Randgold Resources (GOLD-Q , RRS-L) has caused some commotion by topping Red Back Mining’s (RBI-T, RBIFF-O) June 1st bid for Moto Goldmines (MGL-T, MTOGF-O), kicking off a potential bidding war.
Randgold’s $546-million offer for Moto outdoes Red Back’s $513-million all-share offer by including a heavy cash component.
Moto shareholders would have the option to receive $5 (US$4.47) in cash per share for some or all of their shares, to a maximum amount of US$244 million, subject to proration. Otherwise, shareholders will receive 0.07061 of a Randgold share for each Moto share.
The cash comes from Anglo-Gold Ashanti(AU-N, AGD-L), which in a separate agreement, agreed to fund the cash portion as partial payment for an indirect 50% interest in Moto’s eponymous gold project in the Democratic Republic of the Congo (DRC), should the Randgold deal go through.
The markets responded by boosting Moto shares by more than 9%, or 44¢, to $5.11 apiece on a trading volume of 2.5 million shares on the July 16 news. Red Back shares slid 4%, or 45¢, to $9.75 per share on 1.3 million shares traded.
Nedgroup Securities analyst Christian Siebert expects Red Back, which has first right of refusal, to make a counter-offer.
“I wouldn’t be surprised to see the bidding price move up,” Siebert said from his office in Johannesburg, South Africa.
During a conference call on July 17, Randgold CEO Mark Bristow said he’s hoping the Randgold- Anglo bid is high enough to put Moto out of reach for Red Back.
“We’ve spent an enormous amount of time to make sure this proposal is different and superior on all fronts,” Bristow said. “We haven’t tried to nickel and dime the game; we think we’ve got a full and fair proposal on the table.”
Despite that show of confidence, Bristow openly ducked a question about whether Anglo would up the cash portion if it proved necessary. Back in February, Bristow said he’d had talks with Moto about an all-share deal but nothing came of it.
At presstime, Moto had yet to decide whether the Randgold offer topped Red Back’s. The Red Back deal includes a $15-million break fee and a five-day period to match the higher bid.
Randgold has already gotten support from 36.1% of Moto shareholders. They have agreed to vote against the Red Back transaction if it’s not withdrawn. Moto’s largest shareholder with 14% of the company, Electrum Strategic Holdings, is one of the Randgold supporters. In late June, Electrum expressed its disapproval of the Red Back deal, calling it too low given the size of the project.
“We view the Randgold-Anglo- Gold combination to be a superior alternative to Red Back’s in terms of ensuring successful financing, development and operation of the Moto gold project,” Electrum CEO William Natbony said in a statement.
Siebert also says that Randgold’s offer is stronger. “It’s a premium and it’s got a cash sweetener in it,” Siebert says.
On the table is the Moto gold project. Moto has completed an “optimized” feasibility study looking at building an open-pit and underground mine that would produce 484,000 oz. gold per year over the first five years at an average cash cost of US$303 per oz. Reserves are estimated at 42.3 million tonnes grading 4 grams gold per tonne for 5.5 million oz. gold.
“It’s a world-class project and it’s certainly worth the money they are paying at the moment,” Siebert says.
Bristow says Randgold visited the project two and half years ago. The company’s offer is based largely on Moto’s public data and the proposal is not subject to any due diligence.
Siebert says Randgold is at an advantage because it can afford to bid as high as it likes. A bidding war could become an issue for Red Back.
“If Red Back has to dip into its cash chest to any large degree, they’ll have to come to the market or look to raise quite a bit of debt to fund it, whereas for Anglo and Randgold, the funding of the project is not an issue,” Siebert says.
But it won’t be difficult for Red Back to get access to good capital, Siebert says, because it’s a part of the Lundin Group of Companies. Chairman Lukas Lundin is familiar with the DRC; Lundin Mining (LUN-T, LMC-N) has a 25% interest in the Tenke Fungurume copper-cobalt mine, which was brought into production this year by majority owner Freeport-Mc-MoRan Copper & Gold (FCX-N). However, Siebert says the prospect of too much dilution could make buying Moto less and less attractive for Red Back.
Another consideration for Moto shareholders will be whether they want to own shares of Randgold or Red Back. Siebert says Randgold is a bigger name but Red Back is more of a value play.
“Opinion will be mixed over which stock they’d rather own but I think on the numbers, Randgold’s offer is definitely better,” he says.
Randgold and AngloGold each have a 40% share in the Morila gold mine in Mali, which has produced more than 5 million oz. gold since production started in the fall of 2000. However, in April, the open pit was closed and the company began a transition to processing stockpiled ore until the mill closes in 2013.
Also in Mali is Randgold’s Loulo gold mine, which produced 258,000 oz. gold in 2008. The company aims to ramp up to 400,000 oz. per year by 2011, when the underground mine will be fully operational.
The company has other exploration projects in both East and West Africa, including the Massawa project in Senegal, which is at the prefeasibility stage.
Red Back’s key projects are the Tasiast gold project in Mauritania, and the Chirano project in Ghana. Tasiast is expected to produce 230,000 oz. gold in 2009 and Chirano, in the middle of an upgrade, produced 120,000 oz. gold in 2008.
this deal for moto has now gone through. buying 5.5 million oz gold for $100 per oz. AngloGoldAshanti are involved in funding some of the cash. so this is in addition to Baffin. Would be good to meet them at PDAC.
Hugh