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Market forces Westgold’s hand with Musgrave

Gold miner Westgold Resources (ASX:WGX) has announced a $177 million all-paper takeover offer for tiddler Musgrave Minerals (ASX:MGV) in a deal launched with a touch of controversy, but with the aim of uniting two miners operating in the Cue area of the WA goldfields.

Like the battle for control of between Silver Lake and Genesis for control of St Barbara’s Leonora based mine and facilities, Westgold seems to be offering a similar concentration around Cue where Musgrave has a 927,000-ounce gold mining project and Westgold has two and possibly three mines (if the Great Fingall Deeps projects gets the go-ahead).

Under the terms, Musgrave shareholders will receive one fully paid Westgold ordinary share for every 5.37 Musgrave shares held. That values Musgrave shares at 30 cents each of a total of $177 million. Westgold shares were $1.62 when it first approached Musgrave on June 1.

They fell 10% yesterday to close at $1.44 while Musgrave shares rose 17.6% to 30 cents.

But Monday saw what Westgold described as abnormal trading levels in Musgrave Minerals shares, forcing, Westgold to reveal the all-scrip takeover offer in order to win control of Musgrave.

“This Offer announcement follows Westgold’s initial approach to Musgrave on Thursday, 1 June seeking positive engagement in respect of a potential takeover bid,” Westgold said on Tuesday.

“A non-binding offer letter (with the same terms as announced in this Offer) together with an associated process deed was formally presented to Musgrave for consideration on Friday, 2 June at a meeting between key respective executives.

“Westgold has been advised that the Proposal remains under consideration from the Musgrave Board.

“Unfortunately, Westgold considers that the Proposal’s confidentiality has now been compromised as evidenced by yesterday’s Musgrave share trading volumes which were approximately 6.6 times higher than the average 12-month daily share turnover and resulted in a 6.25% share price increase, notwithstanding that Musgrave released no ASX announcement, the gold price was lower and Western Australia had a public holiday,” Westgold said in the ASX release.

Westgold owns 0.92% or more than 5 million shares in Musgrave, so it starts with a small foothold. Larger WA rival, Evolution has 3.6% or more than 21.7 million shares.

Evolution is in the process of spending hundreds of millions of dollars on a major expansion on its Mungari gold mine in WA and the Ernest Henry copper and gold mine in North Queensland, so the chances it would be interested in bidding for Musgrave?

In its statement on Tuesday, Westgold said its offer will give “Musgrave shareholders the opportunity to see their gold assets developed by a well- funded, debt free and experienced gold miner in a timely and capital efficient manner. It provides an immediate and attractive premium that sidesteps the high risk, dilutive and arduous process of approval, finance, construction and start-up of a small, stand-alone processing facility in a region already well serviced with processing infrastructure.”

In a presentation to support the offer, Westgold said its 1.4 million tonnes a year Tuckabianna mill and its 1.8 million tonne Bluebird mill are located 40 kilometres and 120kms to the north of Musgrave’s Cue Gold Project respectively.

Westgold said it had the “ability to develop Musgrave assets with reduced funding risk and significant shareholder dilution.”

“Musgrave’s Stage 1 pre-feasibility study “assumes $121M start-up capital in a high-risk economic environment for developers”…and “immediately saves $80M capital and construction time associated with Musgrave’s proposed standalone 500,000 a year processing plant.”

Musgrave told shareholders to do nothing while the board assesses the offer.