Amid the focus on the reverberations of Mark Bristow’s Barrick Gold move on Tom Palmer’s Newmont Mining, Australia’s first answer to this round of global gold sector consolidation is days away from reaching its climax.
Next Friday in Perth, Doray Minerals (ASX: DRM) shareholders will be asked to vote in favour of a share-swap takeover by Silver Lake Resources (ASX: SLR), structured as a scheme of arrangement.
The takeover will create a $600 million, ASX-listed mid-tier producer with pro-forma annual output of 240,000 ounces of gold and copper and a 4.6 million ounce resource, across the Deflector and Mt Monger mines in Western Australia, more than $110 million in cash and equivalents and the balance sheet to step up organic and inorganic growth plans.
Importantly, Doray shareholders will become part of the enlarged Silver Lake and exposed to the growth potential this merger of two companies should deliver.
As always with these takeovers-by-scheme, there is a degree of guess work and therefore nervousness ahead of the vote at 10am on Friday. Votes by proxy have to be received by 10am on Wednesday.
Watching closely will be the team at Gindalbie Metals (ASX: GBG), which on Monday announced a proposed demerger and distribution to shareholder of its highly prospective Coda Minerals copper-cobalt subsidiary alongside a recommended $39 million cash takeover of the post-Coda Gindalbie by Ansteel.
Schemes require the support of 75% of votes cast and 50% of shareholders who cast their votes, a structure designed to give equal protection to the large end of town and the mum and dad investor.
The rationale for the Doray-Silver Lake deal has been well argued and is well understood.
Scale and asset diversity are highly sought after by gold market investors chasing reliable cashflow, and the increased market capitalisation of the enlarged Silver Lake will provide the opportunity for a sharemarket rerating and the buy-in of index funds.
BDO, commissioned as independent expert by Doray, described the merger with Silver Lake as fair and reasonable and in the best interests of Doray shareholders.
The market reaction to this deal has been overwhelmingly positive and has coincided with a significant upward re-rating of most ASX-listed gold producers. The gold explorers will be hoping some of this market interest one day soon rubs off on them as well.
In Doray’s case, its shares have risen from 36¢ the day before the 14 November deal announcement to 48.5¢ last night. Silver Lake is up from 52¢ to 73¢ over the same time period.
Based on Silver Lake’s recommended takeover ratio of 0.6772 of its shares for every Doray unit, the target was valued at 49.4¢, a slight premium to Doray’s last trade. Expect canny market investors to continue to exploit the arbitrage opportunity ahead of Friday’s vote.
Perennial Value Management, the largest holder of Doray stock with 12.94%, this week stated its intent to vote in favour of the Silver Lake deal.
It was a significant endorsement by the respected fund manager and will add substantial positive momentum to the voting behaviour of Doray shareholders.
“It is pleasing to have received this commitment from Perennial, which represents a significant vote of confidence in the merits of the proposed merger for Doray shareholders,” Doray managing director Leigh Junk told his shareholders.
As with all schemes, a focus will be on the number of shareholders who actually vote. Voting participation at annual general meetings, for example, traditionally sits around 40% to 60% of all shareholders, not the only reason some companies wonder about the need to hold AGMs.
Voter turnout at takeovers-by-scheme is often higher but nonetheless needs to be managed – and encouraged – by the companies involved to ensure the outcome is a fair representation of all shareholders and not hijacked by vocal minorities.
In Doray’s case, about 5500 of its 5800 shareholders hold no more than 100,000 shares each.
In Gindalbie’s case and based on its annual report from October, about 11,000 of its 12,500 investors each held no more than 100,000 shares. Gindalbie has 1.5 billion shares on issue.
The number of Gindalbie shareholders is likely to have started consolidating, based on this week’s trading activity after the Coda demerger and Ansteel takeover proposals were announced.
Gindalbie’s share price jumped from 1.2¢ pre-announcement to as high as 2.8¢ and closed the week at 2.7¢ – Ansteel’s cash takeover is worth 2.6¢ per Gindalbie share. More than 40 million shares changed hands this week and there will be more trading in the weeks to come.
Gindalbie hopes to have its demerger and takeover scheme booklets with shareholders by early May