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Altius and Callinan Combination to Create a Diversified Mining Royalty Company Leader

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Altius and Callinan Combination to Create a Diversified Mining Royalty Company Leader

 

 

 

 

 

Altius Minerals Corporation (TSX:ALS) and Callinan Royalties Corporation (TSX:CAA) today announce that they have entered into a definitive arrangement agreement whereby Altius will acquire all outstanding securities of Callinan pursuant to a plan of arrangement. This transaction results in the creation of a diversified mining royalty company leader.
 

Pursuant to the Arrangement, Altius will acquire each outstanding Callinan common share for 0.163 of an Altius common share and C$0.203 in cash, valuing each Callinan common share at C$2.27 based on Altius’ closing share price on the Toronto Stock Exchange as of March 4, 2015. This represents a 28% premium to Callinan’s closing price on March 4, 2015 and a 26% premium to the respective 20-day VWAPs of both Altius and Callinan for the period ending March 4, 2015. Upon completion of the Arrangement, Callinan will become a wholly-owned subsidiary of Altius and existing Altius shareholders and Callinan shareholders will own approximately 81% and 19%, respectively, of the outstanding Altius common shares. Callinan will be entitled nominate one member to the Altius board of directors upon closing of the Arrangement.
 

Creating the Leading Diversified Royalty Company
 

The rationale for this combination, supported by Callinan shareholders holding 28.38% of Callinan’s common shares is as follows:
 

Royalty revenue diversity and merit that is greater than either company individually

 

 
 
--  Production-based royalty revenue from 13 top-tier Canadian mines
    producing 9 commodities, namely thermal and metallurgical coal, potash,
    copper, zinc, nickel, gold, silver and cobalt. The royalty
    counterparties are all established producers or utility companies and
    include Vale, PotashCorp, Mosaic, Agrium, Teck, Westmoreland, Atco,
    Capital Power, TransAlta and Hudbay.
 

 

 

A simple transaction

 

 
 
--  No financing conditions, Altius shareholder meeting or other unusual
    approvals are required; this allows for a streamlined transaction.
 

 

 

Combination Rationale
 

“Callinan Management recently successfully converted the 777 mine net-profit interest royalty to a lower risk net-smelter return royalty, while enhancing the exploration upside of the Hudbay 777 mine by optioning key mineral lands to the operator. This achievement was a significant motivating factor for Altius in pursuing this business combination,” stated Brian Dalton, President and Chief Executive Officer of Altius. “A combined Altius and Callinan creates a leading diversified mineral royalty company, with a stronger consolidated balance sheet and shareholder base from which to further expand and diversify its royalty portfolio.”
 

Glenn Brown, President and CEO of Callinan, stated, “The Altius royalties on important mines in western Canada pay for over 30 years, and provide the longevity of income sought by Callinan. This transaction also allows Callinan shareholders to receive immediate cash of approximately $0.20 per share, the equivalent of ten quarters at the present dividend rate.”
 

The combined company is expected to provide Altius and Callinan shareholders with the following benefits:
 

Callinan Shareholders

 

 
 
--  Callinan shareholders (excluding Altius' ownership in Callinan) to own
    approximately 19% pro-forma of the new entity 
--  Upfront premium and cash component deliver an immediate cash reward and
    future upside 
--  Altius management has a long-term track record of creating shareholder
    value 
--  Enhanced asset and commodity diversification 
--  Extended royalty revenue life
 

 

 

Altius Shareholders

 

 
 
--  Altius shareholders receive significant copper and zinc exposure
    additions at a time when these metals show promising supply-demand
    fundamentals 
--  Consolidated cash and revenue greatly improves Altius' net debt and free
    cash flow position 
--  Strongly accretive to per-share free cash flow, EBITDA and royalty
    revenue
 

 

 

The resultant royalty asset portfolio, revenue scale and balance sheet enhancements create a much stronger platform from which to continue to build out a leading diversified royalty company. This occurs while the resource sector remains cyclically depressed, offering compelling future acquisition and consolidation opportunities.
 

Plan of Arrangement and Timeline
 

The proposed transaction will be completed pursuant to a court-approved plan of arrangement and will require approval by at least 66 2/3% of the votes cast by the shareholders of Callinan at a special meeting. The directors and senior officers of Callinan have entered into support agreements to vote their shares in favour of the transaction. Full details of the proposed transaction will be included in the management information circular to be mailed to the shareholders of Callinan as soon as practicable, to be followed by a special meeting of Callinan shareholders expected to be held in late April 2015.
 

In addition to the Callinan shareholder vote and B.C. court approvals, the proposed transaction will be subject to applicable regulatory and stock exchange approvals and the satisfaction of certain other customary conditions. The Arrangement Agreement includes customary provisions, including covenants by Callinan not to solicit other acquisition proposals, the right of Altius to match any superior proposal and a $5 million termination fee payable to Altius in certain circumstances.
 

In light of the pending transaction, Callinan’s Board will not declare and pay a dividend March 31, 2014, and the existing Callinan normal course issuer bid will not be active during the period of the pending circular and transaction.
 

The Boards of Directors of Altius and Callinan have each determined that the proposed transaction is in the best interest of their respective companies, and have unanimously approved the Arrangement Agreement. The Board of Directors of Callinan has determined that the proposed transaction is fair to its shareholders and will issue a formal recommendation that shareholders vote in favour of the proposed transaction. The Board of Directors of Callinan formed a Special Committee of independent directors to consider and evaluate the proposed transaction. Raymond James Ltd. has provided an opinion to the Special Committee of the Board of Directors of Callinan that the consideration to be received by Callinan shareholders in connection with the proposed transaction is fair, from a financial point of view, to Callinan shareholders. Stikeman Elliott LLP is acting as legal advisor to Altius. Callinan retained Raymond James Ltd. as its financial advisor and Blake, Cassels & Graydon LLP as its legal advisor.

Posted March 5, 2015

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