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Phattrader - do you see Newcrest being able to scoop up CGP without competition from other bidders (excluding SOLG)? Interestingly, SOLG is the only company that can bid for CGP without starting a bidding war...anyone else tries it and it sets the whole thing in motion - as has been said it also sets a base value for SOLG. SOLG can takeover CGP without ruffling too many feathers (majors-wise). Why? Because it delays having to set the proper valuation on Alpala and SOLG - if they take out CGP at a pro-rata Alpala valuation of 60p then they've just got 22% for that price but they're going to have to then pay a whole lot more for the remaining 63% ish.
Good morning Tiger, I do see, that what you say, could come about. As you say we agree on quite a lot. I think the timing is key. The only party that cannot bid for CGP at the moment is BHP. So if NCM want to bid, they do it now. My understanding is that if NCM bid for CGP, before the Solgold deadline is up, That BHP cannot enter the fray, as they are not released from their standstill agreement. ( someone please correct me if I am wrong ) I think the way this bid has been arranged, means that BHP cannot bid, unless all bids are turned down, and we go past 15th October 2020. If say Newcrest did obtain Cornerstone, I don't believe they would sell, as like all the other interested parties, they would be stake building, and thus may help with a defense strategy in order to stop an outright bid for Solgold, by a bigger predator. What would be interesting is if another company that does not have a stake in Solgold, were to bid for CGP. All the best.
Hi Quady!
I think we actually agree on quite a lot.
Cornerstone are a distressed company - their share price alone indicates as much. Although they own 15% of a very valuable asset (ENSA/Alpala), they have all kinds of obligations that they can't ever meet on their own. They must find a resolution to their problems, and soon, and the only practicable course of action is to find a buyer.
I'm sure that if no other buyer comes forward, the Solgold offer for Cornerstone (after some haggling and much cursing) will be accepted.
Where we differ is that I believe another buyer will come forward. IMO, that buyer will be a major which intends (in due course) to take full control of Alpala/Ensa. That major is in a position to offer a cash price that Solgold simply can't hope to match.
I lean towards thinking that that major will be Newcrest. But it's possible that Newcrest will sell their shares to Barrick, and Barrick will take over Cornerstone as well. Either way, a major will emerge with 15% of Alpala directly and about a 20% stake in the 85% that Solgold owns. That is a very powerful base from which to launch a full takeover offer for Solgold.
Remember that a major won't be put off by Cornerstone's existing debt and their obligation to part fund the Alpala mine build. They can easily borrow the money, and in return for that investment they get a share of Alpala's profits for half a century to come.
So we will have a corporate update tomorrow,
"Join SolGold's Chief Executive Officer Nick Mather on a webinar for a corporate update and live Q&A session with Red Cloud Securities next Wednesday 15(th) July. Nick will present a summary on the Cornerstone Capital Resources Inc. bid and current ongoing Company activities.
Good afternoon sjn1980, thank you for your comments. I have adjusted for the 7% that CGP own of Solgold. ( it's in the calculation ) The point is that the Cornerstone shares, would not be cancelled, but held in treasury. This would mean, we could raise further funds, when the share price is higher, without issuing any further shares. Also as they would be held by Solgold in Treasury, this is another barrier to takeover, and adds to our defense, as they would not be available, unless the BOD allowed it. I was not aware that we held 5% of CGP, so that was why I missed that. Many thanks.
Quady just a few comments on the workings but I would imagine the need to adjust for the 7% of the shares that Cornerstone own these would become Solgolds if the bid were to be accepted. I am assuming that these shares would be cancelled impacting the denominator of the total shares on issue. In addition Solgold already own 5% odd of Cornerstone so would not have to issue additional Solgold shares to acquire these. In any event these adjustments are not that significant in the grand scheme of things.
I think the bid will get rejected due to the very big egos at play and past history. You just have to look at Warren Irwins twitter feed (He obviously wants Mather gone and has no plans on selling to him) and the comments from Bob Sangha which makes at the present time this bid dead on arrival. They may however change their minds should the Solgold stock price rise due to corporate activity or due to exploration success in some of the 100% owned Solgold properties.
Good morning phattrader, as I said you may be right. We may get an indication tomorrow. All the best.
Not bidder offer, I meant bid offer.
You may be right phattrader, but the other bidder offer, would have to be above fair value, and assume all the debt, which must be paid after DFS. May I ask why do you think another bidder will bid, under these conditions. Not only do they pony up, money to DFS, but further liabilities for the development of Alpala.
Good morning all, I believe that the Solgold offer for Cornerstone will be accepted.
Here is my reasoning.
The offer buys 32.39 million cornerstone share at 11 Solgold shares per share. This equates to 356.29 million shares, so this is how much we issue.
So we now calculate, why this is attractive to Cornerstone, the answer is , that it is and is not attractive. Here is why.
We issue 356.29 million shares, this takes our total shares in issue from 2.072 billion to 2.43 billion roughly.
So to get the percentage holding after the new issue, the calculation is 0.356.29/2.43*100= 14.66%
So although Cornerstone give up 15% of Alpala they get back 14.66% of Alpala and all other concessions.
With the 7% of Solgold shares held by Cornerstone, they own currently 7% of all concessions and when you add the Alpala part to the percentage of shares, you get ( 0.85*7 ) + 15 = 20.95% of Alpala
So you give up 20.95% in total of Alpala for 14.66% of Alpala through ownership of Solgold shares.
But you gain on future concessions by giving up 7% of Solgolds total concessions, and getting 14.66% of the total of Solgold.
So we are left with two questions.
The first question: Is the reduction in Alpala, worth the more than doubling of their total ownership in Solgold. Some would say not, some would say maybe.
The second question: By accepting this offer, all Cornerstones liabilities are wiped out. Not going to put a figure on this, as we have all come up with different ways and amounts of calculating this, and since we all differ, I am not sure what calculation is correct. But hopefully one thing we can agree on, is it's significant.
In conclusion, I believe the offer will be accepted, because we are offering fair value for Cornerstones holding. As without the debt owed to Solgold calculated in, You could argue that the deal for Cornerstone share holders, was marginally not good, However, once the debt liability is erased, this is an excellent deal for Cornerstone shareholders, and gives more than full value. Hence I do not believe anyone else will bid for Cornerstone, as they would carry the debt Liability after DFS, So they would have to offer above full value, and Carry the debt. Hence why I believe Cornerstone shareholders, will accept the Solgold offer. All the best everyone.
Sort of, but it all gets complicated if the major is also planning to bid for Solgold, as Cornerstone's debt to Solgold would vanish if their bid was successful.
The way I look at it is IF a major bids for Cornerstone with 100% cash premium (i.e. if it offers £140m for the whole company), they would be "valuing" Solgold's share in Alpala (allowing nothing for exploration upside) at £496m, which is more or less Solgold's current mcap.
In short, Cornerstone is a distressed asset, due to the way they are currently boxed in. And a company like Newcrest could establish a really powerful pre-full bid position in Solgold and Alpala by buying Cornerstone now.
I still don't see how Solgold could practically hope to compete with such a cash offer for Cornerstone, even though they have a legal right to match it. The goal is wide open, it just needs somebody to take the opportunity.
Hi Phattrader!
I think you need to include Cornerstone's SOLG shares in your equation. Cornerstone represents 15% of Alpala directly and c. 7% of 85% indirectly (via the Solgold shares).
Roughly 22% of Alpala.
Cornerstone's market cap is currently 120m CAD = c. £70m. (This of course is suppressed as they are currently in a tight corner). I think it is feasible that a major will offer them a 100% premium (£140m) to ensure a quick deal.
Funding Alpala to production you mean ,possible lets see .
I'm thinking we should have two pieces of news tomorrow...
1) Cornerstone's official reply to Solgold's buyout offer. We should be able to judge from its tone whether a counter-bidder for Cornerstone (e.g. Newcrest, Barrick etc.) is likely to emerge in the coming weeks, and thus how likely a full bid for Solgold itself will be launched (by Cornerstone's buyer) before the BHP lock-in ends on October 15th.
2) Some kind of news from Solgold designed to bolster the share price and to provide Nick Mather with something to talk about in the evening. Probably exploration-related.
All in all a very positive last couple of days. Volume has markedly picked up. The large seller seems to have disappeared. Price has hit a little resistance at 23-24p, to be expected. We've got a whole swathe of positive catalysts to look forward to. This is only the beginning. It may or may not take a while to really pick up speed but at some point fairly soon we'll be getting comfortable in the 30s.