Strategy
Events Trades
Australia

Event Trade: Cardinal Resources Ltd (CDV:ASX)

29 Jun 2020
By
Cardinal Resources Limited operates as a mineral exploration and development company. The Company develops multiple projects through expansion drilling programs, pre-feasibility studies, and metallurgical test work. Cardinal Resources serves customers in Australia, Canada, and West Africa.

Current advice: Buy no higher than $0.615

Recommendation update – 29 June 2020, 10:00 am

CDV has remained very difficult to get set in and volumes have died down a little since last week. There is a lot of stock at and below our buy price of $0.605 and the stock has consistently traded above that level since we recommended it last week. It looks like raising the buy price to $0.615 may get us set, and only increases our downside to only 2.4% which is tolerable given the dynamics of the bid surrounding CDV. We therefore recommend members increase their buy price on CDV to $0.615 per share.

To view the rest of our current Event Trades, please click here.

Original Recommendation- 23 June 2020, 10:00 am

CDV is a gold explorer which is in the early stages of developing a major gold project in Ghana. On the 16 March, just as global markets were plummeting, CDV announced that it had received a non-binding indicative proposal from a company called Nord Gold which would see Nord buy CDV at a price of $0.458 per share. Additionally, Nord had acquired 19.9% of CDV and was in a terrific negotiating position, so CDV engaged with Nord with a view of progressing the talks towards a binding offer.

CDV shareholders got great news this week as the company announced that it had instead signed a binding bid implementation agreement with Hong Kong-based Shandong Gold which would see Shandong buy CDV at a price of $0.60 per share. This offer comes with far fewer conditions than the Nord offer and importantly has a minimum acceptance condition of only 50.1% which means that Nord’s shareholding cannot block the deal.

Considering the premium being paid by Shandong, it seems likely that Nord will take the profit on its investment and walk away, but the offer price needs to be seen in the context of the incredible volatility gold stocks have endured since the coronavirus pandemic began rolling over markets. While gold prices are at or near record highs in Australian dollars, CDV traded as low as $0.25 in March. Gold giants Newcrest (NCM) and Evolution Mining (EVN) are up 43% and 59% since Nord’s proposal was announced, so arguably the pre-bid levels being referenced when considering Shandong’s offer are opportunistic.

It, therefore, might be premature to assume that Nord, or some other party perhaps, can’t make the numbers stack up on a higher offer for CDV than the $0.60 currently proposed. Given the conditions attached to that offer, we think buying at around $0.60 on the chances of a higher offer makes sense with a high likelihood the current offer proceeds in the absence of a superior offer.

We, therefore, recommend members buy CDV at up to $0.605 for a short-term, low-risk investment on the hope of a competing bid. The stock has opened strongly this morning so patience may be required, but please stick to the $0.605 price for now.

To view the rest of our current Event Trades, please click here.

Rivkin does not ever provide financial advice. Please consider your own circumstances before purchasing any of our products or acting on our general advice, for any Rivkin product or recommendation.

SHOW COMMENTS / QUESTIONS (2)

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Monika & Wayne S.

What chance FIRB knocks this on the head.

Shannon Rivkin

Hi Monika and Wayne,

FIRB rejecting this deal is highly unlikely as CDV’s main asset is in Ghana.

Regards,
Shannon Rivkin

We are glad you liked it

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