Chaparral Gold Urges Shareholders to Reject Hostile Takeover Bid from Waterton Precious Metals

Chaparral Gold Corp. (TSX:CHL) announced yesterday that in response to a revised hostile takeover bid from Waterton Precious Metals Fund II Cayman, LP, it has filed with Canadian regulators and mailed to shareholders an “updating notice of change to the Company’s directors’ circular.”

As quoted in the press release:

The Notice of Change contains the unanimous recommendation of the Company’s board of directors (the ‘Board’) that the Chaparral Shareholders REJECT the Revised Offer by Waterton and DO NOT TENDER their Common Shares.

The Board’s recommendation to Shareholders to REJECT THE REVISED OFFER is based on numerous factors, including the recommendation of the special committee of independent directors (the ‘Special Committee’) and an opinion provided by the Company’s financial advisor, Maxit Capital LP, with respect to the financial inadequacy of the Revised Offer by Waterton. The full text of the opinion is attached as Schedule ‘A’ to the Notice of Change.

The company believes shareholders should reject Waterton’s revised offer for the following principal reasons:

• The Revised Offer implies INSUFFICIENT value for the Company’s mineral properties;
  • The Revised Offer is not credible as it implies that the Company’s two open-pit, heap leach gold projects in Nevada are immaterial at March 31, 2014 to the Company’s value. The Revised Offer, net of the Company’s estimated working capital, implies a value of only approximately US$4.8 million for Chaparral’s mineral properties. Comparatively, the book value of Chaparral’s mineral properties is approximately US$50 million (at March 31, 2014). Effectively, Waterton is using Chaparral’s cash and receivables to fund Waterton’s proposed acquisition of Chaparral.
• The timing of the Revised Offer is OPPORTUNISTIC;
  • Waterton is attempting to acquire Chaparral when Chaparral is negotiating for an acceptable ‘limited ability to pay’ settlement with the US Environmental Protection Agency (‘EPA’) for the Eureka smelter issue. By minimizing the potential liability associated with this issue by way of such a settlement, it is expected that alternative higher value proposals for the Company will emerge.
• The Revised Offer is highly COERCIVE;The Revised Offer fails to recognize the strategic value of the Company’s asset base in mining friendly Nevada;
  • After eight extensions and never having had more than 1.1% of the Common Shares tendered to its original offer, Waterton is dropping its minimum tender condition, which is highly coercive to shareholders and a clear attempt to secure a minority blocking position to thwart Chaparral’s strategic alternative process before Chaparral can reach a settlement with the EPA.
• The Revised Offer is significantly below precedent multiples for similar-scale gold developers;
• The Revised Offer represents an inadequate premium to the share price;
• The Revised Offer is financially inadequate;
• Rejection of the Revised Offer by the Company’s directors and officers; and
• The Revised Offer is highly conditional.

Click here to read the full Chaparral Gold Corp. (TSX:CHL) press release.