VANCOUVER – Five months after first bidding for Chaparral Gold (TSX: CHL), Waterton Global Resource Management has increased its offer for the Nevada gold explorer.
Waterton is now offering 55¢ for each CHL share, a 5¢ increase over its earlier bid, valuing the company at $64.7 million. The suitor has also extended the offer until the end of July. According to Waterton, shareholders representing 27% of Chaparral’s outstanding count say they will tender to the revised offer. That marks a significant change: as of mid-June, only 0.6% of Chaparral’s shares had been tendered.
The revised bid marked the ninth time Waterton has extended its offer. In that time Chaparral has consistently urged shareholders to not tender, citing an inadequate premium, Chaparral’s cash position, and Waterton’s opportunistic timing when gold prices had fallen 29% in the previous year.
Chaparral management took almost a week to respond to the revised offer. When they did, their stance was unchanged. The board voted unanimously to reject the bid and recommends shareholders hold on to their shares.
“Waterton’s offer still fails to provide adequate value for Chaparral shares,” said Michael Smith, lead independent director.
The boosted bid came despite news that Chaparral might bear some responsibility for cleaning up an old smelter site in Nevada. The United States Environmental Protection Agency (EPA) determined that Metallic Ventures, a wholly-owned subsidiary of Chaparral, is the corporate successor to two companies that operates smelters near Eureka between 1870 and 1891.
In May Chaparral revealed that Metallic had met with the EPA. In the meeting Metallic disagreed that it is the successor and explained that any liability would be contained solely within Metallic, which has limited resources to pay.
Nevertheless, Metallic and the EPA agreed to “explore the possibility of a limited ability-to-pay settlement” and negotiations continue.
Waterton had argued the EPA issue — that is, the potential that Metallic, and therefore Chaparral, could get burdened with a costly liability — justified a lower premium for Chaparral.
Waterton first bid for Chaparral on Feb. 18, less than two months after the company debuted on the TSX. The company came out of a takeover when Hochschild Mining (LSE: HOC; US-OTC: HCHDF) acquired International Minerals in 2013. (Chaparral was spun out to hold International Minerals’ non-Peru assets.)
The initial bid valued Chaparral at $58.8 million and represented a 22.5% premium to the company’s volume-weighted average share price in the 20 previous trading days.
However, Chaparral had roughly $60 million in the bank, so the offer ascribed negative value to the company’s projects. The market, too, had been ignoring the projects: Chaparral’s pre-bid market capitalization was $51.2 million.
The projects are not insignificant. Gemfields is a development-ready gold project in Nevada where Chaparral plans to build an open pit, heap leach mine producing 76,000 oz gold annually. Permitting is almost complete and capital costs are pegged at $151 million.
Converse is also a Nevada gold play, a near-surface deposit that hosts measured and indicated resources totaling 6.1 million oz. gold and 38 million oz. silver. A preliminary economic assessment outlined an open pit, heap leach mine at Converse, but the project needs further drilling, engineering, and permitting.
Through the spring Chaparral traded at a notable premium to the offer price, but by mid-June CHL had settled to 50¢. News of the revised offer boosted the company’s share price to 56¢, where it has remained. Chaparral has 118 million shares outstanding.
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