Ground Breakers: And here we go, our first takeover stoush of 2022

Emerald Resources (ASX:EMR) has hit a snag in its bid to takeover unlisted Australian gold miner Bullseye after a long-term dissident shareholder of the target made an application to the Takeovers Panel to block the bid.

Frictions between Bullseye and its major shareholder Hongkong Xinhe International Investment Company came to light in 2018 when the company which owns the North Laverton Gold Project emerged as a takeover target of Darlot and King of the Hills gold mine owner Red 5 (ASX:RED).

Unlike the dumped Red 5 offer, Bullseye’s board is supportive of the deal with Emerald, announced late last year.

Emerald’s herald: a score on two fronts

Emerald emerged as one of the top rising gold stocks on the ASX in 2021 as it entered production at its Okvau gold mine in Cambodia.

In Bullseye it would acquire a second source of gold production and around 373,000oz of JORC compliant ounces in a new jurisdiction. The unlisted miner produced more than 12,000oz of gold by processing ore from its Bungarra open pit through Wiluna Mining Corporation’s (ASX:WMC) Wiluna mill.

Another 8640oz is intended to come from a third processing campaign beginning in March.

Emerald appears to be well on its way to mopping up the Bullseye assets through its recommended 1 for 3.43 share offer (valuing Bullseye at ~$117 million when the deal was announced last month.) It has more than 52% of the shares in Bullseye in its pocket and last week made the bid unconditional.

Enter a dragon

Enter Hongkong Xinhe, which has asked the Takeovers Panel to intervene over allegations the target’s and bidder’s statements were “deficient”, adding it believes there is an undisclosed association between Emerald and “each of the Bullseye directors” – alleging a breach of Emerald’s disclosure obligations – and that some shareholders were favoured by having their shares acquired by Emerald ahead of the bid announcement.

Hongkong Xinhe also claims: “a significant number of Bullseye shares whilst Bullseye was in discussions with Emerald at a significant discount to the Emerald bid price … diluted the interests of the pre-existing Bullseye shareholders and therefore potentially deprived them of the opportunity of a higher bid price based on total enterprise value absent such dilution.”

In its Takeovers Panel application, Hongkong Xinhe said Bullseye issued 71,641,270 shares at between $0.20 and $0.27 a share between November 29 and December 3 after Bullseye and Emerald entered into a bid implementation agreement, which was formally announced to the ASX on December 7.

They also said Bullseye issued 17,251,236 shares at $0.23 a share on December 13 and 17,386,494 shares at $0.25 a share on the day the offer opened on December 13.

“Ice mast-high, came floating by, as green as Emerald…”*

Emerald is yet to comment but has entered a trading halt to prepare a response to the Takeovers Panel application, which is seeking an interim order stopping Emerald from processing acceptances before the application is determined and final orders, “to require corrective disclosure from Bullseye and Emerald” and, “whatever orders the Panel considers necessary to address the ‘springboard’ advantage gained by Emerald through its pre-bid conduct.

The frosty relations between the Bullseye shareholder and the miner’s board emerged during the unsuccessful Red 5 takeover bid in 2018 and 2019.

* Sam T Coleridge