A dust-up: how a goldminer got into a fight, and lost, but walked away with $40m
Sydney Morning Herald
Friday February 26, 2010
Ramelius Resources this week walked away from the $100 million takeover battle for Dioro Exploration as the kind of "loser" everyone would like to be - with a fresh $40 million in its bank account.Its main problem now is to work out whether it can find a sensibly priced alternative acquisition or risk violating that old rule of thumb in junior companies: "never give the money back to shareholders".The Ramelius board shortlisted Dioro as a target a year ago when looking to add depth to its existing gold resources in Western Australia's eastern goldfields. It was a little slow off the mark. As the sharemarket turned last March, companies turned too, from victims to predators, looking to buy vulnerable assets cheaply.Avoca Resources pounced on Dioro in April, with an all-share affair which valued its target at less than $50 million. Dioro did not open its arms to Avoca and managed to get an extraordinary top-end valuation of $1.88 a share from a report by KPMG - compared with its share price of less than 40c before Avoca's offer and the share-swap bid being worth about 53c when the offer was unveiled.By July, Avoca had lifted the terms of its offer to a swap ratio equivalent to just under 75c for each Dioro share. Then, on July 29, Avoca's chief, Rohan Williams, changed the share-offer ratio from one Avoca for every 2.4 Dioro, to one for 2.3. It looked like a better deal but in reality, Avoca shares had fallen in value, so instead of a bid worth 74.8c, which Dioro's board rejected, there was a share-swap valued at 74.3c. Dioro recommended the revised Avoca bid to shareholders. Go figure.Within 24 hours Ramelius had lobbed its own share swap offer of 2-for-1, notionally worth $1 for each Dioro share. A haughty Avoca responded to Ramelius's bid by sending Dioro investors a letter saying that, on their behalf, it would "scrutinise ... Ramelius itself".When Avoca's offer finally closed in late August, it owned less than45 per cent of Dioro. Ramelius also received lukewarm acceptances. Then, at the start of October, Avoca revealed Dioro's banker, BNP, had shown the support a company expects from its banker and sold the 3 million options (another 1.75 per cent) it owned to Avoca.If Avoca hoped that would make Dioro holders shun Ramelius, the opposite happened. The trickle turned to a flood and suddenly Ramelius owned more than 20 per cent, enough voting power to cause Avoca difficulties. By mid-December Ramelius had 36 per cent. The Ramelius chairman, Bob Kennedy, and his team resolved on one tiny, extra push to test Avoca. They marginally raised their offer, from 2 to 2.1 shares for every Dioro, but they also nominated three "independent" directors to stand at Dioro's upcoming annual meeting.By that time Avoca had three Dioro board seats - one of them representing Avoca's largest shareholder, Russian billionaire Vladimir Iorich's Pala Investments - and probably the last thing it wanted was to share a boardroom with Ramelius. So between Christmas and New Year Avoca launched a new takeover offer, this time with a cash component: 65c and 0.325 Avoca shares for each Dioro, that valued Dioro at $1.25 a share.Dioro's board seemed to dither about the two offers and it was not until this month that shareholders were told to accept Avoca's bid. By that time Ramelius had withdrawn its board nominations and gone shopping for exploration leases in the US and NSW, so it closed its bid in the first week of February owning 37.5 per cent of Dioro.Kennedy and his team waited all of three days before tipping their shares into Avoca's offer, pocketing $22.3 million in cash and 11.2 million Avoca shares. This week, less than 24 hours after Avoca announced that given it now owned more than 90 per cent of Dioro, it could compulsorily buy out everyone else, Ramelius tossed its Avoca shares into the market at $1.80 each for another $20 million.So, for the price of increasing its shares on issue by 30 per cent, Ramelius cleared $40 million - less takeover and share sale costs. It now has $65 million in the bank, and its chief executive, Ian Gordon (who only took over last August), expects that to be close to $75 million by March as more cash flows in from its Wattle Dam mine.Ramelius's problem is it has been priced out of its preferred WA base, and Wattle Dam has an uncertain lifespan (even though Gordon is confident it can extend its resources). There's a view its shares are over-valued, which might be a good defence against a takeover but not a way of keeping shareholders happy in the medium-term while it hunts for exploration success - unless it distributes some of the bulging bank account to investors.Disclaimer: associates of the McIlwraith family hold Dioro shares
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