Locking in a cash premium offers more certainty than waiting for gold’s rally to continue, says the CEO of Allied Gold.
The Toronto-based mining company agreed this week to a $5.5 billion all-cash takeover by China’s Zijin Gold, as gold prices continue to trade near record highs.
“We’re being paid a premium on top of that high,” Peter Marrone, CEO of Allied Gold Corporation, told BNN Bloomberg.
“I think the shareholders should be comforted that they’re getting a very fair deal.”
Zijin Mining agreed to pay $44 per share for Allied Gold which has three operating gold mines in Mali, Côte d’Ivoire and Ethiopia.
Cash certainly over gold rally
Marrone said the board evaluated the decision as part of a broader strategic review that included assessing which assets might be attractive acquisition targets, and what Allied Gold could afford given its balance sheet.
“I don’t believe that anyone would price something on the basis of the gold price today, or on the basis of where the gold price should be expected to go normally,” Marrone said.
“People are pricing things based on some discount to gold price.”
Zijin’s offer represents a premium of close to 30 percent to Allied’s Gold’s 30-day volume-weighted average price, said Marrone adding that it is higher than what is reflected in analyst models and broader market pricing.
Analyst models assume lower gold prices
Marrone said long-term gold price assumptions used by analysts remain far below current spot prices.
“They’re not taking into account US$5,000 gold. They’re not taking into account US$4,000 gold. Long term, it’s closer to US$3,000.” said Marrone.
Shareholders vote and governance
Marrone said the company is in the business of creating optionality.
“In that context, I don’t know where gold price will go,” said Maroney.
“It could go lower, and if it goes lower, shareholders have the certainty that they’ve got an underpinning in their share price with a cash deal of $44 per share.”
Marrone said he is not concerned about the upcoming shareholder vote.
“Every shareholder that is invested in our stock bought shares at a price that is lower than this,” said Maroney.
Acquisition amid trade tensions and TSX listing
Marrone said he is not worried about geopolitical risks as a concern for Allied Gold amid trade tensions with the U.S. and recent deals with China.
He said Zijin Gold has acquired Canadian assets before, and gold is not a strategic metal.
He also dismissed concerns about Allied Gold coming off the Toronto Stock Exchange.
Looking ahead, Marrone said his immediate focus is on securing shareholder approval and completing the transaction.
