Slightly olb, but a good read. I think paragraph 4 sums the dispute up nicely.
March 22, 2011
GGG Moves On Auzex In An Attempt To Bring Ownership Of The Multi-Million Ounce Bullabulling Project Under One Roof By Alastair Ford
?I wouldn?t call it a hostile bid?, says Jeff Malaihollo, managing director of GGG Resources. ?I would call it unsolicited.? The distinction may be a fine one, given that Auzex Resources has categorically rejected GGG?s seven-for-five all-share offer as ?grossly inadequate?. Auzex's notice of rejection adds that the rationale for GGG?s bid is ?flawed?, and that should it succeed, it would expose development of the jointly-owned Bullabulling gold project to ?new operational risks?. Even so, Auzex, too prefers to refer to the bid as ?unsolicited? rather than hostile. In many takeover scenarios such semantic hair-splitting might be beside the point, but in the case of the battle for control of Bullabulling it has a certain relevance. Because neither side actually disputes the idea that ownership of Bullabulling should be consolidated inside one company.
In fact, both GGG and Auzex have always said it should be. The question, though, is which company should it go into? The issue had been successfully deferred as the partners worked together on the ground to prove up a resource at Bullabulling. After all, if drilling had come up with a negative result, everyone could have packed up and gone home and that would have been that. But it didn?t. In fact, drilling at Bullabulling, which is across from Focus Minerals in the Coolgardie district of Western Australia, delivered two million ounces of gold at a 0.7 gram cut off, and there may be more to come. Once that resource was booked and in the bag, the A$1.9 million that GGG originally paid Auzex for its 50 per cent interest in Bullabulling looked like a steal. Alright the company also put up A$600,000 to cover half the value of the Bullabulling environmental bond, but to buy into a two million ounce resource for just A$2.5 million rather puts the lie to Auzex?s claim that one reason why shareholders shouldn?t accept the bid is because GGG lacks experience. On the contrary, that deal makes GGG look very canny indeed, since Auzex now says the A$94.9 million price tag for the other half is too mean.
But can Brits go to Australia and mine gold? That question now lies at the heart of the battle over the future of Bullabulling. To put the argument in its simplest terms: the Auzex guys want to control and run development at Bullabulling from inside ASX-listed Auzex, while GGG think that Bullabulling would be better off inside a GGG that will soon also have an ASX listing. Auzex says its operational team is on hand and experienced, and that GGG would be running Bullabulling from London. But at that point Jeff Malaihollo cries foul. For one thing, he says, GGG is rapidly putting together a presence on the ground in Australia. And for another, lots of companies run projects in countries different from where they have their head office. Good examples that occur to Minesite include the myriad Aussie-based gold explorers and developers that have flooded into West Africa in recent years, or even that paragon of off-site, hands-off management, Aquarius Platinum, run with huge success from an office in Perth in a way that revolutionised platinum mining in South Africa?s Bushveld.
So much for that. The real question is not who wins the sideshow sniping, but which way the Auzex shareholders jump. In part it will depend on their view of Bullabulling itself. At GGG Jeff Malaihollo is all for cranking up the drill programme at Bullabulling and adding value as fast as possible. If the takeover of Auzex went through he?d try to get as many drill rigs on site as possible, as soon as possible. At the moment there are two, he says, but one is being diverted elsewhere. What he?d like ideally is to get six rigs on site. ?Now is the time to back aggressive exploration?, he says, with one eye on the US$1,400 gold price. ?The project is moving on, but not fast enough from our point of view.? His plan is to appoint a project manager, get a feasibility study going as quickly as possible, and really push hard towards a development decision. Auzex, he implies, is in less of a hurry, because it has other assets on the go, including in Queensland and New Zealand. Certainly the Auzex website isn?t overly rushed to promote the potential of Bullabulling: it talks of a 431,000 ounce resource, and an upgrade that it?s expecting to put out ?in August 2010?.
Things have clearly moved on since then. London broker Collins Stewart, no small fry in the resources sector, reckons that as a result of the upgrade that duly was reported in August of 2010, and in the light of subsequent confirmation from consultants at CSA, Bullabulling may hold the potential for between five and six million ounces. It?s no wonder that both parties are keen to hold their end up, although the difference of opinion has become a lot more pointed since GGG encountered difficulties getting listed on the ASX. The listing should now be completed within a month, says Jeff. He then mutters darkly that the roots of the hold-up lie in disagreements with Auzex over budgets. GGG?s listing, he says, would have been a lot simpler if it had been able to tell the ASX categorically what its plans for Bullabulling are, without having to get them signed off by a partner distracted by projects elsewhere.
Such issues may soon be a thing of the past, though. ?We?re hoping that the Auzex shareholders will come to us?, says Jeff, and it certainly is a reasonable aspiration, given the 39 per cent premium and the future split of the enlarged company, in which Auzex shareholders will control a 49.15 per cent stake. That, comments Collins Stewart, looks like a real merger of equals. Whether or not the price is right, though, remains to be seen.
