CMM Valuation - Finance Approval vs Takeover offer, page-9

What Fitzy says, is what is going on - maybe. Eastern gold with CMM is like adding oil to water.


Capricorn Metals
The uptick in merger and acquisition activity in the ASX-listed space is not up there in terms of scale with Barrick’s $US6.5 billion nil-premium acquisition of African gold specialist Randgold, led by the highly-regarded Mark Bristow.
One way to read Barrick’s move is that it is paying up for Bristow’s management expertise and not Randgold’s fleet of African gold mines where sovereign risk issues abound. It’s kind of an odd thing to do by the once-mighty Barrick.
While the ASX-listed action – Northern Star’s Pogo acquisition and three scrip bids for gold developers in the last month – lacks the same scale as the Barrick move, one of them is also looking a bit odd.
No prizes for guessing the odd looking one is the proposed scrip bid by Regis (RRL) for Pilbara gold developer Capricorn (CMM) at 11.4c a share – a 93% premium to the pre-bid price of 5.9c and Capricorn’s close of 8.5c yesterday.
It’s an odd one because while the proposed bid has received the unanimous support of the Capricorn board, the London private equity fund Hawke’s Point has said no thanks for its 18.9% interest.
Regis is meeting up with Hawke’s Point in an effort to break the impasse and has warned that unless it can secure its support by next Wednesday, it could walk away from what otherwise is an agreed takeover bid.
Why Regis nominated next Wednesday is anyone’s guess.
But it is probably worth noting that next Wednesday is also the latest date set by the voluntarily suspended Eastern Goldfields (EGS) to come back to the market with details of a planned $75m recapitalisation plan to get its Davyhurst gold operation in WA back into production.
Hawke’s Point is in the thick of things at Eastern as it kicked $17.5m in to the company at the start of the year and at last reports, was holding 12% of the stock. Could it be the private equity group would rather see Capricorn wrapped into a larger remake of Eastern?
Good luck if it does. Unlike Eastern, Capricorn is a neat and clean story about the $132m development of the 893,000oz (reserves) Karlawinda project in the Pilbara. Financing the development is where Regis comes in.
Left to its own devices, Capricorn was planning a 60:40 debt and equity financing mix. Despite the attractive economics (100,000oz annually over an initial mine life of 8.5 years at an AISC of $A1,038 an oz), the funding was a big ask.
It was why Capricorn was trading at 5.9c ahead of the Regis bid. Canaccord’s assessment was that while the Regis proposal (which might not see the light of day) was below its valuation, it was fair because of the 93% premium and the funding requirement to get Karlawinda into production being twice Capricorn’s market cap.
“Further, Capricorn shareholders maintain exposure to the Karlawinda asset via a Regis shareholding, which in our view offers a best-in-class development and mining team when it comes to profitably operating lower grade, bulk tonnage orebodies,’’ Canaccord said.
It maintained a spec buy recommendation with a target price 17c a share. That would lend support to the simple view that maybe Hawke’s Point simply sees the Regis proposal as low-ball and it wants to see an increase before handing over its stake. We will know soon enough.