Gold Road Resources Limited, together with its subsidiaries, engages in the exploration of gold properties in Australia.
Current advice: buy GOR at no higher than $3.25
short-term, medium-risk arbitrage opportunity.
Latest Update: 5 May 2025, 12:00pm
This morning, GOR announced that it had signed a binding scheme implementation agreement with Gold Fields, which would see GOR shareholders pay a headline price of $3.40 per share. While the entire consideration will be in cash, only $2.52 will be fixed, with the remaining $0.88 in cash subject to changes in the price of Northern Star Resources (NST), in which GOR is a major shareholder. Therefore, roughly 25.9% of the consideration will fluctuate, and there is discomfort initiating exposure to the gold prices near their all-time highs. However, NST is already nearly 20% off its recent highs, and the tailwinds supporting gold stocks are likely to sustain throughout the life of the bid, so it’s a risk we’re comfortable taking at the right GOR price.
Additionally, GOR can pay a full franked dividend to pay out its franking credit balance (with the cash consideration being reduced by the quantum of the net dividend amount). Currently, that would imply a $0.35 fully franked dividend, thus adding $0.15 in franking credits to the scheme consideration, but that number may increase slightly as the deal is expected to take up to six months to complete. At current GOR prices, those franking credits add almost 5% to the final result.
Other than the variable cash component, which could either add to or subtract from the final result, the deal looks rock solid and should be completed without any issues, in the absence of competing bids. Gold Fields has declared the bid as ‘best and final’, so this will be the final offer if no other bidders emerge.
GOR is trading at $3.25, with the cash return equating to 4.6% in roughly six months (we’re expecting five months), just under our minimum hurdle return target of 10%. Adding in the franking credits, the gross return is 9.2%, far above our minimum return target.
Therefore, we recommend members buy GOR at no higher than $3.25 for a short-term, medium-risk arbitrage opportunity. The investment is being classified as medium risk because the consideration is not entirely fixed, but NST would need to drop roughly 20% throughout the life of the bid for our paper profits to disappear, so there is a large margin of safety. Those clients with CFD accounts can short-sell NST shares to hedge the investment, if desired.
