Northern Miner Article The whole appears greater than the sum of its parts for Candente Copper (TSX:DNT) as it recently agreed to acquire Cobriza Metals (TSX-V:CZA) — a company it spun out in late 2011— to boost its cash position.
Nearly two years ago in a desire to focus largely on its advanced-stage Canariaco Norte copper-gold project in northern Peru, Candente spun out its early-stage base metal assets into Cobriza and gave it US$6 million to get rolling, while retaining a 13.5% interest in the new Peru-focused player.
Unfortunately since debuting on the Toronto Stock Exchange at 50¢ in October 2011, Cobriza shares have steadily declined, leading it to move its listing to the TSX Venture Exchange last November. Currently, Cobriza has been trading within a 52-week range of 5¢–18.5¢. Despite its depressed share price, the debt-free junior has roughly US$3 million in its treasury. With cash being hard to come by in this market, Candente must have thought about strengthening its balance sheet by combining with Cobriza, analysts suggest.
On July 16, Candente announced it would acquire all of Cobriza’s shares that it didn’t already own, by offering 0.5 of a Candente share for each Cobriza share. This translates to an offer price of 8.75¢ per share based on Candente’s July 12 close and represents a 59% premium to Cobriza’s closing price that day.
Candente expects to issue 12.2 million shares so it could obtain the remaining 86.5% of the junior. The all-share deal is valued at $2.5 million.
The boards of both companies have approved the transaction, with Cobriza’s management recommending its shareholders to vote in favour of the combination, anticipated to close this September, following shareholder and regulatory approvals. Once the deal wraps up, Candente will have about 134.3 million shares outstanding, representing a 9% stock dilution.
Christopher Chang, an analyst at Laurentian Bank Securities, comments “the transaction is prudent as the company is effectively raising a minimum of $3 million of cash at a premium to its current share price by issuing 12.2 million shares (approximately 25¢ per share) while receiving Cobriza’s exploration properties at no additional cost.”
Cobriza has six primary copper assets, but has concentrated its efforts on three of those projects: Arikepay, Miraflores and Don Gregorio. So far, it has only drilled Arikepay, located in southern Peru’s Arequipa department, while carrying out preliminary fieldwork, mapping and rock sampling at Miraflores and Don Gregorio, both in northern Peru.
Cobriza’s president Michael Thicke says advancing these properties “will be a priority for the combined company.” Shareholders would also be able to take part in Candente’s Canariaco development project and two nearby exploration copper projects Canariaco Sur and Quebrada Verde, he adds.
Raymond James’ analyst Adam Low says he forecasts that the merged firms will have nearly US$7 million in cash, assuming Cobriza provides US$3 million. He notes this should improve Candente’s ability to continue its sustainable development efforts in the communities surrounding Canariaco Norte.
In May, Candente said given the poor economic conditions it was reining in costs at its flagship asset and as a result suspended drilling activities, however, noted it would carry on with its environmental and social impact studies and sustainable development programs at Canariaco.
In a July 16 presentation, Candente says it should receive an environmental assessment impact in early 2014. A feasibility study is underway at Canariaco Norte.
Cobriza gained 18.2% on the transaction news to close yesterday at 6.5¢, while Candente fell 6% to 15.5¢.
THE IMPORTANT THING TO NOTE IS CHRISTOPHER CHANGS COMMENTS. Cobriza minority shareholders get the priveledge of effectively paying 25 cents a share for DNT shares and get Nothing for their other assets. FAIR DEAL??? Wake up people, Management has formed a LOCK -UP GROUP to screw us. I will supply an email address where no voting shareholders can reach out and organize a successful no vote. It can be done and the result could be a fair offer! STAY TUNED!!