metalla shareholders the opportunity to create and own a truly special high-quality, diversified royalty company. The pro forma company will be the leading emerging intermediate royalty company, and the combination with Metalla represents the best way for Nova shareholders to create significant long-term value. The transaction provides many benefits to Nova shareholders. Nova shareholders will receive an immediate premium of 25% based on spot and 32% based on the day before the process was announced on May 16 of this year. The combined company will benefit from increased near-term cash flow through Metalla's existing producing royalties. Nova shareholders will be able to participate in a larger cash flow generating portfolio with significant growth on the horizon as royalties on Tocantinzinho, Amalgamated Kirkland and Côté are expected to start production next year. The combined entity will have greater financial resources, flexibility and liquidity than Nova has presently. Metalla's listing on the NYSE American also provides an enhanced capital markets profile, significantly improving trading liquidity and broader access to capital. Most importantly, in addition to the benefits I just listed, Nova shareholders will have the meaningful ownership in the combined company owning 40%. This allows Nova shareholders to continue to participate in the growth and tremendous long-term upside of Nova's royalty assets for decades to come. Together, the company is bigger, stronger and better capitalized. The combination of Metalla and Nova better positions the company to further build and strengthen its portfolio of Tier 1 royalties and connect with a larger market in the U.S. Before I pass things back to Brett, I'd like to take some time to walk through the rationale and process behind the transaction. In May of this year, Nova announced that it had retained PI Financial to run a process intended to explore and review all the options available to Nova that would maximize value for our shareholders. The process was robust and competitive with multiple phases and significant interest. In total, 25 parties signed confidentiality agreements and Nova received 8 bids. Over the past few months, Nova management conducted various levels of due diligence on all the bids received. To ensure the process was free from any conflict of interest, Nova constituted a special committee of independent directors. The special committee had a mandate of evaluating all options during Nova's shareholder value maximization process. Overlapping directors, Brett Heath and E.B. Tucker were recused from all deliberations of the Nova Special Committee. The Nova Special Committee also engaged Blake, Cassels & Graydon, a separate legal counsel from Nova's’ corporate counsel and “Haywood Securities to ensure it received an independent second fairness opinion on the transaction. After reviewing all of the options available to the company, it was clear that Metalla's bid was the superior bid. The transaction was unanimously approved by the independent members of the Board of Directors of Nova and both fairness opinions from PI Financial and from “Haywood state that the consideration to be received by Nova shareholders under the transaction is fair from a financial point of view. Turning now to the mechanics of the deal. The transaction will require Nova shareholders' approval. We will be mailing out voting materials and the information circular. The shareholder vote and special -- special meeting will be held in November. Wrapping up, Nova's strategy in the past has been focused on creating an industry-leading royalty company built on long-lived, top-quality assets. Combining Nova and Metalla is the best opportunity for Nova and its shareholders to accelerate the strategy, and Nova Board and management advises all Nova shareholders to vote in favor of the transaction. That concludes my comments. I'd like to turn the call back to Brett Heath to run through the presentation.

Thank you, Hashim. Now turning to the presentation, which you can download on the webinar link. It's also available on our websites, Metalla and Nova. And before we dive in, Page 2 details the cautionary statements, particularly in relation to the forward-looking statements for both companies of public disclosure. So moving to Slide 3. Here, we outlined the key investment highlights of the pro forma company. From a royalty perspective, this transaction is transformational to Metalla's scale and growth potential with an expected annual revenue growth rate of 142% from 2023 to 2025 and total production anticipated to grow from 3,000 to over 30,000 Gold Equivalent Ounces annually by 2030. The combined company will boast a large portfolio of top-quality assets backed by top operators in the mining industry. The combination adds significant exposure to several world-class copper assets being advanced by majors giving Metalla peer leading cash flow growth that will extend for upwards of 2 decades in an average mine life of 20 years for our top 10 assets. From a capital markets perspective, the combined company will be strategically positioned as the leading emerging intermediate royalty company with enhanced liquidity, capital markets profile and potential inclusion into multiple clean metal ETFs and energy transition ETFs due to the addition of the high-quality copper royalties. From a financial perspective, the strength in balance sheet will better support further value-enhancing growth backed by a strategic partnership with Beedie, making the company a place for permanent capital with re-rate potential. Now moving to Slide 4 and diving into the terms of the transaction. As disclosed in our press release, Metalla will acquire all of the issued and outstanding shares of Nova via plan of arrangement. The Nova shareholders will receive 0.36 Metalla shares for each Nova share implying a total equity value for Nova of USD 139 million on a fully diluted basis. The voting and support agreements were executed by holders of about 17.5% of Nova shares, including all of the directors and officers of Nova as well as Beedie Capital. As Hashim noted earlier, the consideration represents an attractive premium and following the -- following the closing, Metalla shareholders will own 60% and Nova shareholders will own 40% of the combined company before accounting for Beedie's equity financing. The combined company will continue as Metalla Royalty & Streaming trading on the TSX Venture and the NYSE American under the [indiscernible] MTA. Existing Metalla directors will continue to serve as the directors. Following the completion of the transaction, I will continue to be President and CEO. The transaction is subject to customary deal protections, including a non-solicit right to match and break fee. No shareholder vote is required on the Metalla side. Moving to Slide 5 shows the combined company's capital markets profile. Several highlights on this page include a pro forma market capitalization of $361 million and available liquidity of $35 million, including cash and the increased convertible loan facility reflecting Beedie's increased financial commitment. On Slide 6, we have a snapshot of the portfolio of the combined company will look like. The combined company will be a well-diversified, high-quality portfolio. In terms of commodity mix, we're adding material exposure to copper with the addition of large Tier 1 assets. However, our near-term growth and cash flow over the next 5 years will be driven by precious metals while our street consensus NAV will be balanced in both precious and copper uniquely positioning the company to benefit from exposure to both metals. Geographically, we will have an industry-leading risk profile with nearly all assets located in the Americas and Australia. Moving to Slide 7. The combined portfolio has an Americas-focused distribution. The new company will have 6 producing assets, 3 in construction, 41 development assets with a number of projects in the near term and 55 exploration assets for a total of 105 royalties and streams. Now turning to Slide 8. We see this transaction as extremely compelling for both Metalla and Nova shareholders with several key benefits for both companies that Hashim and I have outlined throughout this call. On Slide 9, we can see the exciting long-term growth potential of the combined company, growing Gold Equivalent Ounces production from 3,000 to over 30,000 by the end of the decade. And what's worth highlighting here is the pure leading quality of the operators of these assets, underpinning the sustainable low-risk consistent growth over this next decade. And on Slide 10, we show the expected near-term growth relative to peers, clearly positioning Metalla as the peer-leading growth story. On Slide 11 shows the robust pipeline driving Metalla's growth, including 3 assets, Tocantinzinho, Amalgamated Kirkland and Côté, which are currently in preproduction construction, and many high-quality advanced stage development projects. In terms of the portfolio positioning on Slide 12, you'll see a snapshot of the combined company will look relative to peers in terms of commodity and jurisdictional mix. Like most peers, Metalla will remain focused on precious metals while maintaining a meaningful amount of exposure to copper. Geographically, the combined company also has a truly top-tier low-risk profile. Moving to Slide 13. We can clearly see a path to re-rating for pro forma Metalla. Strong trading liquidity, increased market capitalization, critical mass and exposure to new institutional investors and ETFs will drive valuation multiples for the pro forma company. Turning to Slide 14. Looking at the top 10 assets of the peer group on a NAV basis, the pro forma Metalla is expected to have one of the highest average mine life in one of the strongest portfolio of operators in the industry. 7 out of 10 of the top 10 assets are operated by companies over $1 billion in market capitalization, offering investors compelling exposure to a high-growth, high-quality, long-duration portfolio. These assets have a high degree of certainty and are being operated by some of the most experienced mining producers in the world. On Slide 15, we dive into more detail on some of the key assets of the combined company. Many of these assets are generational assets expected to become the next leg of growth in the mining industry. The majority of these assets are well progressed and expected to come online in the near or medium term. Moving ahead to Slide 16 and 17 discusses the merits of increasing our exposure to copper. First, large advanced copper assets in the Americas are extremely rare. And this is fueled transactions with high valuations in efforts to acquire those assets. We also anticipate a significant structural bull market for copper supported by a forecasted copper deficit as early as 2025 and lack of new significant discoveries. We recently have seen a significant increase in precious metal royalty and mining companies accelerating their exposure to copper. And in one transaction, Metalla will have exposure to a one-of-a-kind portfolio of generational copper royalties being developed by some of the largest globally integrated mining companies in the Americas that are concentrated in the lower end of the cost curve. Turning to Slide 18. The pro forma Metalla will be strategically positioned to capitalize on copper strengths in the long run. Having secured royalties on some of the most important copper projects in the Americas managed by the top-tier operators, including Hudbay, First Quantum, Lundin. And Slide 19 shows the pro forma Metalla's copper assets become even more compelling when you consider the potential for future expansions and mine life extensions. The average existing major copper mine has an average mine life of 74 years. Large copper mines dominate the global landscape and our portfolio of world-class deposits are set to fill the void as some of the largest copper mines in the world continue to see decline in production. So to conclude, Nova is a rare and special opportunity. We are excited for this opportunity to join forces and take the combined company to even greater heights. With this transaction leading to enhanced scale, diversification, growth potential led by a proven entrepreneurial management team, there is a compelling reason to expect the re-rate of the share price, which will benefit both Metalla and Nova shareholders. We look forward to updating the market on our progress and now I will open it up for your questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Adrian Day with Adrian Day Asset Management. One moment, please. Your first question comes from Kerry Smith with Haywood Securities.

Thanks, operator. Brett, for the pro forma assumption that you can get to 30,000 GEOs by 2030, would it be fair for me to assume that the assets that are currently not in production that you've included in that forward-looking statement would be the ones that you show on -- which slide is here -- Slide 15 where you show the [indiscernible] Taca Taca, Vizcachitas, Nuevaunion and Copper World, would those be the assets from the Nova side that are included in that forecast?

Yes. I would point you to Slide 9 that kind of shows a mix of the operators, for kind of the near-term production. Most of the production over the next 5-plus years is going to be driven by the existing Metalla portfolio, but the significant jump in the latter part of this decade kind of going into 2030 will be the production expected from Taca Taca and also Copper World.

Okay. So I'm just looking at Slide 9 now. So you're saying the companies listed in that box, those would be the assets that you have royalties on that you're expecting to come in. Okay. Got you. Congratulations.

[Operator Instructions] Your next question comes from Justin Stevens with PI Financial.

Brett, mostly sort of looking forward here, I think you may have mentioned it, but Metalla's focus in terms of new acquisitions, still going to be mostly on the precious metal side. Obviously, I think that more and more mines are probably going to be looking at a mix of base and precious in the longer term here. But where are your eyes going to be mostly focused?

Yes. Metalla is not moving away from precious metals, but rather, we're just adding exposure to copper and particularly focused on the quality assets. So the large long-life, high-quality copper projects in Americas -- in the Americas is what we're looking at. And what we've seen particularly over the last 18 months in the market was a significant change in investor sentiment and copper as a stand-alone base metal, we see has really moved away from the rest of the base metal sector and even the energy transition sector as being kind of the key critical metal for the 21st century. And we believe that's been driving the record M&A over the last 18 months with the big mining companies, including the precious metal companies. And in this 1 acquisition, Metalla is able to grab an incredible amount of exposure to extremely rare assets that ultimately are just not available anywhere else. So we feel that it's -- it was a great complementary add to the quality of the assets, very similar in nature to the operators, the sustainability, the long life of these assets. But continuing, obviously, focusing on the precious metals, but very happy to have the copper exposure as an additional metal in the portfolio.

So with -- obviously, this increased cash position, you'll have a bit more flexibility in terms of the acquisition side of things. Maybe give us a bit of background or some idea in terms of what the market is looking like right now in terms of the sort of the third-party market versus the potential origination market?

Yes. Well, the origination market has, I would say, a pretty significant reduction over the last few years, just given the balance sheets of most of the integrated and major precious metal miners. Metalla has benefited and Nova as well has also benefited by having this third-party market, but most importantly, being very focused on it. Because when you're focused on one thing and you're the best at it, you're the most effective of it. And so our pipeline -- our transaction pipeline on both Metalla and Nova remained strong. What's interesting is that this transaction puts -- we believe, puts Metalla in a very leveraged position within the ultimate sector within our peer group. It gets us to a place where we believe we'll have a very significant advantage to continue to execute our strategy and also from a capital perspective, being the largest kind of emerging intermediate. We believe on the basis of this portfolio, there's enough critical mass and growth assets to take us to be in an intermediate. And so we look to continue to grow our portfolio. Again, the focus will be on precious metals, and we're very happy on the copper.

Sounds good. And last one for me, just because I think that this is something that kind of gets missed here, but with the larger capital markets profile, enhance liquidity, if you do get some further index inclusion and the like. One of the things that's coming over with Nova is a number of ROFRs on some pretty chunky assets, Saddle North, Copper World, [indiscernible], there's possibilities to expand those royalties if the sellers are willing to part with the remaining shares. Do you see that potentially this growth in terms of the profile maybe loosening up some further chunks of those royalties in the future here, especially if the valuation starts to look more compelling from what the Metalla side can offer?

Yes. So obviously, I can't comment on specific transactions. But what I can say is that we, at Metalla and obviously at Nova as well, are very bullish on these assets. These are multi-cycle assets. They are the type of assets that you can lever and build incredible companies off of. And obviously, it's attractive to get more. I would say that obviously, given our history and relationships with the sellers of these assets and also some contractual rates that put Metalla in a very strong position to increase their exposure to these incredible assets and also having a much stronger balance sheet and access to capital also increases that ability to make those even bigger positions within the portfolio.

Next question comes from Adrian Day with Adrian Day Asset Management.

Following up a little bit on the last question, if I may. Just looking at it from maybe a slightly different angle. Obviously, in the near term, the predominance of the cash flow is from gold. But as you point out on that slide, you've got over 42%. Well, you've got over 40% of the NAV is copper. So 2 questions. If you saw good copper assets, are you going to pursue them? And is there a sort of a lot of companies -- a lot of the royalty and streaming companies have kind of soft limits on how high they want to go with non-precious metals. Do you have a -- is there a line in the sand where you wouldn't want to go over?