SolGold buys time as BHP pays up for secondbite
SolGold managing director Nicholas Mather pushed for a two-year freezeon BHP buying further shares in his copper explorer in a bid to ensure the$1.1 billion takeover target was not "vulnerable to opportunistic advances"from the multinational miner.The two-year freeze was a condition of a private placement agreement that will see BHP pay a30 per cent premium to market prices this week for an extra 5 per cent of SolGold, whosecopper and gold acreage in Ecuador has drawn the attention of the world's biggest miners.The £45 million ($82.9 million) transaction will be BHP's second raid on the SolGold registerin the space of six weeks, and will grow BHP's stake from 6 per cent to 11 per cent at a 120 percent premium to SolGold's closing share price on September 3.The repeat raids have seen SolGold's valuation soar beyond $1.1 billion, as investors speculatethat BHP is positioning for a bidding war against SolGold's largest shareholder NewcrestMining, which owns 14.5 per cent.Mr Mather said the two-year freeze on BHP could be relaxed in certain circumstances, but wasdesigned to allow the explorer to prove the true value of its Cascabel tenement in northernEcuador."We want to make sure we reveal Cascabel in allits glory first before we get jumped onopportunistically. They can always negotiatesomething with us and do it quicker but it needsto be negotiated," he said.by Peter KerRelated QuotesView full quoteASX Announcements10/17/2018 SolGold buys time as BHP pays up for second bite | copyright linkhttps://www.copyright link/business/mining/solgold-buys-time-as-bhp-takes-second-bite-20181016-h16ptl 2/3BHP has also agreed to support SolGold capital raisings and change of control transactions, solong as 60 per cent of SolGold shareholders are in favour."It means that they can't just use their position as a blocking stake," said Mr Mather.Newcrest is not bound by any share purchase freeze, but has also agreed to support change ofcontrol transactions if independently recommended.'Dangerously undervalued'SolGold has 12 drill rigs working at Cascabel currently, and Mr Mather said more drillingresults were expected to be published before Christmas.When asked if SolGold was doing private placements with any other shareholders, Mr Mathersaid "it is just [BHP] at the moment"."I imagine the premium [paid by BHP] is challenging for some people but in my view peopleneed to look at SolGold from a value point of view, not a price point of view. It is stilldangerously undervalued," he said.Newcrest and BHP first revealed their interest in SolGold in October 2016, but the exploreropted to accept Newcrest's offer of buying 10 per cent of its shares, partly because SolGoldmanagement believed Newcrest's experience in block caving made them the ideal partner forthe particular type of geology present in Ecuador.Many of the world's biggest miners have since flocked to Ecuador to explore for copper,including Chilean copper giant CODELCO and Fortescue Metals Group.The Australian Financial Review revealed in September that Gina Rinehart's flagship companyHancock Prospecting had secured enough acreage in Ecuador to have SolGold's Cascabeltenement surrounded on three sides, suggesting it could yet be a player in the battle forSolGold.Strengthening 'strategic position'BHP has stakes in copper mines in Chile and Peru, and the company's Minerals America bossDanny Malchuk said SolGold could help replenish its copper portfolio.
"Ecuador is a highly prospective region for the next generation of copper supply. Thisadditional investment in SolGold strengthens our strategic position in the Cascabel copperexploration project," he said in a statement.RBC analyst Paul Hissey said BHP had "clearly ramped-up its willingness to pursue thisproject" and had greater financial firepower than Newcrest."While we believe there is clearly a mismatch in the ability to pay up between BHP andNewcrest, we firmly believe Newcrest has some genuine technical skills, which don't appearobvious within the BHP portfolio," he said, in a reference to Newcrest's experience with blockcaving and panel caving at Cadia in New South Wales."The other concern for the market will likely be what the right price is for an emergingproject, which has not yet confirmed the full extent of the mineralisation."This remains a long-dated project, with drilling, evaluation and approvals likely to providebenefits to future generations of management at both BHP and Newcrest."Shares in little known ASX-listed company DGR Global, which owns 12 per cent of SolGold,soared by 16 per cent on the back of the news to 14.5¢.Newcrest shares closed 3.3 per cent higher at $20.55, while BHP shares closed 1.6 per centhigher at $33.90.
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