Contest for Cornerstone… and maybe even Cascabel

One of Cornerstone’s largest (Top 3) shareholders recently declared in an interview on August 17 he believed Cornerstone is “going to be bought out within the next six months at a substantial premium to market.” As a reference, on the day of the interview, Cornerstone shares closed at CAD 4.06. What do you think of this statement? Do you think things could start to accelerate on the M&A front after October 19th? or after SolGold’s planned EGM in October?


 

As I wrote not too long ago, I think the share prices of both CGP and SOLG (BUT the latter particularly) have been subdued for a while given the part-confusion and part-lack of confidence in present SOLG management. I have spoken to this a great deal; most recently, in some considerable detail, at http://www.kereport.com/2020/07/22/chris-temple-a-discussion-on-the-solgold-hostiletakeover-offer-for-cornerstone-capital/ on July 22, in a 20+-minute discussion with Cory Fleck. (NOTE: Both Cornerstone’s Brooke Macdonald and SolGold’s Nick Mather have been asked also to visit with Cory; as each does I will send out the links to their interviews as well.)

The comment about CGP’s potential valuation in a buyout (which I tend to expect) is, in part, based on the 20+ billion pound copper resource. Of a few estimates I have read from analysts, while SOLG’s offer for Cornerstone (even more moot now, given CGP’s recent price rise) fixed a low-ball value on things, a price commensurate with other buyouts would bring more like C$20/share for Cornerstone.

Everything, of course, remains speculation; whether by me or others. And it should be taken as such. But that said, no matter the questions surrounding Mather’s decision-making as a manager (I’ll say again: kudos to him and SOLG’s team on the ground for their exploration work and related efforts) there is no question that somebody is going to develop the Alpala deposit at Cascabel, first off.

The most logical thing a potential larger owner and/or developer would do near term is to buy Cornerstone. That would be a relatively “clean” 21% or so ownership in Cascabel, and considerable leverage.

Also possible would be some broader path to one or two majors tying up the whole works, though that would necessarily involve the special SOLG meeting CGP has called to reconstitute SOLG’s board leading to Mather’s ouster and a new board/management in place that would work more cooperatively for both companies’ benefits. Since SOLG first intimated early in 2019 its desire to acquire Cornerstone, CGP’s management has suggested that both companies join forces to accept “bids” for all of Cascabel from would-be developers. Depending on the outcome of this special meeting coming up (if it indeed occurs) that could be on the table. 

Mather still regards himself and SolGold as the BHP of Ecuador; THE company that will emerge as the king of the country’s new mining industry. If he pulls that off in the end, more power to him. But as I have pointed out previously, Newcrest has clearly cooled on him; and publicly so. BHP, though—looking for multi-generational copper deposits—probably won’t be dissuaded from doing something.

We’ll get a picture of that “something” sooner rather than later, I think; whether a successfully-called CGP meeting of SOLG’s board is the catalyst or something else. One of the moving parts here that will shortly mean a lot more will be the coming negotiations between the government and Cascabel’s owner(s) over the financial deal that will govern development, including the royalty and tax structure. Some of us who have followed things most closely can’t imagine (and AGAIN this is my own speculation and not based on ANY first-hand knowledge of ANYTHING) that, say, a BHP will let Mather and SolGold be the ones to negotiate all these things with the government if they intend to buy the whole works and develop this in the end.

Both companies’ shares have rallied recently. This owes partly to copper’s better fortunes of late. More so, it is as investors and the mining industry alike look to the end of BHP’s standstill agreement with SolGold ending next month. Commensurate with that, of course, is the rising probability of a re-rating of both companies’ valuations.

Cornerstone has been the better performer lately, due to its being more likely to be an immediate target, as well to it being much more proactive in getting its story told. Most recently, my good friend and colleague Brien Lundin put out a lengthy report in Cornerstone to his Gold Newsletter audience. Yours truly and others continue to tell this story as well.

Notwithstanding my lingering concern over the near-term sustainability of copper’s rally, the calendar and all the above M&A-related issues argue for CGP to be rated a BUY (and yes, even though it appears technically overbought at the moment.) I’m even moving SOLG off of “HOLD” to “BUY” as well.

 


 

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