Relief for Regis as investors back Tropicana equity move
The top managers at Regis Resources would have probably shown some level of relief on Tuesday night to learn that the company had secured enough investor support for its $650m equity raising to buy the 30 per cent stake in the Tropicana gold mine for $903m.
Regis moved to tap the market even though there is a risk that the Tropicana stake could instead be picked up by AngloGold Ashanti, which has the last right of refusal to buy the interest for up to 60 days.
But the understanding is that the equity raising will at least get done, given that as of the close of the market on Tuesday night the book was covered for the $650m raise at $2.70 a share through Bank of America after shares last traded at $3.17.
The books closed for domestic and Asian investors on Tuesday night and will be open until 7am AEST on Wednesday for US and European investors.
It will secure $200m by way of a placement and $450m through an entitlement offer. It is also raising $300m debt.
On Tuesday, analysts were describing the $903m that Regis paid IGO for the 30 per cent interest in the strongly performing gold mine as generous, with RBC valuing the interest at $780m, including $580m for the current operation and $200m on the exploration upside.
When the stake first hit the market in September, the gold price was $US1950 an ounce and the analyst consensus was that it was worth about $800m.
Now the gold price is at $US1730 and, based on this, most expect the chances of AngloGold opting to buy the 30 per cent Tropicana interest is unlikely.
IGO is cashing in on the overwhelming investor demand globally for opportunities that meet good environmental, social and governance criteria by transforming its company into one that only mines commodities used to produce clean energy.
It can now use the funds from the gold mine sale to pay for its $1.9bn acquisition in December of the Greenbushes lithium mine that came as part of its quest to be a pure-play battery material company.
The outcome of the Macquarie Capital-run sales process has proved to be a major surprise, given Regis’s extremely limited track record of mergers and acquisitions in the past.
Chief executive Jim Beyer has only been in the job about for about two years. When he previously ran Mt Gibson Iron, the company kicked plenty of tyres but never embarked on any major acquisition, despite the company sitting on about $400m of cash.
The latest deal for a non-operational stake marks a change of strategy for Regis, which has a track record for developing modest-sized assets and extracting value through its operational skill, and takes it further up the risk curve.
But it makes Regis less reliant on development earnings from its McPhillamys gold project in NSW. DataRoom understands that the contest favourite, Gold Road Resources, made a final bid that was less than $700m.
Also through to the final round was Evolution Mining, which only wanted to secure the stake if it could buy the Tropicana mine in its entirety.
Kirkland Lake Gold made a similar proposal, according to market sources, but it is unclear if it made it through to the final stage of the contest.
A private equity firm was also in the final mix.
Market observers will watch with interest the performance of the Regis share price when trade resumes this week. About two years ago, the company was the same size as Northern Star and Evolution Mining and, after both have made acquisitions, they have left Regis in the dust.