Cardinal Resources – (ASX: CDV, Share Price: $0.93, Market Cap: $489m, coverage initiated @ $0.29 – – current gain of 221%)
Key Catalyst
Bidding war ramps up as Shandong Gold and Nordgold trade blows, with Nordgold raising the stakes with a $0.90 per share cash offer, well above the $0.60 per share starting point.
CDV has performed solidly since our coverage initiation back in June 2016, driven by highly successful exploration drilling programs at its flagship Namdini project in Ghana, which in turn led to the establishment of a multi-million-ounce gold resource base. CDV has been strongly focused on advancing Namdini to production status, with a recently completed Bankable Feasibility Study (BFS) forecasting low-cost gold production over +15-years.
Subsequently, CDV has been firmly focused in its attempts to secure project funding, but to no avail. It is these funding challenges have led to significant corporate interest. CDV is now in the enviable position of having two serious rival bidders – China’s Shandong Gold Mining and Russia’s Nord Gold – locked in an escalating bidding war for the company. The bidding started at $0.60 per share and has now escalated to $0.90 per share with Nordgold’s latest offer.
Latest Activity
Corporate Update – Nordgold Enhanced Takeover Offer
CDV has received a revised on-market takeover off from its major shareholder, Nord Gold, of $0.90 cash per share – which is well above its original offer of $0.66 cash per share – and which trumps the current cash bid of $0.70 per share from Shandong Gold.
Nord Gold’s original offer of $0.66 per share represented a 10% premium to Shandong Gold Mining $0.60 per share offer, which was the opening salvo in the bidding war. Shandong Gold then raised its cash offer to $0.70 per share, subsequent to which Nord Gold then returned with its latest cash offer of $0.90 per share.
Technical Significance
CDV, with its advanced, multi-million ounce Namdini project in Ghana that’s seen a DFS completed, was always going to presents itself as an ideal takeover opportunity. We had consistently flagged the potential for corporate activity, especially in a market environment over recent years where securing project development funding had, until recently, proven problematic.
We now have a hammer-and-tongs full-scale takeover battle in progress, which underlines the quality of CDV’s Namdini project. And there’s every chance that we will see Shandong Gold return with a higher bid to trump Nord Gold’s $0.90 per share offer. Accordingly, it’s hard to believe that CDV had hit a COVID-19 low of just $0.25 during March!
Next Steps
CDV has advised its shareholders to take no action with respect to Nord Gold’s offer and it notes that it has obligations under the Bid Implementation Agreement entered into with Shandong Gold Mining during June 2020.
Given the unsolicited nature of Nord Gold bid, CDV says it will need to be considered in detail by the board, together with the special purpose committee and its financial and legal advisers. CDV will provide an update to the market as soon as it is able.
Overview
CDV is a West African gold‐focused exploration and development company that holds interests in tenements in Ghana. The company has been focused on the funding and development of its Namdini Project, which hosts a published gold Ore Reserve comprising 5.1Moz (138.6 Mt @ 1.13 g/t Au; 0.5 g/t cut‐off), inclusive of 0.4Moz Proved (7.4 Mt @ 1.31 g/t Au; 0.5 g/t cut‐off) and 4.7Moz Probable (131.2 Mt @ 1.12 g/t Au; 0.5 g/t cut‐off).
CDV has been involved in a strategic process with banks, financiers and other parties, with the aim of realising value from the Namdini Project. Unfortunately, securing project funding has not been an easy process in a tough market environment. As a result, CDV has been the recipient of two takeover offers.
CDV released the results of its much-anticipated Namdini Feasibility Study during October 2019, confirming it as a gold project with attractive economic returns. The Study forecasts 4.2Moz of gold will be produced over a 15-year period at an All‐in Sustaining Cost (AISC) of US$895/oz, compared to 3.9Moz at US$769/oz in the Pre‐Feasibility Study (PFS). Namdini will comprise a single, large open‐pit with a conventional process plant design.
The Ore Reserve of 5.1Moz represents a 7% increase on the 4.76Moz Ore Reserve in the PFS. The project is forecast to generate US$1.46 billion in undiscounted, pre‐tax free cashflow over a 15-year mine life at an assumed gold price of US$1,350/oz, increasing to US$2.05 billion undiscounted, pre‐tax free cashflow at a gold price of US$1,500/oz.
Namdini Project Net Present Value (NPV) and Internal Rate of Return (IRR) are forecast to be US$914 million and 43% respectively (pre-tax), along with US$590 million and 33.2% (post‐tax), based on a US$1,350/oz gold price.
Project capex is estimated at US$348 million capital expenditure with a US$42 million contingency, which is down 16% from the PFS capex estimate of US$414 million. Capex payback is estimated at just 21 months based on a US$1,350/oz gold price, with payback falling to just 12 months based on a US$1,500/oz gold price.
The Feasibility Study demonstrates a viable, globally significant, long‐life gold project at Namdini. With more than 1 million ounces of gold slated for production during the first three years, 421,000 oz in Year 1 alone and an average annual gold production of 287,000 oz over a 15‐year mine life, Namdini ranks amongst the world’s largest known, financially-robust, undeveloped gold projects.
The rapid payback period is driven by a combination of early high grades and recoveries, low strip-ratio (and low costs within the starter pit. (AISC) are estimated at just US$585 during the capex payback period.
Summary
CDV, with its advanced, multi-million ounce Namdini project in Ghana that’s seen a DFS completed, was always going to presents itself as an ideal takeover opportunity. We had consistently flagged the potential for corporate activity, especially in a market environment over recent years where securing project development funding had, until recently, proven problematic.
We now have a hammer-and-tongs full-scale takeover battle in progress, which underlines the quality of CDV’s Namdini project. And there’s every chance that we will see Shandong Gold return with a higher bid to trump Nord Gold’s $0.90 per share offer.
