GLW - Living in Interesting Times Withdrawn takeover bid exposes junior valuation perversity
The recent bid by Gold Resources Corp for Benton Capital exposes the current craziness that abounds among mineral explorer valuations
HALIFAX, NS (MINEWEB) -
Gold Royalties Corp withdrew its opportunistic bid for Benton Capital on Wednesday.
Had the deal gone through, however, not only would it have paid a 100% premium to Benton’s share price on the day before last week’s offer - issuing Benton shareholders 0.133 a Gold Royalties share for each Benton share – it would have also got Benton's chief asset for a song.
The deal was worth about $7.7 million in Gold Royalties shares, or about double what Benton Capital’s marketcap was the day before Gold Royalties made the offer on March 21(about the same is true today at presstime, Wednesday mid-trading PM)
But it’s also true that the Gold Royalties shares it was offering Benton shareholders were worth less than Benton’s chief equity asset, a stake in another mineral explorer Coro Mining: C$8.7 million worth in shares on March 20.
No doubt this is one of the chief reasons Benton rejected the offer and called Gold Royalties’ bid “opportunistic”, urging its shareholders to stick with it and Coro Mining.
Benton has also noted Gold Royalties would get the roughly C$1.1 million in cash it holds.
In the press release announcing the withdrawal of the bid, Ryan Kalt, President and Chief Executive Officer of Gold Royalties explains, "Given a 100% premium to its then traded market value, Gold Royalties considers that the previously announced terms of its proposed offer represented a fully-valued offer for Benton Capital. Indeed, Gold Royalties believes that Benton Capital shareholders would have benefited from the offer, as Gold Royalties is a larger capitalized company with greater financial assets.”
While there is no way to know which argument is better, this much is certain: the situation exposes the perversity of mineral explorer valuations (that and the cheapest way to own Coro Mining without buying Coro Mining shares). That is, a company can offer a 100 percent premium to another company but in so doing also get about par value to its marketcap in a controlling equity stake of another separate company, which, by the way, it also says it intends to sell post-takeover.