Emerald Resources faces new hurdle in Bullseye takeover bid after disgruntled Chinese shareholder launches all-cash offer

A dissident shareholder of public unlisted gold miner Bullseye Mining has made a fresh bid to undercut $562 million capped gold producer Emerald Resources (ASX:EMR) in its efforts to acquire the WA-based junior.

China’s Hong Kong Xinhe International, owner of 14.85% of Bullseye’s stock, has already applied to the Takeovers Panel to look into Emerald’s $117 million all scrip offer, which was supported by Bullseye’s board and has seen Emerald acquire a 55.85% stake in the target.

It would give Simon Lee-chaired Emerald, owner of the Okvau gold mine in Cambodia, access to a second producing asset in WA.

While the outcome of the Takeovers Panel review is yet to emerge, Emerald has given an undertaking it will not process any more acceptances in its 1 for 3.43 share offer until a declaration is made.

Through a company known as Au Xingao, Xinhe and its parent company Chinese real estate firm Xinhu Zhongbao have now raised the stakes, saying it has issued a 31c a share all cash offer off-market to Bullseye shareholders.

That would rise to 35c if Au Xingao is successful in acquiring 40% of the company and getting the opportunity to conduct due diligence on Bullseye’s assets, a request it says has gone unanswered on three occasions by the Bullseye board.

Emerald Resources share price today:

Chinese firm prepared to ‘pay a premium’

That would value all the shares of Bullseye at $155 million, a 14% premium to the original Emerald offer by Xingao’s math.

The Xinhe group isn’t so keen on selling into the Emerald deal, and are not keen on Emerald’s Cambodian assets including Okvau.

On most conventional metrics Okvau has been a solid performer since hitting full production in September last year, with Emerald’s share price rising around 20% in 2021 to take its market cap above $500 million.

Okvau has a 907,000oz reserve at 2g/t, underpinning a seven-year mine life at over 100,000ozpa, and delivered 26,395oz of gold at all in sustaining costs of just US$740/oz in the December quarter.

However, Au Xingao claims its all-cash offer will be a better deal for shareholders.

“We are prepared to put cash on the table and pay a premium,” Xingao director Luke Huang said.

“The alternative is Emerald scrip and, frankly, we don’t want to risk that. We have concerns about Emerald’s Cambodian assets which together with volatility in global markets presents significant uncertainty and a very high risk that the effective price being offered for Bullseye could drop significantly.”

Water not so under the bridge

But relations between Xinhe and the Bullseye board have been frayed for a long time.

A WA Supreme Court action by Xinhe dating back to 2020 alleging that the affairs of Bullseye have been conducted in a manner which is oppressive to or unfairly discriminatory against Xinhe and contrary to the interests of shareholders is at the trial stage, with hearings due to wind up in March 2022.

Emerald acknowledged this and other court actions against Bullseye in its offer announcement and subsequent statements, but no outcomes were expected that would have negative consequences for Emerald and its bid.

But conflicts between Bullseye and its Chinese shareholders had emerged in 2018 and 2019 against the backdrop of a $4 million all-scrip takeover bid by Red 5 (ASX:RED), including Bullseye directors Peter G. Burns, Peter Burns and Dariena Mullan successfully seeing off a s249D notice for their removal supported by a former director Wu Qiyuan.

Either way the cards fall, the potential bidding war would see Bullseye shareholders walk away with many multiples of what Red 5 was prepared to offer four years ago.

Bullseye has since entered production in its own right, starting mining at the Bungarra open pit in a JV with contractor Blue Cap Mining within its North Laverton gold project last year, with its first gold bar poured at Wiluna Mining Corporation’s (ASX:WMC) Wiluna processing plant last September.

Since then Bullseye has generated $30.75 million in revenue, producing 12,579oz of gold from Bungarra with a third processing campaign to extract 8,640oz due in March 2022.

Bullseye and Emerald were contacted for comment.