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Cornerstone Capital Formal Rejection of SolGold Takeover Bid No Surprise, Says Former President and CEO Glen McKay

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Cornerstone Capital Formal Rejection of SolGold Takeover Bid No Surprise, Says Former President and CEO Glen McKay: The board of directors of Cornerstone Capital Resources has formally rejected an unsolicited hostile takeover bid from JV partner SolGold. The two companies are working together on the Cascabel Project in northern Ecuador, which industry watchers believe could house one of the world’s largest gold-copper deposits.

Cornerstone Capital Formal Rejection of SolGold Takeover Bid No Surprise, Says Former President and CEO Glen McKay

CEO Glen McKay

In a news release, Cornerstone noted that an independent committee of the Board of Directors conducted a detailed review of the bid, concluding that it is not in the best interests of Cornerstone’s shareholders.

“The Board is unanimous that SolGold’s proposal substantially undervalues Cornerstone, a fact that has clearly been recognized by our shareholders with holders of approximately 59% of the outstanding common shares having now advised Cornerstone that they will not support SolGold’s proposed bid,” said Greg Chamandy, chair of the Cornerstone board.

SolGold is offering 0.55 of a SolGold share for each Cornerstone common share tendered into the proposed hostile did. At current market prices, Cornerstone says this would be approximately $0.35 per common share, or total consideration for all of Cornerstone’s outstanding common shares of approximately $226 million. “The Board views this consideration as inadequate based on the substantial value of Cornerstone’s assets.”

SolGold, which is the operator of the Cascabel project with an 85% share, made its preliminary bid public in late January. Cornerstone owns the remaining 15% of Cascabel and has a 9% stake in SolGold, for a total consideration of approximately 23%. Other major gold miners hold a minority interest in SolGold, including BHP Billiton and Newcrest Mining.

In a recent interview, Cornerstone Capital’s former president and CEO Glen McKay, who was instrumental in the acquisition of the Cascabel site in 2011, said that the SolGold bid was poor, significantly undervaluing Cornerstone’s value. “They may still come with a [formal] offer but it will be a waste of time and money to do so,” he added. SolGold’s detailed preliminary offer was released in late January.

In a letter to SolGold’s board of directors, Cornerstone suggests that the two companies conduct a formal auction for 100% of Cascabel with all potential acquirers, including BHP and Newcrest. “This would level the playing field plus all remaining assets in our respective companies would be spun-out to our respective shareholders,” the letter states. “Otherwise SolGold can continue down the current path of a failed hostile bid and SolGold shareholders are likely to face a creeping takeover and never receive a proper control premium.”

For his part, Glen McKay, who remains a significant shareholder in Cornerstone, believes there will be some action on the Cascabel front, and sooner rather than later. Newcrest Mining has signed two major joint venture deals with Cornerstone in 2019, he notes, including an agreement on the Cana Brava project in Ecuador and the Miocene property in Chile.

McKay sees the deals as an indication that Newcrest is positioning itself for a bid by strengthening its relationship with Cornerstone. “If I had to make a bet, I would say that Newcrest is the front runner,” he says. “I think something will happen before the end of 2019.  We’re hoping that another interested player comes in and starts a bidding war.” Judging by Cornerstone’s letter to SolGold’s board, that’s exactly what Cornerstone is hoping for.