On a number of occasions - the last time being November 2012 - we have strongly recommended Union Resources as a takeover target, and therefore a great stock to just buy and to through away the keys until a takeover bid arose. That day has come by 6 months later. This has in the last day caused the stock to rise 180%. We bought this stock for 14c, and on the day of the takeover it was 11c in a weak market. Today its 31c, and truth be told, if markets were logical, it should probably be worth 50-odd cents. The problem as I see it is that shareholders are not going to get a good deal simply because in this market 'cash is king'. People will accept cash, even if its not a good price. Its not a good price because:
1. Mermaid offshore phosphate deposit in Namibia was bought from Minemakers (same share) for $US25mil; valuing the stock at around 41c a share. Correction: The takeover price values the company at $A32million, which is $6mil over and above the valuation of the Minemakers purchase price.
2. The bid places no value on the company's shareholding in the Iran project; one of the largest undeveloped lead-zinc deposits in the world.
Now, you can wait for a higher offer, but there is the risk that it won't come. This is an unconditional cash offer; so my understanding is that it can be withdrawn after the expiry of the offer. The question for you is not so much the risk of missing out, but the opportunity cost of holding when a higher offer might not come. This is a statistical question because the market has been hit, so it might be more prudent to take this opportunity to take the cash to prepare yourself for the next buy.
The problem as I see it is that the takeover suitor does not necessarily need control of the project. They can creep along and get it slowly at a lower price. Having said that, they might raise it to tidy up lose ends. The question is - is it worth the risk as a shareholder? The last thing you want is to be one of the 10% equity holders holding stock when they move to compulsory acquisition. Now, much depends on how the directors respond to the offer. My problem is that:
1. The directors seem to be saying its a huge premium. That does not give me confidence. Indeed, its kind of misleading if they now come out and say its poor value.
2. I'm wondering if the company executives have a blocking stake of 10% to force a higher shareholding.
I have reluctantly taken the offer because:
1. Its cash and its a good time to re-invest
2. Its a bad market - and the company needs to raise working capital
3. The capital requirements for the company are onerous
1. Mermaid offshore phosphate deposit in Namibia was bought from Minemakers (same share) for $US25mil; valuing the stock at around 41c a share. Correction: The takeover price values the company at $A32million, which is $6mil over and above the valuation of the Minemakers purchase price.
2. The bid places no value on the company's shareholding in the Iran project; one of the largest undeveloped lead-zinc deposits in the world.
Now, you can wait for a higher offer, but there is the risk that it won't come. This is an unconditional cash offer; so my understanding is that it can be withdrawn after the expiry of the offer. The question for you is not so much the risk of missing out, but the opportunity cost of holding when a higher offer might not come. This is a statistical question because the market has been hit, so it might be more prudent to take this opportunity to take the cash to prepare yourself for the next buy.
The problem as I see it is that the takeover suitor does not necessarily need control of the project. They can creep along and get it slowly at a lower price. Having said that, they might raise it to tidy up lose ends. The question is - is it worth the risk as a shareholder? The last thing you want is to be one of the 10% equity holders holding stock when they move to compulsory acquisition. Now, much depends on how the directors respond to the offer. My problem is that:
1. The directors seem to be saying its a huge premium. That does not give me confidence. Indeed, its kind of misleading if they now come out and say its poor value.
2. I'm wondering if the company executives have a blocking stake of 10% to force a higher shareholding.
I have reluctantly taken the offer because:
1. Its cash and its a good time to re-invest
2. Its a bad market - and the company needs to raise working capital
3. The capital requirements for the company are onerous
But prospective sellers should consider that the upside is another 200% profit, i,e. for a total 400% gain if the directors are able to get a higher price. I frankly think the company is worth $1.50, but until Iran is the subject of a revolution, and shareholders discover that value, I don't see anyone offering that type of money. The lack of cash is a big factor for selling for me. I don't want to be diluted after the expiry of the offer. By al means wait for the offer. I might be a little cynical selling early because I've just become accustomed to the 'big boys' getting all the profits because they can rely on the lack of access to capital for small companies. You have to save your criticism for the governments who make this type of 'boom-bust' economy possible, which is ultimately the source of the tragic market conditions which allows big companies to win the day.
Interested in how you can make 200% profits like this more often. Well, this is actually a disappointing gain given the upside in this stock, and the spectre of a takeover in bad market conditions, however we do try to please. We first suggest learning how to become an active investor. You can become one of an elite group of investors who make exceptional profits by developing 'active minds' to manage risk, or really to dissipate risk, rather than to accept it, and 'diversifying' away from great returns. This only serves the fund managers who make commissions and the large multi-nationals who win on the 'divide and rule' strategy. If you like our active investment strategy - join us on Facebook or our Google Plus Community. Feel free to ask questions.
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