Randgold outbids Red Back for Moto Goldmines

Randgold Resources (RRS-L) caused some commotion in the markets today by topping Red Back Mining‘s (RBI-T) June 1st bid for Moto Goldmines (MGL-T), kicking off a potential bidding war.

Randgold’s $546-million offer for Moto outdoes Red Back’s $513-million all-share offer by including a heavy cash component.

Moto shareholders would have the option to receive $5 in cash per share for some or all of their shares, to a maximum amount of US$244 million, subject to proration. Otherwise shareholders will receive 0.07061 of a Randgold share for every Moto share.

The cash comes from AngloGold Ashanti (AU-N, AGD-L), which in a separate agreement, agreed to fund the cash portion as partial payment for an indirect 50% interest in the Moto project, should the Randgold deal go through.

The markets responded by boosting Moto shares up more than 9%, or 44¢, to $5.11 per share on a trading volume of 2.5 million shares in Toronto today while Red Back shares slid 4%, or 45¢, to $9.75 per share with 1.3 million shares changing hands.

Nedgroup Securities analyst, Christian Siebert expects Red Back, which has first right of refusal, to make a counter offer.

“I wouldn’t be surprised to see the bidding price move up,” Siebert said from his office in London, UK.

Moto has told Red Back that it hasn’t met with its board yet to discuss the offer. In a statement, Red Back highlights that Moto doesn’t yet consider the Randgold deal as ‘superior proposal,’ to its early June offer. The Red Back deal includes a $15-million break fee.

But Moto’s largest shareholder, Electrum Strategic Holdings, has already signed an agreement with Randgold supporting the business combination with Moto. In late June, Electrum expressed its disapproval of the Red Back deal calling it too low given the size of the project. Electrum holds about 14% of Moto.

“We view the Randgold-AngloGold combination to be a superior alternative to Red Back’s in terms of ensuring successful financing, development and operation of the Moto gold project,” Electrum CEO William Natbony said in a statement.

Siebert also says that Randgold’s offer is stronger. “It’s a premium and it’s got a cash sweetener in it,” Siebert says.

On the table is the Moto gold project in the Democratic Republic of the Congo (DRC). Moto has completed a feasibility study that looked at building an open pit and under ground mine that would produce 484,000 oz. gold per year over 16 years. Reserves were estimated at 42.3 million tonnes grading 4 grams gold per tonne for 5.5 million oz. gold.

“It’s a world class project and it’s certainly worth the money they are paying at the moment,” Siebert says.

Siebert says Randgold can afford to bid as high as it likes but for Red Back a bidding war could become a bit of an issue.

“If Red Back has to dip into its cash chest to any large degree, they’ll have to come to the market or look to raise quite a bit of debt to fund it, whereas for Anglo and Randgold, the funding of the project is not an issue,” Siebert says.

Being a part of the Lundin group of companies, it won’t be difficult for Red Back to get access to good capital but Siebert says too much dilution could make buying Moto less and less attractive.

Another consideration for Moto shareholders will be whether they want to own Randgold shares or Red Back shares. Siebert says Randgold is a bigger name but Red Back is more of a value play.

“Opinion will be mixed over which stock they’d rather own but I think on the numbers, Randgold’s offer is definitely better,” Siebert says.

Randgold and AngloGold each have a 40% share in the Morila gold mine in Mali, which has produced more than 5 million oz. gold since production started in the fall of 2000. However, in April, the open pit was closed and the company began a transition to processing stockpiled ore until it closes in 2013.

Also in Mali is Randgold’s Loulo gold mine, which produced 258,000 oz. gold in 2008. The company aims to ramp up to 400,000 oz. per year by 2011 when the underground mine will be fully operational.

The company has other exploration projects in both East and West Africa including the Massawa project in Senegal which is at the prefeasibility stage.

Red Back’s key projects are the Tasiast gold project in Mauritania, expected to produce 230,000 oz. gold in 2009 and the Chirano project in Ghana. Chirino consists of 11 gold deposits spread along a strike length of 9km. The company is currently upgrading the Chriano mill to a capacity of 3.5 million tonnes per year from 2.1 million. The mine produce 120,000 oz. gold in 2008