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Cornerstone rejects SolGold’s bid for the second time

SolGold and Cornerstone both own ENSA, which is the Ecuadorian company that owns the Cascabel project.

SolGold and Cornerstone both own ENSA, which is the Ecuadorian company that owns the Cascabel project.

15th July 2020

By: Mariaan Webb

Creamer Media Senior Deputy Editor Online

     

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The Canada-based partner of Ecuador-focused SolGold has again snubbed a takeover offer, with TSX-V-listed Cornerstone Capital Resources arguing that it is “wholly inadequate”, “exploitative” and not compliant with securities laws.

Australia-headquartered SolGold, which is backed by BHP and Newcrest Mining, on June 30 formalised an unsolicited offer for Cornerstone – a year-and-a-half after it first announced its intention to buy the company.

“For the second time, the board is unanimous that SolGold’s proposal substantially undervalues Cornerstone, a fact that has clearly been recognised by our shareholders, as holders of approximately 65% of the outstanding Cornerstone shares have advised Cornerstone that they will not support SolGold’s hostile bid,” said chairperson Greg Chamandy, who owns more than 10% of Cornerstone’s shares.

He criticised the SolGold management team and board for “wasting resources” by making a bid that fails to comply with Canadian securities laws. The company argues that securities regulations require an insider, which it said would include SolGold by virtue of its participation in Exploraciones Novomining SA (ENSA), the Ecuadorian company owned by SolGold and Cornerstone that holds 100% of the Cascabel concession, provide enhanced disclosure and a formal valuation in connection with a takeover bid.

Chamandy also raised a red flag over the timing of the hostile bid, calling it “highly suspect".

“It is set to expire five days before BHP is free from their unusual standstill, which extends not only to shares of SolGold, but also Cornerstone shares.”

Cornerstone views SolGold’s offer as “exploitative", claiming that that company has withheld material nonpublic information in respect of the Cascabel project, including information on the progress of the ongoing prefeasibility study at the project, from the market and Cornerstone shareholders.

ENSA holds 100% of the Cascabel concession, widely considered to have the potential to be a world-class mineral property owing to its significant copper and gold resources. Subject to the satisfaction of certain conditions, including SolGold fully funding the project through to feasibility, SolGold will own 85% of the equity of ENSA and Cornerstone will own the remaining 15% of ENSA. Cornerstone also owns about 7.6% of the outstanding shares of SolGold.

“In effect, Cornerstone has a combined direct and indirect 21.4% interest in the Cascabel project and the projects falling within the Cascabel area of mutual interest in addition to Cornerstone’s ENAMI strategic exploration alliance and other assets,” the company pointed out.

SolGold is responsible for funding 100% of the operations and activities at Cascabel, including funding Cornerstone’s 15% interest, until completion of a bankable feasibility study (BFS). Following completion of a BFS, SolGold is entitled to receive 90% of Cornerstone’s distribution of earnings or dividends from ENSA until such time as the amounts so received equal the aggregate amount of expenditures incurred by SolGold that would have otherwise been payable by Cornerstone, plus interest thereon.

“The benefit to shareholders of Cornerstone’s strategic 15% carried interest in ENSA is apparent considering the significant dilution that SolGold’s shareholders have experienced, and are likely to continue to experience, as a result of SolGold’s attempts to finance the substantial ongoing development costs associated with the Cascabel project,” Cornerstone said.

The takeover target urged its shareholders to reject the bid and not to take any action.

Edited by Creamer Media Reporter

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