Scion calls Bolivar to task

If Bolivar Gold (BGC-T) thought its deal with Gold Fields (GFI-N, GOF-L) was going to be easy, it’s got news.

The Toronto-based company with assets in Venezuela finds itself in dogfight for shareholder approval now that its largest shareholder California-based Scion Capital is urging fellow shareholders to shoot down Gold Fields offer.

On November 21 Bolivar and Gold Fields announced that Bolivar’s management approved a Gold Fields buy-out offer of $3 a share for a total of roughly $330,000 million.

Scion holds roughly 19% of Bolivar’s outstanding common shares. On Monday, Dec. 19 the investment company issued a strongly worded dissident cirular against the deal.

Scion attacks Bolivar for accepting an offer that undervalues the company’s 95% owned Choco 10 project in Venezuela, while favouring the personal interests of Bolivar’s management and board of directors.

Scion added in a press release also issued on Dec.19 that, “Gold Fields’ offer does not take into consideration that gold prices have recently risen to a 25-year high.”

Toronto-based Paradigm Capital analyst Don MacLean agrees with the last point. MacLean says higher gold prices mean Gold Fields projected margins at the project have increased since the deal was made.

“The original margin at a gold price of US$470 was about $130,” MacLean says. “Now that gold has gone up there is a material increase in the margin.”

MacLean says an increased offer from Gold Fields would be fair, but added approval from the South African Reserve Bank who is financing the acquisition — could stand in the way.

But BMO Nesbitt Burns analyst Heather Douglas doesn’t see the South African Reserve Bank as an obstacle. She says its rules governing such matters have relaxed recently and she doesn’t think a sweetened offer would be a “bid deal” for the bank.

In the circular Scion also complains that Gold Field’s offer, “exploits market overreaction to perceived politic risk in Venezuela.”

MacLean says while Choco 10 is a good asset and political risk has come down since the Gold Field bid was announced Bolivar secured its final permits for the property in that time he still believes a 10% political discount for a company operating in Venezuela is appropriate.

“Could something go wrong this afternoon or later tonight in Venezuela?” he asks. “Yes.”

A sentiment echoed by BMO Nesbitt Burns analyst Heather Douglas.

“I don’t know what world they’re living in,” Douglas says of Scion’s contention that the political risk in Venezuela was equal to or less than that of Tanzania and Botswana.

Bolivar Gold was not immediately available for comment.

Niether MacLean nor Douglas hold shares in Gold Fields or Bolivar.

In Toronto on Tuesday, Dec. 20, Bolivar shares closed at $2.95, down 1% or 3 on roughly 490,000 shares. In New York, Gold Fields shares closed at US$16.25, down 3.5% or US60 on roughly 2 million shares.