Ian Gandel makes bold bid for Alliance Resources as M&A heats up in gold space

Via private entity Gandel Metals Pty Ltd, mining entrepreneur Ian Gandel has lobbed a $21.43 million takeover bid for the remaining issued capital in gold explorer Alliance Resources (ASX: AGS).

Currently Alliance’s largest shareholder and non-executive chairman, Mr Gandel’s bid values Alliance at $0.14 per share – a 27% premium to yesterday’s closing price of $0.11.

In a letter to shareholders, Mr Gandel said the bid was a 75% premium to Alliance’s net assets which are valued at $12.237 million.

Mr Gandel’s strategy behind the bid is to develop Alliance’s Wilcherry gold project as an unlisted entity.

He claims Alliance’s current exploration and development plans for Wilcherry are “not the most capital efficient strategy”.

“Further drilling and exploration activities will deplete Alliance’s financial resources and Alliance likely will need to undertake more capital raises.”

“In light of Alliance’s historic share price and the low participation by existing shareholders in Alliance’s recent entitlement offer, Gandel Metals considers that alliance will be able to develop the Wilcherry project more efficiently as an unlisted entity.”

Mr Gandel added if his bid was successful, he would “expedite development” of the project’s known resources.

Hours before Mr Gandel made his takeover bid official, Alliance revealed the company’s managing director Stephen Johnston had stepped down from his role after serving in executive capacity for 16 years.

Wilcherry gold project

Through his takeover offer, Mr Gandel hopes to get his hands on the Wilcherry gold project in South Australia’s Gawler Craton.

Wilcherry hosts the Weednanna gold deposit where previous drilling has unearthed thick high-grade gold intersections.

Highlight drill results from the deposit include 60m at 5.7 grams per tonne gold, 14m at 36.1g/t gold and 20m at 12.4g/t gold.

To-date, Alliance has firmed up indicated and inferred resources for Weednanna of 1.097 million tonnes at 5.1g/t gold for 181,000oz.

Additionally, mineralisation at Weednanna remains open along strike and at depth.

A scoping study on the project was released in April estimates capital costs for the project between $39.9 million and $44.4 million.

This would pay for a 250,000tpa processing plant, tailing storage facility and open pit pre-strip costs.

The proposed operation would begin with open pit and move underground.

Over the next 12 months, Alliance has planned to undertake infill and resource extension drilling as well as metallurgical testwork and securing regulatory approvals.

Gandel Metals forces shareholders’ hands

Mr Gandel is the sole director of Gandel Metals and openly stated the company would look at acquiring Alliance shares on market for prices at or below his current offer.

At the time of Mr Gandel’s bid, his private entity held 32.3% voting power in Alliance.

Mr Gandel noted that if shareholders don’t accept the current offer, Gandel Metals may acquire up to 3% of Alliance’s shares every three months until it has achieved a majority voting power.

He added that Gandel Metals may elect not to participate in future Alliance equity raisings if it does not agree with Alliance’s strategy.

“If Gandel Metals does not participate in further capital raisings, and Alliance is unable to secure adequate underwriting for such capital raisings, Gandel Metals considers that Alliance may incur significant difficulties in maintaining its operations and further development of its mining programs,” Gandel pointed out in its offer.

Gold at all-time highs

Mr Gandel’s bid for Alliance is opportune with gold trading at all-time highs and forecast to continue running up to A$10,000 per ounce over the next decade.

With gold hovering at A$2,214/oz this morning, it has a long way to climb before it hits this high.

Speaking with Small Caps, Lion Selection Group (ASX: LSX) executive director Hedley Widdup said producers have been benefitting from the precious metal’s all-time highs and investor interest is now beginning to trickle down in to the junior exploration space.

Unlike Mr Gandel’s concerns that Alliance will be unable to raise money in the current market, the last four weeks have seen an explosion of gold explorers seeking and raising capital, with most placements underwritten and companies receiving firm commitments from institutional and sophisticated investors.