The Possibility of a Takeover of RED
On HC Colinjc posed the question re which shareholders would like to see a takeover attempt of RED. Clearly this was in reference to many posters frustrations with the way the share price has been traveling along with the delays with final financing being achieved.
I would like to put the following comment regarding the scenario of a takeover of RED:
Any corporate considering a takeover of RED will fall into 1 of 2 different groups:
1. A takeover with a view to increasing gold production of the acquirer based predominantly on Siana production and value. The likely acquirer will be a mid-tier gold producer or base metals company seeking diversification.
2. A takeover by a much larger gold company taking a view on Mapawa.
At this stage I suggest there is too little information for Mapawa potential for any company from Group 2 to consider a takeover, thus the acquirer is likely to come from Group 1 companies, and value of a takeover will predominantly fall into the DCF valuation of Siana, less discount (for production start-up risk and future gold price risk).
Acquirers most likely would come from Australian and overseas groups (but principally not Australian based producers) IMO as it would better fit the risk profile of such companies although Australian companies with past overseas activity could be suited to such. This could include non-ASX listed companies, esp Asian or Canadian companies having a higher risk appetite for Asian based operations.
In determining the initial takeover bid price, the acquirer would have to make an offer at a price that clearly is a significant premium to current share price, but below DCF valuation price. Since current valuation of Siana is around 40 cents per share (based on current RED shares on issue) and the future funding of RED is not clearly determined (as to either debt or equity of mix of both) therefore there will be a discount to cover such.
Any takeover could include a condition that it would have to be subject to funding arrangements for Siana development. That offer could be a mix of share for share swap (I have previously suggested this would be an ideal path for a currently producing company that is currently enjoying a share price premium to cash flow forecasts for the acquirer such as Medusa, which has a market cap of A$750 million despite its cash flows being nothing like that, but it seems MML is not interested in such a deal with RED).
What does this mean for current RED shareholders? Any takeover offer being made in the interim would not result in such a high price as the DCF, possibly around the mid 20's cents range, although it would provide a means to immediately have RED re-rated from its current trading range. I do not believe that many insto's would seriously consider such a price offer to be in the best interests of their investment outlook for RED, but those with a shorter time horizon would see it as a way of immediately monetizing an investment.
The real benefit would be to have the development of Siana go ahead under the direction of RED, with a focus on adding value through Mapawa exploration, that way in the medium term Siana value should be fully priced in RED stock, and a premium added for Mapawa as exploration continues (subject to exploration continuing to add value of course).
For an acquirer there is immense value in considering RED as a takeover target now -:
1. It delivers gold production via a long life, low cash cost operation;
2. If the offer price is around mid-20's cents then it is acquired at a discount to full value, which is exceedingly rare in the gold market;
3. If opens up the door to exciting larger gold production targets such as Mapawa and Madja porphyry gold targets;
4. If the acquisition occurs PRIOR to final funding being achieved then it provides the opportunity for the acquirer to use its own balance sheet to fund the project in possibly a more capital efficient means.
I look forward to the first acquirer taking a look at RED (lol).
On HC Colinjc posed the question re which shareholders would like to see a takeover attempt of RED. Clearly this was in reference to many posters frustrations with the way the share price has been traveling along with the delays with final financing being achieved.
I would like to put the following comment regarding the scenario of a takeover of RED:
Any corporate considering a takeover of RED will fall into 1 of 2 different groups:
1. A takeover with a view to increasing gold production of the acquirer based predominantly on Siana production and value. The likely acquirer will be a mid-tier gold producer or base metals company seeking diversification.
2. A takeover by a much larger gold company taking a view on Mapawa.
At this stage I suggest there is too little information for Mapawa potential for any company from Group 2 to consider a takeover, thus the acquirer is likely to come from Group 1 companies, and value of a takeover will predominantly fall into the DCF valuation of Siana, less discount (for production start-up risk and future gold price risk).
Acquirers most likely would come from Australian and overseas groups (but principally not Australian based producers) IMO as it would better fit the risk profile of such companies although Australian companies with past overseas activity could be suited to such. This could include non-ASX listed companies, esp Asian or Canadian companies having a higher risk appetite for Asian based operations.
In determining the initial takeover bid price, the acquirer would have to make an offer at a price that clearly is a significant premium to current share price, but below DCF valuation price. Since current valuation of Siana is around 40 cents per share (based on current RED shares on issue) and the future funding of RED is not clearly determined (as to either debt or equity of mix of both) therefore there will be a discount to cover such.
Any takeover could include a condition that it would have to be subject to funding arrangements for Siana development. That offer could be a mix of share for share swap (I have previously suggested this would be an ideal path for a currently producing company that is currently enjoying a share price premium to cash flow forecasts for the acquirer such as Medusa, which has a market cap of A$750 million despite its cash flows being nothing like that, but it seems MML is not interested in such a deal with RED).
What does this mean for current RED shareholders? Any takeover offer being made in the interim would not result in such a high price as the DCF, possibly around the mid 20's cents range, although it would provide a means to immediately have RED re-rated from its current trading range. I do not believe that many insto's would seriously consider such a price offer to be in the best interests of their investment outlook for RED, but those with a shorter time horizon would see it as a way of immediately monetizing an investment.
The real benefit would be to have the development of Siana go ahead under the direction of RED, with a focus on adding value through Mapawa exploration, that way in the medium term Siana value should be fully priced in RED stock, and a premium added for Mapawa as exploration continues (subject to exploration continuing to add value of course).
For an acquirer there is immense value in considering RED as a takeover target now -:
1. It delivers gold production via a long life, low cash cost operation;
2. If the offer price is around mid-20's cents then it is acquired at a discount to full value, which is exceedingly rare in the gold market;
3. If opens up the door to exciting larger gold production targets such as Mapawa and Madja porphyry gold targets;
4. If the acquisition occurs PRIOR to final funding being achieved then it provides the opportunity for the acquirer to use its own balance sheet to fund the project in possibly a more capital efficient means.
I look forward to the first acquirer taking a look at RED (lol).
and you can now resume transmission......