Tyler board rejects Mercator bid (November 26, 2007)

The board of Tyler Resources (TYS-V, TYRRF-O) has rejected a takeover bid from Mercator Minerals (ML-T, MLKKF-O) that values the company at $139 million. It also fired an exploration shot in its resistance, releasing results of exploration drilling on the Bahuerachi polymetallic property in Chihuahua state, Mexico.

On Oct. 19, Mercator offered 0.113 of a share for each Tyler share, conditional on getting two-thirds of Tyler’s shares tendered to the bid. It mailed its formal bid documents on Nov. 12, and the bid will be open until Dec. 17.

Tyler’s independent directors delivered a recommendation to the whole board that the proposal be rejected, arguing that the bid undervalues the company, whose principal asset is the Bahuerachi polymetallic porphyry deposit in southwestern Chihuahua state, Mexico. A preliminary economic assessment on Bahuerachi put the project’s net present value at US$216 million, using a discount rate of 8% and a taxation rate of 28%. Mercator’s own financial advisor, Jennings Capital, had put a 12-month target price of $2.50 on Tyler shares on Nov. 9.

In what could be seen as a reply to the bid, Tyler released news of a drilling program in the Cerro Prieto and nearby Silica Hill areas, about 5 km from the Bahuerachi deposit. Reverse-circulation holes there returned several intersections of lead, zinc, silver and copper mineralization. The mineralized zone is near the base of a carbonate bed that Tyler geologists believe correlates with the limestone that hosts the high-grade skarn mineralization at Bahuerachi itself.

Mineralized intersections at Silica Hill ranged from 4.6 to 22 metres in length, probably reflecting true widths of 3 to 20 metres. Zinc grades were anywhere from 1% to 8.4%, with some lead and copper credits, and silver grades mostly ranged from 1 to 9 grams per tonne.

At Cerro Prieto, a 30-metre intersection, probably indicating an 18-metre true width, ran 2.38% zinc, 0.17% copper and 0.31% lead, with 5.8 grams silver per tonne. Another hole intersected 41 metres grading 0.91% zinc, 0.27% lead and 4 grams silver per tonne, with an inferred true width around 30 metres.

Tyler plans a follow-up drill program of 20 to 30 holes.

Tyler’s board also revealed the terms of an earlier offer from Mercator of $1.25 per share, about 20% higher than the implied value of the current bid. Mercator proposed that on Oct. 5, and Tyler allowed that bid to expire five days later.

Mercator said the advantages of its bid were in offering development of Bahuerachi out of cash flow from Mercator’s Mineral Park mine, currently under development in northwestern Arizona, so that Tyler’s equity would not be diluted in raising money to develop Bahuerachi. Mercator’s bid is at a 46% premium over Tyler’s closing price on Oct. 18, immediately before the bid.

Mercator announced a third-quarter profit of US$297,000 on revenues of US$10.4 million, and a 9-month loss of US$6.1 million on revenues of US$28.2 million. In the three months ended Sept. 30, Mercator produced 1,400 tonnes of copper from the starter operation at Mineral Park, up 15% from the third quarter of 2006, and posted an operating profit of US$5.3 million.

At presstime, Tyler shares were at $1.14, while Mercator shares were trading at $9.55, implying a bid of $1.08 per share (or $147 million in aggregate) for Tyler.

Tyler’s statement said it had been in discussions with other possible bidders, both ones it had approached and others who had approached Tyler.