AFR - Investors dig around Gold Road, De Grey merger

Morning all.
Apologies if this has already been discussed - couldn't see anything in the two current threads. "Merger of equals" can take a run and hike! Discl: I hold both DEG and GOR.


Investors hungry for more listed gold M&A have started to think about how Gold Road Resources could parlay its De Grey Mining pre-bid stake into a fully formed bid. De Grey Mining’s Hemi site in Pilbara.

Gold Road has kept shtum about its intentions since racing to the 19.99 per cent mark last month, but investors know that listed companies don’t usually go shopping for rivals’ stock unless they have M&A on mind.

Consensus among fund managers is Gold Road should show up with a scrip-only bid, and keep its precious cash for exploration spending.

Of course a scrip play would need the stars to align and has its challenges for both sides, especially with the target De Grey’s $1.4 billion market capitalisation trading larger than its suitor’s ($1.3 billion).

As it stands, the size difference means Gold Road would have to convince its shareholders that De Grey’s assets are worth more than its own. On the other hand, De Grey is likely to think its reserve is juicier (even though Gold Road is producing) and reject any push for a merger of equals - gold sector’s favourite deal structure.

While the boards and their bankers can bicker on structures, fund managers see merit in a deal. In their eyes, De Grey has a solid reserve, but is staring at a hefty $985 million capital expenditure bill which it may struggle to foot on its own.

Gold Road moved to the 19.99 per cent mark mid-August, about three weeks before De Grey published pre-feasibility study results. If that timing is anything to go by, and Gold Road’s keen to lob a bid, investors reckon it should land before the definitive feasibility study and the final investment decision due in mid-2023.

If Gold Road puts De Grey Mining into play, fund managers are tipping for North American gold big-wigs Barrick Gold and Newmont Corporation to at least take a look. They reckon Gold Road has the early advantage via its pre-bid stake, but it may not be able to keep up with the big global players if they turn up with cash.

Gold Road would also be thinking about whether it wants to tie in an equity raising with a bid. Investors seem split on whether the suitor should stock up for exploration spending, or hold the cash call while it ran a pre-feasibility study of its own and fended off other potential suitors.

It doesn’t take much to get M&A-starved listed gold investors dreaming about bid premiums. But on Monday evening, there were throwbacks to ASX-listed African gold play Cardinal Resources.

At Cardinal, London-based Nordgold built a 19.99 per cent stake and lobbed a 45.8¢ a share offer for the company. About nine months and many, many offers later, it finally sold to rival bidder Shandong Gold for the $1.05 a share.

Both sides’ advisers would be reading up on the Cardinal battle compulsively - Gold Road so it doesn’t pay too much and De Grey for pointers on how to squeeze out value for investors.

Gold Road Resources was advised by Corrs Chambers Westgarth, while Credit Suisse arranged its pre-bid trade. De Grey had traditionally used Azure Capital for advice.