China’s state-owned Ansteel has agreed to snap up Gindalbie Metals (ASX: GBG) at a 90% premium to the company’s 30-day volume weighted average price, with Gindalbie’s board unanimously voting in favour of the acquisition.
Under the agreement, Gindalbie will demerge its wholly-owned subsidiary Coda Minerals to its shareholders. Coda will retain the Mt Gunson assets and $10.64 million in cash.
If both proposals are implemented, Gindalbie shareholders will receive $0.026 cash for every share held – a price the company has not commanded in over 12 months.
According to Gindalbie, the rationale behind the Coda demerger is that it enables the subsidiary to pursue exploration opportunities in the Mt Gunson copper-cobalt project without being hampered by Gindalbie’s $231 million-worth of contingent liabilities.
Gindalbie’s contingent liabilities were from its interest in Karara Mining which operates the Karara iron ore project.
Coda and Mt Gunson
Coda is earning up to 75% of the Mt Gunson project, which is 100km south of BHP’s (ASX: BHP) renowned Olympic Dam copper-gold-uranium operation in South Australia.
Mt Gunson is also within 50km of Oz Minerals’ Carrapateena copper project. The project’s Windabout deposit hosts a resource of 17.67 million tonnes for 0.77% copper, 0.05% cobalt, and 8 grams per tonne silver. The MG14 deposit’s resource totals 1.83Mt at 1.24% copper, 0.03% cobalt and 14g/t silver.
Once demerged, Coda expects to possess around $10.64 million in cash and will have a clear strategy to apply for an ASX listing and advance Mt Gunson.
“As a new and fresh company, Coda will be well-positioned to extract maximum value from the highly prospective Mt Gunson copper-cobalt project and other mineral exploration opportunities,” Gindalbie chief executive officer Chris Stevens said.
“The acquisition and the demerger will allow Gindalbie shareholders to secure a significant premium in cash for their Gindalbie shares as well as part-ownership of Coda, a minerals exploration company with a clear and unrestricted focus and the ability, in my opinion, to attract broad investor interest,” Mr Stevens added.
Karara back story
Karara is a joint venture between Gindalbie (47.84%) and Ansteel (52.16%). Ansteel also owns of a 36% stake in Gindalbie.
Ansteel operates the project and Gindalbie values its holding in Karara as “nil” due to the current high-gearing of Karara and the iron ore price environment.
During the half year ending December 2018, 65 iron ore shipments were made from Karara totalling 3.776 billion dry metric tonnes of combined magnetite concentrate.
“Karara was conceptualised during a different and unprecedented time in the global iron ore cycle,” Gindalbie non-executive chairman Keith Jones explained.
“In today’s more subdued iron ore price environment, a small company like Gindalbie is ill-suited to retain a significant minority investment in a capital-intensive project like Karara.”
“With the strong support of our Karara joint venture partner, Ansteel, we have been able to structure a deal that delivers significantly more value for all Gindalbie shareholders than the market currently ascribes to our shares,” he added.
The proposed merger and demerger are subject to shareholder and regulatory approvals.
If all approvals are secured, then Gindalbie anticipates the restructuring will have occurred by late June.
The acquisition and demerger news sent Gindalbie’s share price soaring more than 108% to reach $0.025 by mid-afternoon trade.