Market observers believe that the offer of Bill Beament and the Board of Northern Star Resources (ASX:NST) to acquire more shares from Echo Resources Limited (ASX:EAR) is a strategic move. Aside from NST’s strategy to consolidate the Yandal gold project and secure the Bronzewing processing plant, Beament’s gold miner possibly needs Echo Resources to gloss over the cracks at Pogo.
Pogo mine did not contribute much to NST’s overall production based on the FY2019 report of NST. Pogo’s reported all-in sustaining costs (AISC) for the year is $1,705/oz, and due to rehabilitation liabilities acquired from the Pogo acquisition, NST’s total finance costs increased from $3.5 million in FY2018 to $11.6 million in FY2019.
Could Beament’s NST be trying to paper over Pogo’s unimpressive production results and increasing costs? What has prompted Beament to take the steps and make an offer to acquire more Echo shares when NST has already been in control with approximately 21.7% shareholding from the Australian gold miner?
Beament’s NST offers to acquire Echo’s shares
Echo Resources Limited and Bill Beament’s Northern Star Resources has entered into an agreement to which NST will pay $193 million to acquire all of the shares it doesn’t already own, giving Echo Resources a total equity value of approximately $242.6 million.
Each Echo shareholder will receive a cash offer of 33¢ per every share held. The Board of Echo Resources has agreed to recommend NST’s offer to Echo Shareholders in the absence of a Superior Proposal. What has prompted Beament to take this step? Possible reasons are:
- The Board of Echo Resources has been too slow in restarting Bronzewing, Echo’s low-cost asset, and Northern Star needs the Bronzewing processing plant to extract high-grade gold ore. According to analysts, gold miners struggling to increase their reserves tend to bid for takeovers and growth by acquisition is sure to happen.
- Surging gold prices signal takeovers. The gold price (POG) has reached a record high, breaking through the $2,000 barrier. In the past month, the POG was $2,175 (Low) to $2,313 (High).
- There might be another gold miner in the mix which has forced NST to move and make the bid. With Echo’s ‘potential’ as an explorer and with its Bronzewing plant, having a third party bidder would set the cat amongst the pigeons.
Will NST offer cash in return for shares, or is it a scrip bid? What premium might be applied for the acquisition?
Beament’s Northern Star to take full control of Echo’s assets
Bill Beament has a track record of buying existing mines for a low price on insider knowledge and then refurbishing them. NST won’t be willing to let Echo Resources’ assets go and the substantial premium that comes with it. With Bronzewing, which provides very low risk and timely access to operational cashflow, an open pit and underground probable mine life extensions, Echo Resources seems like a prize to anyone.
Despite Echo’s ‘potential’, the bid for the acquisition contributed to a fall in the share price following NST’s announcement. Inflation-wary investors will keep track of NST’s newest ‘project’. Is this another one of Beament’s ‘clever’ business decisions or a poor judgement call, a pretext to Pogo’s disappointing FY2019 results?