Drilling operations at SolGold’s Cascabel Project in Ecuador. Source: SolGold Plc.
SolGold Plc [SOLG-TSX, LSE AIM] said Friday February 8 that it is disappointed by the Cornerstone Capital Resources Inc. [CGP-TSX, CTNXF-OTC, GWN-FSE, BSE] reaction to SolGold’s announced intention to bid for all the issued and outstanding shares of Cornerstone.
SolGold issued a press release On January 31, 2019, saying that if the offer succeeds, holders of Cornerstone who tender their shares to the bid will receive 0.55 of a SolGold share in exchange for every Cornerstone share tendered.
But Cornerstone quickly dismissed the proposal, saying that owners of 50% of the company’s outstanding shares will not support the terms of the proposed offer.
“Given that the Canadian takeover rules require the majority of outstanding shares (excluding shares held by SolGold) be tendered to the formal offer before any shares can be taken up, SolGold’s proposed offer, if formalized, is incapable of being completed,” Cornerstone said in a release.
“We respect the views of our shareholders and given the underwhelming proposal made by SolGold, we are not surprised in the least that it has been rejected so swiftly by a majority of shareholders even before a formal offer is made,” said Cornerstone President and CEO Brooke Macdonald.
On Friday, SolGold said it is surprised and disappointed that Cornerstone has been so quick to dismiss its proposal.
“The SolGold offer would represent a 20% premium over Cornerstone’s closing prior to SolGold’s statement, which SolGold believes is a compelling offer to Cornerstone shareholders and warrant holders and a premium that is in line with comparable recent transactions in the sector,” the company said.
SolGold is a copper-gold exploration and development company with assets in Ecuador, Solomon Islands and Australia.
It said a key advantage of any takeover of Cornerstone would be the consolidation of ownership in SolGold’s flagship asset, the Cascabel Project in Ecuador.
The Cascabel project is 100% owned by SolGold’s 85%-owned Ecuador subsidiary Exploraciones Novomining S.A. The remaining 15% is held by Cornerstone.
In its Friday press release, SolGold said it has noted the apparent lack of consideration given to its proposal. It said Cornerstone’s announcement on January 31, 2019 was lodged with the Toronto Stock Exchange at 9.52 a.m. Eastern Standard Time. That was less than three hours after SolGold announcement that it intended to launch the takeover offer.
“Was there time that early in the morning to actually make contact with shareholders representing more than 50% of those outstanding?” it said in a press release. “Did Cornerstone have time to hold a board meeting to consider the offer between the time board members woke up in the morning and the time the press release was issued,” SolGold added.
In its release, SolGold pointed to the positive market reaction to its proposal. Cornerstone shares jumped 14% or $0.04 to 33 cents on the day the proposal was announced. On Friday, the shares were trading at 32.5 cents, up 1.56% or $0.005.
SolGold went on to say it believes this reflects the fact the market understands the proposed offer would:
- Present all equity classes in Cornerstone with a significant premium equal to the highest price that Cornerstone has enjoyed in two years.
- Remove the financing risks to equity value imposed by the current structure of Cornerstone’s 15% interest in Cascabel.
- Enhance the value of a SolGold control premium for Cornerstone shareholders (which they currently do not enjoy.
- Provide impressive pan-Ecuadorian exploration value upside from the multi-target first mover copper gold project portfolio in SolGold’s four wholly-owned subsidiaries covering the entire length of the Andean copper bel;
- Probably see the bid succeed, in contract to the statements by the Cornerstone board in its release.
SolGold said it intends to proceed with its offer in accordance with the terms announced.