Current Price: A$0.59
Offer Price: A$0.56 (potentially to be increased)
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.