Current Price: A$0.59
Offer Price: A$0.56 (potentially to be increased)
Upside: TBD
Expiration: Q4 2021
A speculative idea on potential bidding war in the Australian gold mining sector.
On the 18th of October, junior gold miner Apollo Consolidated approved a takeover offer from Australian gold producer Ramelius Resources at A$0.56/share in cash and stock. The offer included a 90% acceptance condition and no other party acquiring more than 10% in the meantime. Management (owns 13.7%) supported the offer. A few days later, another peer Gold Road privately acquired a 20% stake in AOP and now intends to launch a competing unconditional offer at around the same price of A$0.56/share, just all in cash. The situation could potentially develop into a bidding war.
Apollo is due to make a response to Gold Roads offer. A large open market bid at A$0.56 is already there, so any shareholders willing to exit positions can do that now. Hard to see management rejecting Gold Road’s offer outright. At the same time, Ramelius would probably need to offer a significant premium to convince Gold Road to relinquish the 20% stake.
The downside from the current levels is around 5% – if Ramelius does not bid up, the company will likely be sold to Gold Road at C$0.56/share. However, if both of the offers break (unlikely given the open market bid), losses would be substantial – pre-announcement price stands at C$0.44/share.
Information on other major shareholders is limited.
Apollo’s flagship asset is the Lake Rebecca Gold project in West Australia. The project is still in a very early stage (early studies/drilling) albeit the current mineral resource estimate shows 29.1 million tonnes at 1.2g/t for 1.1 million ounces of gold, 74% of which is in an indicated category. Management is willing to sell the company to avoid further potential dilution, current labor/inflation risks, and other challenges of pushing the project into production.
Ramelius is a gold producer with several mines in West Australia. Gold Road’s only asset, 50% stake Gruyere Project, is also within a similar distance from Apollo’s project – so geographical rationale is there for both bidders. The buyers have a track record of quickly pushing projects into production. Financing is not an issue – both have sufficient cash on hand/credit facilities available. Gold Road also states that this acquisition fits with the strategic goal of developing the second mine project. It makes sense as its Gruyere project has the remaining estimated mine life of about 11 years and the company doesn’t have any other serious projects on hand yet.
I’m not competent enough to comment on Apollo’s valuation, especially given that its project is in a very early stage. However, the speed at which Gold Road blocked Ramelius’ takeover with its 20% stake and a superior offer as well as AOP shares trading at 5% above the offer price, suggest that there is a decent chance of further bidding on the company. Any insights’ on the likelihood/Apollo’s valuation from members would be appreciated.
The new and unconditional Offer is for $0.34 in cash plus 0.1778 Ramelius Shares, for each of Apollo Shares.
The implied value of the Offer is at $0.62 per Apollo Share.
Settlement of acceptances of the Revised Offer will be within 5 business days
AOP price rose to $0.64, and market seems to be expecting a superior counter-offer from Gold Road.
Any idea who this significant shareholder is? Gold Road has a 20% block, but this seller is not likely to be Gold Road.
“The Board understands that Ramelius has also entered into a pre-bid acceptance arrangement with another significant shareholder of Apollo such that Ramelius has now acquired a relevant interest of 19.99% in Apollo.”
“Apollo expects to dispatch its Target’s Statement in response to the Revised Offer from Ramelius by 10 November 2021 and its Target’s Statement in response to the Gold Road Offer by 19 November 2021.”
So Gold Road has until 19 November to respond with a higher offer?
The Ramelius 19.9% block was acquired from Directors (11.7%) and Capricorn Mining (8.2%).
On 17 October 2021, Ramelius entered into an agreement with various Apollo Directors (and associated parties) who held, in aggregate, 34,062,185, or 11.7% of Apollo Shares. This agreement was varied on 31 October 2021.
On 31 October 2021, Capricorn Mining (and associated entities) entered into an agreement with Ramelius to accept the Offer in respect of 23,959,286 Apollo Shares. This represents 8.2% of the Apollo Shares outstanding.
11.7% from Apollo Directors
8.2% from Capricorn Mining
19th Nov timeline is reasonable – if Gold counters, I think it comes sooner
The increased consideration was all in Ramelius shares – I was expecting more cash but increasing shares maintains Ramelius’ optionality. Both parties still have significant cash firepower. Both parties also own 20% of the company – structured with the sale of call options. Since this is a scarce asset that both parties want, the game theory suggests that the losing party should try and make the asset as expensive for the winner as they can.
The Gold Road 19.9% block is structured with the sale of call options (allowing the seller to benefit from future higher offer from Gold Road), but I haven’t found any information indicating that the Ramelius 19.9% block has a similar feature.
Borrow for Ramelius shares is not available at Interactive Brokers.
With an M&A boom in Aussie mining sector, we arb traders are desperately in need of a good synthetic hedge against broader sector risks. Any good suggestion?
Gold Road is still rejecting Ramelius’ improved bid and also doesn’t intend to increase their own A$0.56/share bid. From the way the press release is worded, it seems that Gold Road is simply pressing Ramelius for a higher price with their 20% blocking stake.
https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02448642-6A1061441?access_token=83ff96335c2d45a094df02a206a39ff4
On the other hand, Ramelius has already collected 62% voting power.
https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02453102-6A1063154?access_token=83ff96335c2d45a094df02a206a39ff4
Not clear which side is more likely to prevail. One of the scenarios is that Ramelius will refuse to increase the offer and will simply end up with a controlling stake.
AOP.AX shares already are trading at Ramelius offer and no possibility to hedge stock part consideration, we are removing this case from the active ideas with 12% profit in 3 weeks.