waterton

The M&A markets in the resource sector have been hot so far this year with Goldcorp's hostile bid for Osisko holding the top spot.  This morning, the Toronto-based private equity firm, Waterton Global Resource Management announced it has made a hostile bid for all of the shares of Chaparral Gold (CHL:TSXV) for $0.50 per share in cash.  This represents a total bid value of $58.8 million and a 22.5% premium over their 20-day VWAP and 15% as of the close Friday.  Waterton currently owns 2.9% (3,403,500 shares).

Chaparral's main asset is the Goldfield project in Nevada which hosts 2P reserves of 567,000 ounces at 1g/t gold.  The project is an open-pit, heap leach project with an initial mine life of 6.5 years with peak production of roughly 90,000 ounces.  This represents a takeover price per 2P reserve ounce of $104 which is on the lower end but inline with precedent transactions.

Waterton believes the premium is sufficient although it is on the low end of the scale.  Waterton claims they do not believe a competing offer is likely, although the market this morning is saying the contrary.  Shares in Chaparral are up $0.105 to $0.54 or 8% above the offer.

Perhaps the reason the market believes $0.50 per share won't do it is because Chaparral was spun out of the acquisition of International Minerals by Hochschild in late 2013.  All of the non-peruvian assets, including Goldfield and $58 million in cash and recievables were spun out into Chaparral.  The acquisition value is near the cash and recievables balance of the company.

Newmont was built on the back of Nevada heap leach projects (Image: InfoMine)

Newmont was built on the back of Nevada heap leach projects (Image: InfoMine)

Chaparral's board will meet this week to review the offer and has engaged Maxit Capital as its financial adviser.  Maxit is Bob Sangha's new firm.  Bob was previously the head of investment banking at Dundee.

Waterton is actively trying to acquire low-cost assets in Nevada.  They acquired the Hollister mine and the Esmeralda Mill in May 2013 from Great Basin Gold during a bankruptcy auction.  They attempted to acquire the Midas mine in Nevada from Newmont, but that fell through.  Klondex has now successfully acquired that mine.

The Offer will be open for acceptance until 5:00  p.m. (Toronto time) on  March  27, 2014 unless the Offer is extended or withdrawn.

Read: Waterton to Make Offer to Acquire Chaparral Gold Corp