The National Investor (Chris Temple) on Core/Titan MergerThe National Investor March 26th Issue. CORE GOLD FOLLOW UP QUESTIONS...AND “THE REST OF THE STORY” Hey Chris! I see Keith (Piggott, the just-fired C.E.O. of Core Gold) responded today. Have you gotten any more clarity on Core Gold yet?
Chris—What I don’t understand is the share price weakness despite what I see as VERY clear
arbitrage opportunity. Why in your estimation is the share price just not reflecting anything good about the Titan tie-up with Core?
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I have long since lost track of the number of hours I have spent talking with everyone (many more than once, including Piggott himself) in and around the recent events with Core. Most important, a good friend in the Investor Relations business—one who actually first introduced me to Piggott, in fact—urged me to talk as well with Gregg Sedun, Core’s Lead Director. Among the many things he and I discussed was that Core should not let Piggott have the floor any longer unanswered.
Accordingly, Core Gold has over the last couple weeks become more proactive in telling its side of things. Speaking of the merits of the impending merger with Australia-based Titan Minerals, first announced on February 24, Sedun— see
https://tmxmatrix.com/company/CGLD/news -- did a great job of giving an overview. Now, on to a few more details; MY OWN take and conclusion on things.
Though there was initially no response from the company while Piggott had many believing (including me to a great extent) that there was something nefarious going on, Sedun came to realize that the reason why shareholders were rebelling is they had nothing else to go on. Following my initial lengthy discussion (primarily) with Sedun and others—the company, sans Piggott, began to counter (see
https://coregoldinc.com/news-releases/2019/core-gold-clarifies-the-circumstances-surrounding-thetermination-for-cause-of-its-former-ceo-keith-piggott/)
Even ahead of its above explanation of some specifics as to WHY the Board removed Piggott as C.E.O. (a detailed public explanation, frankly, which Piggott seemed to invite himself and which the company first resisted in giving) I expressed my view in my e-mail to you of March 13 why I felt that the story was not as I had been led to believe and, in turn, led you to believe. Yes, Keith himself answered Core on March 21;
https://tmxmatrix.com/company/CGLD/news. But as things appear to me now, his answer centered only on his claim that he had been fired after bringing a “superior”, non Titan offer to the board; one which was already of a mind to go with Titan or nothing, Piggott has suggested.
In the aftermath of my own digging, I would throw in with the Board’s NOT finding what Piggott presented a better offer, especially under the circumstances in which Core now finds itself. The short version of a VERY long story concerning Piggott’s stewardship of Core is this: he is an affable man, a “big picture” thinker and in no way can be considered one who is himself nefarious (Indeed, as the gent who initially introduced us quipped to me, Keith “is a great guy, but in the wrong place.”) But he does have a track record of burning through money and shares in a way that is more a “bootstrap” or fly-by-the-seat-of-your-pants one, rather than one with a sober, clearly thought out game plan.
Piggott’s management of the Dynasty Goldfields Project is the biggest example of how you can be excited and hopeful; but run a company into the ground if you don’t have a proper game plan and financial controls. As I recounted in great detail in December after returning from Ecuador, Dynasty is potentially a HUGE asset. Yet—while it was exciting as I was visiting with one of the company’s geologists, Fernando Ramos, to contemplate what might be—the increasingly money-losing project of simply cutting good-looking visible veins and hauling ore with a convoy of trucks all the way south to a plant and keeping your fingers crossed that grades were good enough was NOT a sound business plan.
In short, Core Gold had of late--and contrary to the claims being made in many ways by Piggott been slipping right back into an existential crisis financially as a company. And while some had been patient due to Piggott seeming to be a good ambassador to both the locals and the national government, patience and money had run out. Piggott does get some praise—even from Core’s board to some extent—for a lot of what he has accomplished. But a change was needed; indeed, as things have been revealed, a change was overdue.
It’s fortunate that the company’s board, led by Sedun, has the bona fides to go out and get the major capital injection needed not only to shore things up anew, but to have the money to do some major “justice” when it comes to exploration. Among other of his considerable accomplishments, Sedun who has in the past served as counsel for the Lundin consortium—was a founding Director and shareholder of Diamond Fields, which he turned into a multi-billion dollar operation at Voisey’s Bay and sold to Inco, Ltd. Now-interim Core C.E.O. Mark Bailey
https://coregoldinc.com/corporate/management/ is best remembered for—as President and C.E.O. of Minefinders Corp.—building the Dolores Mine in Mexico and later selling it for $1.5 billion to Pan American Silver.
In
looking to Australia generally for the kind of money needed to not only shore up the company but also fund some meaningful exploration on Core’s world class property portfolio in the Dynasty Copper-Gold belt, there were a few considerations:
- Canadian markets have stayed fairly dry generally for resource companies, given the greater desire to fund cannabis. That situation does not exist in Australia.
- Gold remains near an all-time high in Australian dollars. Without major competition from other industries, that has kept the appetite to fund exploration deals fairly high.
- More than any other country, Australia is “top dog” in Ecuador now, given the presence of SolGold and Cascabel’s world-class stature, and that Aussie giants BHP and Newcrest are consistently getting more involved. So the theme of metals exploration and Ecuador together is one you don’t have to work overly hard to sell these days “Down Under.”
The prospect being unrealistic to garner the $20 million or more needed by Core in Canada was overcome by going to Australia’s Titan. I have been persuaded that this was the best move management could make; certainly, one it had to make. Contrary to some lingering disinformation out there, the door has not been forever closed to any truly superior offer. AND the reason why the “break fee” with Titan was raised to C$3 million (also represented as nefarious by some) is now evident: Titan’s C$3 million initial placement in the company; see
https://www.investi.com.au/api/announcements/ttm/1a0568d9-1c7.pdf. That money was needed chiefly to shore up Core’s present financial mess; and it stands to reason that—if Titan really is beaten out by a superior offer—it wants that money back.
There are some question marks over what will happen operations-wise in the near term. If it can do so, I am persuaded that Core’s management wants to keep things running as is, albeit with more control at least over what is mined at Dynasty and trucked south to the mill, so as to stop the negative cash flow of late.
In discussing the “local” situation I’ve witnessed with Sedun and sharing myriad other thoughts I think they well know that they don’t want to upset things any more than they have to in this quasi-transition. That is an ongoing conversation with others as well that I am continuing to have.
It won’t surprise me if they cease—for now—excavating anything new at Dynasty and instead, to keep from having to furlough many or any people in Portovello/Zaruma, start mining again at one of the local existing mines nearby. In this regard, one of the more important but relatively unsung things the Board did in removing Piggott was to stop him from selling off valuable local assets to keep the “bootstrap” operations at Dynasty busy; and that fact was even confirmed to me by one of Piggott’s STILL-ardent supporters.
Due to the now even deeper undervaluation of Core, I regard it again as a “BUY.” But as I said a couple weeks back, it as a speculative one—for now—until we are sure as to how this turnaround will unfold. But I have very much become of a mind that this upheaval was needed, and also stands the best chance of leading to one or more exploration breakthroughs down the road. Further—and I’ll have more to say down the road—the bona fides of the Titan people also impress me.
A couple more things before I leave the subject for now: first,
on the financial aspects of this deal for existing Core Gold shareholders. And here we must keep in mind the old adage that part of something is better than all of nothing; and especially when Core does not have any realistic prospect of getting the money otherwise to EVER have that chance at that “something.” The amount of money that will come in from Titan all told is not terribly far from Core’s market cap. Core shareholders will own more of the company than existing Titan shareholders, though. And the chairmanship of the combined entity will be controlled by Core Gold, giving one extra vote and, thus, majority. Under the circumstances of the present market and Core’s present state, a very acceptable deal.
The one downside for a few Core shareholders, perhaps (among Canadian investors) is that Titan Minerals will be listed only in Australia; Core will be de-listed in Canada following the merger. That might affect a handful of Canadian owners who 1. Own their Core shares in an RRSP or similar plan and 2. Don’t have quite the freedom to own foreign companies there for whatever reason(s) as is the case in a non-qualified brokerage account, where as a regular matter Canadian investors can and do own companies listed in Australia. So a few may have to do some rearranging; but in my estimation that will be well worth the effort.
In the U.S., for those who do not deal with one of the few brokers (Interactive Brokers is the best as it allows for direct ownership of companies listed on foreign exchanges) I still have little worry. Thankfully, via the OTC “grey market” setup, it’s of little consequence and effort for Canadian, Australian and other companies to end up with a “proxy” symbol under which they are tradeable here via that OTC system. So if you own CGLDF now in a U.S. brokerage account of some sort, I expect nothing more than a slight delay before you have that five-letter symbol for your new shares of Titan afterwards. And I have discussed with Titan’s C.E.O. Matt Carr making sure that this ends up as seamless as possible.
Summing things up—and in answer to one of your questions—there indeed is no good reason why Core’s share price has been beaten up as it has been. For so long, Keith Piggott was the only one being heard from; and his take on things was little more than a big, hopeful vision. On the ground—as was belatedly relayed to me by others—things indeed had been deteriorating. That is now water under the bridge, though; and shareholders can be thankful that some way forward was made available before Core again found itself irreversibly insolvent as it was before Piggott took over the old Dynasty and—to his credit—at least bought more time, and opened up new ideas, before he ran aground.
To me, once one can digest BOTH “sides” of this story, not only does a more realistic picture emerge but, in fact, one should be somewhat jazzed that some meaningful dough IS soon forthcoming that will go into exploration. While the cash flow/production picture we were being told of was not realistic, that Dynasty asset—with proper work and developmental drilling to take the guessing game and finger-crossing out of that economic equation—could still be a producer. Further, I was especially heartened to hear most recently from a guy who has been Piggott’s right-hand man in Zaruma (and who I have urged new management to keep close now to them) that a near-term game plan is feasible, in fact, to re-start that local production.
All in all, and for all the headaches, personalities and bad blood in the market place (and still a LOT of continuing, misinformed chatter among investors) Core Gold STILL has a good, and possibly great, future possible ahead of it. And now it will have the money and hands on deck to give it a better chance.