Kinbauri share-price up 50% on rejection of Orvana offer

Vancouver – It appears as if a battle for Kinbauri’s Gold‘s (KNB-V, KINBF-O) primary asset, a 100% stake in the El Valle and Carles gold project in Spain, is brewing as gold-miner Orvana Minerals (ORV-T) has entered what appears to be a low-ball takeover bid for all of Kinbauri’s outstanding shares.

In response to the Orvana offer a Kinbauri independent committee convened by the board of directors quickly rejected Orvana’s bid. But it appears as if Orvana is not yet giving up in its pursuit.

Earlier in April, after considering several potential suitors and sources of funding to help advance El Valle and Carles towards production in 2011, Kinbauri announced that Glen Eagle Resources (GER-V) had agreed to buy a 45% stake in its Spanish assets for $32 million.

Those funds would go some distance in funding the El Valle and Carles mine as oulined in a scoping study by Kinbauri. In it Kinbauri proposed a mine with capital costs of €90 million that would produce about 100,000 oz. gold and 10 million lbs. copper per year over a nine and a half year mine-life.

To fund the acquisition Glen Eagle, though a small junior with relatively little cash on hand, said that a consortium of European banks would make a $32 million credit facility available to it and partner Paradise Peak Holdings by June 12.

But one of Kinbauri’s earlier suitors won’t be shaken-off so easily and has resorted to an interesting tactic: Offering less for a bigger stake.

In an all cash offer valuing Kinbauri at $29.2 million, Orvana, operator of the Don Mario gold mine in eastern Bolivia, announced May 11 its intent to pay Kinbauri shareholders 55¢ for all of the company’s outstanding shares, a 39.2% premium over Kinbauri’s closing price on May 8.

The offer, of course, is contingent on Kinbauri nixing the Glen Eagle agreement.

Call it a bit of spring fever, but love is definitely not in the air.

Kinbauri president and CEO Vern Rampton describes Orvana’s hostile takeover bid as “ridiculously low”.

“I got to be careful what I say here,” Rampton says. “I’m wondering what the real intent of their offer is right now and you can read into that what you want.”

“It’s just ridiculously low,” he says. “I’ve had people call me and say this is not a good commercial deal under any circumstances.”

But Orvana vice-president and chief financial officer Malcolm King defends Orvana’s bid. Noting the substantial premium Orvana offered he says the bid represents “fair value” for Kinbauri share-holders.

King notes that in addition to its bid, Orvana brings a cushion of cash, $96 million in cash and cash equivalents, and mine building expertise to the table.

“We’re able to fully fund the purchase price and the initial capital development required over the first couple of years to get the (El Valle and Carles) mine operating,” he says.

Still, however, Orvana’s $29.2 million for 100% of Kinbauri, appears out of sync with Glen Eagle’s $32 million for 45% of Kinbauri’s Spanish assets. So is this a signal that Orvana doubts the deal with Glen Eagle will go through or that it thinks Kinbauri shareholders would rather have cash in hand for shares than see partial funding of the El Valle and Carles project?

Although King declined to comment on how Orvana developed its bid in view of these points he notes that Orvana decided to advance its own, and more modest, offer as there was little information available about the details of the Glen Eagle acquisition.

“In effect, therefore, our offer was put out in the absence of complete knowledge of that (Glen Eagle deal),” King says.

Rampton, who acknowledges that there is some trepidation towards the Glen Eagle transaction given that it comes from a small junior, says that even if Glen Eagle failed to arrange the $32 million he would still scoff at Orvana’s bid.

“If Glen Eagle doesn’t go through, it’s still a ridiculous offer,” he says. “I mean they’re (Orvana) wasting their time if they think they’re gonna go to the shareholders or something. I’d say I’ve talked to at least thirty percent of our shareholders and they’re just aghast that anybody would even consider this as an offer.”

Yet despite his smarting words concerning Orvana’s valuation of Kinbauri, Rampton is still somewhat conciliatory, saying that he understands how investors and alternate suitors might wonder at Glen Eagle’s ability to come through.

“I don’t begrudge the market at all,” he says. “Because Glen Eagle’s offer is large money coming from a company evidently with a small market cap and if I was an outside investor I would be (thinking) the same thing.”

And though he adamantly dismisses the proffered 55¢ a share Rampton also notes three upsides to Orvana having made an offer, even if it is a low-ball one.

He says it puts the pressure on Glen Eagle to come through. Then he says another “thing about this deal is that Orvana will have everyone reading our press release whereas I don’t know if they were before. It (adds) a little bit more excitement.”

Finally, and as a consequence of that excitement, Rampton points to the offer’s effect on Kinbauri’s share price: On the news Kinbauri’s share price jumped 52% or 20.5¢ to close at 60¢.

But despite being spurned in its first advance, rejection does not appear to signal the end of Orvana’s courtship for Kinbauri.

“Our interest has not dissolved at all,” King says.

He says Orvana is looking closely at Kinbauri’s rejection, and though “we’re not going to knee-jerk with a press release at 3:35 this afternoon” he says Orvana will answer with a “very careful response to the points they raise in their press release.”

He expects issue of a press release early May 12.