Kinbauri Spurns Orvana Offer

VANCOUVER–A battle for Kinbauri Gold’s (KNB-V, KINBF-O) primary asset, a 100% stake in the El Valle and Carles gold project in Spain, is brewing as gold miner Orvana Minerals (ORV-T, ORVMF-O) has entered what appears to be a lowball takeover bid for the junior.

In response to the offer, an independent committee convened by Kinbauri’s board of directors quickly rejected Orvana’s bid. But it looks like Orvana is not yet giving up in its pursuit.

Earlier in April, after considering several potential suitors and sources of funding to help advance El Valle and Carles towards production in 2011, Kinbauri announced that Glen

Eagle Resources (GER-V, GERFF-O)had agreed to buy a 45% stake in its Spanish assets for $32 million.

Those funds would go some distance in funding the El Valle and Carles mine as outlined in a scoping study by Kinbauri. In it, Kinbauri proposed a mine with capital costs of 90 million ($143 million) that would produce about 100,000 oz. gold and 10 million lbs. copper per year over a 9.5-year mine life.

To fund the acquisition Glen Eagle, though a small junior with relatively little cash on hand, said that a consortium of European banks would make a $32-million credit facility available to it and partner Paradise Peak Holdings by June 12.

But one of Kinbauri’s earlier suitors won’t be shaken off so easily and has resorted to an interesting tactic: Offering less for a bigger stake.

In an all-cash offer valuing Kinbauri at $29.2 million, Orvana, operator of the Don Mario gold mine in eastern Bolivia, announced May 11 its intent to pay 55¢ apiece for all of the company’s outstanding shares, a 39.2% premium over Kinbauri’s closing price on May 8.

The offer, of course, is contingent on Kinbauri nixing the Glen Eagle agreement.

Call it a bit of spring fever, but love is definitely not in the air.

“I’ve got to be careful what I say here,” says Kinbauri president and CEO Vern Rampton. “I’m wondering what the real intent of their offer is right now and you can read into that what you want.”

He adds: “It’s just ridiculously low. I’ve had people call me and say this is not a good commercial deal under any circumstances.”

But Orvana vice-president and chief financial officer Malcolm King defends the offer. Noting the substantial premium Orvana is offering, he says the bid represents “fair value” for Kinbauri shareholders.

King notes that in addition to its bid, Orvana brings a cushion of cash — $96 million in cash and equivalents — and mine-building expertise to the table.

“We’re able to fully fund the purchase price and the initial capital development required over the first couple of years to get the (El Valle and Carles) mine operating,” he says.

Still, however, Orvana’s $29.2 million for 100% of Kinbauri, appears out of sync with Glen Eagle’s $32 million for 45% of Kinbauri’s Spanish assets.

So, is this a signal that Orvana doubts the deal with Glen Eagle will go through, or that it thinks Kinbauri shareholders would rather have cash in hand for shares than see partial funding of the El Valle and Carles project?

Although King declined to comment on how Orvana developed its bid in view of these points, he notes that Orvana decided to advance its own, and more modest, offer as there was little information available about the details of the Glen Eagle acquisition.

“In effect, therefore, our offer was put out in the absence of complete knowledge of that (Glen Eagle deal),” King says.

Rampton, who acknowledges that there is some trepidation towards the Glen Eagle transaction given that it comes from a small junior, says that even if Glen Eagle failed to arrange the $32 million, he would still scoff at Orvana’s bid.

“If Glen Eagle doesn’t go through, it’s still a ridiculous offer,” he says. “I mean they’re (Orvana) wasting their time if they think they’re gonna go to the shareholders or something. I’d say I’ve talked to at least thirty per cent of our shareholders and they’re just aghast that anybody would even consider this as an offer.”

Yet despite his smarting words concerning Orvana’s valuation of Kinbauri, Rampton is still somewhat conciliatory, saying that he understands how investors and alternate suitors might wonder at Glen Eagle’s ability to come through.

“I don’t begrudge the market at all,” he says. “Because Glen Eagle’s offer is large money coming from a company evidently with a small market cap and if I was an outside investor I would be (thinking) the same thing.”

And though he adamantly dismisses the proffered 55¢ a share, Rampton also notes three upsides to Orvana having made an offer, even if it is a lowball one.

He says it puts the pressure on Glen Eagle to come through. Then he says another “thing about this deal is that Orvana will have everyone reading our press release. . . It (adds) a little bit more excitement.”

Finally, and as a consequence of that excitement, Rampton points to the offer’s effect on Kinbauri’s share price: On the news, Kinbauri shares jumped 52% or 20.5¢ to close at 60¢.

But despite being spurned in its first advance, rejection does not appear to signal the end of Orvana’s courtship for Kinbauri.

“Our interest has not dissolved at all,” King says.

Within 24 hours of getting the cold shoulder from Kinbauri, Orvana responded with a second press release reaffirming its intent to bid for Kinbauri and blasting the company’s planned partnership with Glen Eagle.

Under the banner “financing risks,” Orvana outlines what it sees as deficiencies in the proposed arrangement: Glen Eagle’s market cap of less than $4 million; minimal disclosure of terms of the proposed deal; delays in lining up the credit facility; need for more cash to fund the El Valle and Carles project; and potential difficulty in arranging that additional financing.

And taking its tough love a step further, Orvana questions Kinbauri’s ability to build a mine. “Orvana believes Kinbauri management lacks suitable underground development and mining experience,” it said, offering few specifics.

At this point, May 25 looks to be the next important date. Orvana says it plans to mail its takeover bid circular before then so as to allow shareholders to weigh in on two very different paths to a proposed mine development. Though Rampton dismisses Orvana’s chances with shareholders, Orvana says Dynamic Precious Metals Fund, reportedly Kinbauri’s largest shareholder with a9% stake, supports its takeover bid.