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Small cap ASX mining share receives takeover proposal with 30% premium

Old fashioned scales weighing two gold bars in front of dark background, gold share price, newcrest mining share price
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Just after 3 pm on 16 March, Cardinal Resources Ltd (ASX: CDV) disclosed an indicative non binding conditional takeover proposal of $0.45775, valuing the company at ~$226 million. 

Increased takeover activity is another exciting opportunity created by falling share prices. The Cardinal share price is up 9.37% year to date. However, aside from a couple of recent brief dips, the price has not been this low since February 2017.

The offer price is:

  • a 30.8% premium to Cardinal’s 16 March closing price of $0.35
  • a 23.9% premium to the 3 month average price
  • a 32.2% premium to the average for the past 6 months.

The takeover proposal was made by London-based Russian gold miner NordGold. The company recently acquired a 16.4% stake previously held by Gold Fields Limited and increased this to 19.9% – just under the 20% limit imposed by the federal government.

What is the value of the deal?

NordGold operates 10 mines in 4 countries: Russia, Kazakhstan, Burkina Faso and Guinea. The company is very experienced at operating within West African gold fields. This acquisition will take its total gold reserves, likely to be economically mined, to over 20 Moz. For comparison, Newcrest Mining Limited (ASX: NCM) had total gold reserves of 52 Moz in December 2019.

Cardinal is sitting a gold reserve of 5.1 Moz in Ghana, West Africa. Its current exploration program has unveiled a low grade resource of 1.31 grams per tonne. If open pit mining is possible, then this could be a profitable asset. This is particularly true in a period of sustained high gold prices.

What happens next?

While this takeover proposal is clearly very serious, this is just the first salvo and is neither a binding offer nor is it a promise that a binding offer will be made. The deal could go many ways from here. It is almost always the case that the first takeover proposal is not the only offer. 

There are a few variables that have lined up to create a potential bidding war between cashed up gold miners. The target company, Cardinal, appears to have a very attractive ore body at a discounted price, and the gold market is still at record high levels despite recent falls in the gold price. 

Foolish takeaway

Takeovers are a high risk area where you could easily lose your money or end up owning shares in a company that generally wouldn’t interest you. However, gold remains a scarce resource and all of the medium and large cap miners are continually hunting for replacement tonnages. The chance of generating interest in other companies is quite high.

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Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Daryl Mather