Zhaojin sends out clear message of mis-representationThe {cats} are coming out of the bag. BOD4 in some deep doo-doo.
https://www.mining-journal.com/gold-and-silver-news/news/1378556/zhaojin-confirms-interest-in-core-gold-modifies-offer
Here is also a nice message:
Zhaojin confirms interest in Core Gold, modifies offer
Chinese gold producer Zhaojin Mining has confirmed it is the other interested party in the battle to acquire junior explorer Core Gold and its properties in Ecuador.
Zhaojin confirms interest in Core Gold, modifies offer
Core Gold's Dynasty Goldfield project in Ecuador
Gold And Silver > Gold-and-silver-news08 January 2020CommentsShare
Paul Harris
In an open letter to Core Gold shareholders and board of directors, Zhaojin general manager Guowei Li outlined the terms of its final proposal, while also claiming Core Gold management misrepresented its offer in a December news release.
Specifically, Core Gold indicated a proposed C$10 million private placement by Zhaojin would be an inappropriate defensive tactic and open to regulatory challenge, despite the fact Core Gold had requested an immediate influx of funds due to its significant need for working capital and that securities regulators have previously permitted financings in similar circumstances.
Zhaojin also stated the usage restrictions it would put on the private placement funds were to ensure a spinout company which would be created to take possession of various Core Gold mineral properties would have sufficient funds and not be undercapitalized, rather than limit the utility of the funds, as Core Gold claimed.
Core Gold also claimed the $7 million break fee Zhaojin stipulated was coercive and off market. Zhaojin clarified it thought the break fee necessary and appropriate given it would be investing in Core Gold without any assurance that its acquisition of would succeed, particularly given that rival bidder Titan Minerals had obtained irrevocable lock-ups with Core shareholders holding a significant number of shares.
"In Zhaojin's view, if Titan succeeds in acquiring 100% of Core Gold, Zhaojin will receive Titan shares worth considerably less than the C25c private placement subscription price to be paid by Zhaojin. Zhaojin has reduced the break fee to $5 million in its final offer," Guowei Li said.
Titan has an all-share offer on the table of 3.1 Titan shares for each Core share, which it says represents a 55c/share value, with a closing date of January 14.
Detailing Zhaijin's final proposal, Guowei Li said it was 33c a share in cash, a 32% premium to Core's closing price on January 3rd, which increased to 45c a share when combined with the consideration attributed to each share of the spinco estimated to be worth at least 12c per share. Zhaojin extended the deadline for its offer to January 31.
"We believe that an all cash transaction is the differentiating factor which should compel shareholders to accept our proposal as it provides them with an immediate means to realise on their equity in the company at a significant premium, without having to assume any potential liquidity and valuation risks which are inherent in the Titan offer given that it is an all share deal," Guowei Li said.
As part of the Zhaojin proposal, Core's Cooper Duke and Linderos projects would be spun out into a new company in which Core shareholders would receive stock on a pro rata basis to their holdings in Core.
Zhaojin has committed to completing a $10 million private placement into Core at 25c per share, which would see it obtain a 19.1% stake in the company and provide it with an immediate injection of cash while also ensuring the spinco is capitalised.
Several Core shareholders have questioned the company's handling of the two respective offers and its effective preference for the Titan offer despite officially not recommending a course of action to shareholders.
Core reported at the start of the year that a director and shareholder, with other shareholders, had filed a complaint against the Titan offer with the British Columbia Securities Commission (BCSC) seeking to delay or cease trade the Titan offer and which raised certain disclosure questions of Titan. "The board has asked Titan to provide it with its response to the BCSC letter and to otherwise respond to the disclosure questions raised in the BCSC letter, which relate to Titan's Vista plant and its Torrecillas project," Core said in a statement.
Among shareholder concerns are the fact that Titan has debt and minimal cash flow, plans to take on more debt, to acquire a company that already had over $20 million in liabilities as of September 30, 2019. Titan has indicated it will pay cash to shareholders which do not assign their shares to the deal, without having the cash available to do so.
Furthermore, they believe Titan's share price is artificially inflated given that its principal asset, the Vista toll processing plant in Peru, which Fort Capital Partners generously valued at between $29 million and $36 million in an independent fairness opinion published at the start of the month even though it is operating at well-below its nominal 150 tonnes per day nameplate capacity and publicly-listed Inca One Gold, which operates a 350tpd and a 100tpd toll processing mill in Peru, has a market capitalisation of C$7 million.
The plant, built for $3.5 million and commissioned in June 2019, was put up as security for a US$3 million loan Titan took in March 2019 in order to buy 9.2 million Core shares, which are also part of the security. The loan, due at the end of 2019, is still outstanding and the Vista plant is currently subject to a government process in Peru to nullify its permit.
Shareholders are also concerned a potential transaction will vastly inflate the number of Titan shares issued and outstanding, a good many of which will immediately hit the market in order to pay out non-Canadian resident shareholders.
Meanwhile, Core and Titan amended agreements relating to the terms of a US$2.5 million debt owed by Core to Titan that came due and payable on March 31 2019. The January 6 amendment cancels the convertibility of the debt into stock and extends the maturity date of the promissory and convertible notes to March 31 2020. As the conversion option of the convertible notes expired in March 2019, they are now straight loans without any conversion features and as such TSX Venture Exchange (TSXV) approval of the amendments is not required.
Titan obtained the Core debt obligations in August 2019, at which time they were amended to reduce the conversion price from C30c per share to 18c, conditional upon the TSXV approval. It initially approved the amendments but subsequently rescinded it following notification the convertible notes had previously been transferred to Titan.
Shares in Core Gold are trading at 28c, valuing the company at $36 million.
Shares in Titan Minerals are trading at A18c, valuing the company at A$52 million.