Activist investors urged to press Gold Road board to accept offer

Shares in Gold Road Resources soared 14 per cent on Tuesday as the market assessed a $3.3bn buyout proposal. Picture: AFP

There are moves behind the scenes to urge active institutional investors on the register of Gold Road Resources to put pressure on the board to accept a buyout deal from mining partner Gold Fields.

Gold Road’s register is dominated by passive index funds, which do not partake in investor activism.

But sources say that there are some active fund managers that could increase their stakes in Gold Road to agitate for change.

As it stands, the agreements that Gold Road has with its joint venture partner Gold Fields make it challenging for the latter to embark on a hostile buyout proposal.

Which is why Gold Fields’ latest $3.3bn offer disclosed to the market this week is never going to gain any traction without support from Gold Road directors, despite active fund managers that own the stock keen for it to happen.

The pair jointly own the lucrative Gruyere gold mine in Western Australia, with the South African-based Gold Fields the operator and 50.1 per cent shareholder.

The latest developments surrounding takeover talks shows the relationship has clearly broken down.

Shares in Gold Road Resources soared 14 per cent to $2.79 on Tuesday as the market digested the news that the group had fielded a $3.3bn buyout proposal from Gold Fields on March 7, or $3.05 per share, even though it was rejected.

Gold Road has tried to fight back with its own proposal involving the acquisition of its partner’s Gruyere stake, but it was rejected.

Analysts believe it would normally be a no-brainer for shareholders to accept the Gold Fields bid rather than participating in a discounted equity raising to buy out the Gruyere gold mine.

Gold Road was known to have been in talks last year, including with Regis Resources.

Gold Road’s 17 per cent stake in De Grey Mining was thought to be the drawcard for any suitor because it would give a buyer optionality over De Grey. But now De Grey is being bought by Northern Star Resources.

Now other potential suitors will stand back, not wanting to take on Gold Fields with its pre-emptive rights over Gruyere.

Gold Road, headed by Duncan Gibbs, said that the offer was opportunistic because it coincided with a lower quarterly production results for Gruyere, linked to operational issues and before findings on the potential of the mine’s underground expansion.

Should activist investors get involved, Gold Road may not be in such a strong negotiating position, and a group like activist Elliott Management joining the register may see the company as an overpriced royalty stock, given its passive Gruyere ownership, with high corporate costs.

Gold Fields offer was a 28 per cent premium to Gold Road’s share price on March 21 and one point of focus is the potential release of Gold Road’s $150m of franking credits.

Previously, many in the market believed it was more likely to be Gold Road buying out Gruyere than Gold Fields bidding, but Gold Fields has flagged to the market a commitment to Australia and Gruyere.

With an acquisitions by gold miner Ramelius Resources of Spartan Resources and Northern Star of De Grey Mining more or less squared away, the attention now turns to what is the next big gold mining deal as investors encourage consolidation among the listed stocks to create major industry players of scale.

All eyes remain on Raleigh Finlayson’s Genesis Minerals and a play for Vault Resources, but most believe that is likely to occur some way down the track as Finlayson focuses on mill expansion in his own business.

There’s also a focus on cashed up Regis Resources.