elr

One of the very few bright spots in the resources sector last year was an announcement that came late in the year by Eastern Platinum (ELR.TSX) when they announced a Chinese group (Hebei Zhongbo Platinum Co. Ltd.) would offer to buy the company's South African platinum assets for US$ 225 million.  At the time, Eastplats was trading at roughly its cash value; CAD$ 83 million.

Shares popped from $0.90 to a high of $2.17 and closed at $1.77, not even close to the cash value per share implied by the offer and the company's existing cash hoard.  I made a bit on a quick trade at announcement of the deal but no longer hold any shares.

The company later said that the netted amount it expects to receive, once finder's fees, transaction costs and minority partners are paid, is roughly US$ 175 million.

Let's do the math:

  • Cash on hand: US$ 83 million
  • Netted payment: US$ 175 million
  • Shares Fully Vested: 95.7 million
  • = US$2.70 per share or CAD$ 3.25 (based on USD$0.80)

Yesterday, Eastplats announced that its shareholders had overwhelmingly (99.54%) approved the sale, perhaps unsurprisingly.  Additionally, Hebei received the full go ahead from the Chinese regulators.  Now all that's left is the final paperwork and the cheque to be written.

Eastplats has some long-term shareholders, including Investco and Fidelity who control 18.13% and 10.42%, respectively.

The transaction which, combined with their existing cash balance equates to over US$ 2.70 per share in cash could see shareholders urging management for a substantial special dividend.   This could provide a nearly 90% lift from current levels.  I'm guessing the likes of Ivestco and Fidelity who could walk away with as much as US$ 45 million and US$ 26 million, respectively are pushing for a dividend (just a hunch).

- Ian Terry Rozier

- Ian Terry Rozier

At the announcement of the initial offer from Hebei, Ian Terry Rozier (President and CEO of Eastplats) said: Closing the transaction will leave Eastplats extremely well capitalized to take advantage of the considerable opportunities in this weak market. 

Perhaps a dividend isn't in the cards then?

Eastplats says it expects the transaction to close by the end of Q2 2015.

Clearly, given where the market for the stock is trading today at CAD$ 1.73, there is still substantial perceived risk.  There were early reports that Hebei was unknown and the bid might not be genuine.  Additionally, there were concerns about what the true netted amount would end up being.

These appear to be cleared now, but in this market, investors need to see to believe.

Rozier and Chairman David Cohen are serial mining entrepreneurs.  Cohen was the President and CEO of Northern Orion when it completed a 3-way merger with Meridian and Yamana in a CAD$ 4 billion transaction in 2007.