Moto Gold Mines 20 Jul 09


  • Core
  • 3.High

Another suitor emerges in the form of Randgold

In our most recent coverage we highlighted that a friendly takeover/merger proposal had been tabled by Canadian-listed gold producer, Red Back Mining. We advised that Red Back possesses extensive experience in developing and running gold mines in Africa, so the deal could prove to be a win-win for both Moto and Red Back shareholders. Well, the stakes have been raised further, with fellow portfolio gold producer Randgold Resources, announcing a rival takeover bid for Moto.

Fat Prophets initially recommended buying Moto Goldmines at 305p in January 2007 (Fat Euro Mining 5). Our last review of this stock was in June (Fat Euro Mining 124).

From a charting perspective, Moto Goldmines continues to post new rally highs, closing on Friday at 282.5p. As evident on the daily chart, this is the highest level for the stock since February 2008. Furthermore, gains since November have largely reversed the sharp decline of 2008.

While we cannot rule out a period of consolidation in the near-term, we believe potential remain for further gains over the coming months. A break above resistance in the 292.5p to 300p region would provide a further boost to upward momentum, and likely trigger additional gains.

From a longer-term perspective, the rally since November 2008 has reversed the broader downwards trend in place since 2006. In our opinion, this strength bodes well for further gains during the second half of 2009.

The company has announced that it has received an unsolicited takeover offer from Randgold Resources, which wants to acquire all of the shares in Moto by way of a proposed plan of arrangement. The deal will involve Moto shareholders receiving 0.07061 of an ordinary share of Randgold (or, where applicable, 0.07061 of an American Depositary Share (ADS) of Randgold), for each Moto share held.

In addition, Moto shareholders would be provided the option to elect to receive (in lieu of Randgold shares or ADSs) cash consideration of US$4.47 per Moto share (C$5.00 based on the noon exchange rate published by the Bank of Canada on 15 July 2009) in respect of all or some of their Moto shares, subject to proration based on an aggregate maximum cash amount payable to all Moto shareholders under the Proposed Randgold Transaction of US$244 million.

Assuming full take-up of the cash alternative, Randgold would expect to issue a total of approximately 3.9 million shares (including shares represented by ADSs) and pay a total cash amount of approximately US$244 million to Moto shareholders.

As detailed more fully below, the Board of Randgold believes that the Proposed Randgold Transaction is superior to the transaction proposed by Red Back Mining Inc, which we outlined in our previous coverage of the company. Based on the closing price of Randgold ADSs on 15 July 2009 of US$63.26 per ADS, the proposed Randgold takeover values Moto at approximately US$488 million (C$546 million).

The offer represents a premium to Moto shareholders of around 7%, based on the closing price of Moto's common shares on the Toronto Stock Exchange and the closing price of Randgold's ADSs on NASDAQ, adjusted to Canadian dollars, as at 15 July 2009.

The offer also represents a premium of around 12% based on the 20-day volume-weighted average price of Moto's common shares on the Toronto Stock Exchange and the 20-day volume weighted average price of Randgold's ADSs on NASDAQ, adjusted to Canadian dollars, to 15 July 2009.

It also represents a premium of around 60%, based on the 20-day volume-weighted average price of Moto's common shares on the Toronto Stock Exchange to 29 May 2009, the last business day prior to the announcement of the Red Back takeover.

As part of the takeover, Randgold and AngloGold Ashanti Limited (AngloGold) have agreed to cooperate in respect of the proposed deal. AngloGold has agreed to fully fund the cash alternative described above in partial payment for an indirect 50% interest in Moto, which it would acquire upon completion of the takeover deal.

The Randgold takeover offer is subject to Moto terminating its arrangement agreement dated 1 June 2009 between itself and Red Back Mining, and Moto, announcing its recommendation of the Randgold takeover offer. Moto’s board of directors are considering the offer to determine whether it is a superior offer to the plan of arrangement that has been agreed with Red Back Mining Inc. and was announced on June 1, 2009. Moto will advise by news release in due course its conclusions with respect to the Randgold offer.

So far, shareholders of Moto representing an aggregate of 39.4 million shares, or 36.1% of the issued and outstanding common shares of Moto, have agreed to support the proposed Randgold takeover offer and to vote against the existing Red Back Transaction if it is not withdrawn.

As a reminder, Moto and Toronto Stock Exchange-listed Red Back Mining Inc (TSX:RBI) previously announced a proposed merger, whereby each common share in Moto will be exchanged for 0.45 of a common share in Red Back. Based on the appropriate pre-bid closing price of Red Back’s common shares of C$10.45 per share, the transaction value is approximately C$513 million (₤274 million). This represents a premium to Moto shareholders of approximately 40% based on the 20-day volume-weighted average of both companies’ common shares on the TSX.

Red Back is an experienced, unhedged African gold miner, with a significant and expanding production profile at both its Chirano mine in Ghana and at its Tasiast mine in Mauritania. It owns and operates the Chirano gold Mine in Ghana (90% stake) and the Tasiast gold mine in Mauritania (100%-owned).

Importantly, Red Back is a very well funded company and importantly has a strong track record of being able to construct and operate projects in Africa. Moto has agreed to pay a break fee of C$15,250,000 to Red Back in certain circumstances and has granted Red Back the right to match competing offers. Moto directors have approved the offer.

If the deal goes ahead, Moto will become a wholly-owned subsidiary of Red Back, with the enlarged company having around 279 million issued shares, of which existing Red Back shareholders will own around 82.3% and Moto shareholders 17.7%. Moto will be entitled to nominate one person to the Red Back board.

We would not rule out Red Back Mining coming back with an enhanced offer to trump the Randgold bid, so we would advise shareholders to take no action at this stage and certainly not until the Moto board have made their feelings known with respect to the Randgold offer. The dynamic tension between two emerging gold producers, Randgold and Red Back, could generate more share price upside for investors.

In the meantime, Moto Gold Mines will continue to remain firmly held within the Fat Prophets European Mining and Resources Portfolio.


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Snapshot MOE

Moto Gold Mines

Moto Goldmines Limited is a gold exploration and development company listed on the Toronto Stock Exchange and London Stock Exchange's Alternative Investment Market. The principal focus of the company has been to progress the Moto Gold project in the northeast of the Democratic Republic of Congo from advanced exploration through feasibility and into production. The project hosts a world-class gold deposit and in March 2009 the company positive results from the much-anticipated Feasibility Study. Life-of-mine gold production is estimated at 4.8 million ounces over 16 years initially, with an average estimated cash operating cost of US$318/oz. For the first five years, average annual gold output is forecast to be 484,000 ounces at an average operating cash cost of $US303/oz.  

Market Capitalisation GBP308m