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Just how much of a stitch-up is the Orion offer for Dalradian Resources?

A recommended offer in which key participants aren't selling? What's going on?
Just how much of a stitch-up is the Orion offer for Dalradian Resources?
Dalradian's Irish resource base amounts to several million ounces of gold

It’s an unusual deal structure, that’s for sure. The board of Dalradian Resources Inc (LON:DALR) (TSE:DNA) has agreed to an all-cash offer from billion dollar mining and commodities investment specialist Orion Resource Partners.

The deal values Dalradian and its Irish gold assets at a chunky enough C$537mln (£307mln), more than C$200mln the company was trading at on the open market, prior to the announcement. In London, the shares rose more than 50% to 81p on the news, just shy of the offer price.

READ: Dalradian Resources agrees C$437mln takeover by private equity firm

To be sure, investors who bought in between June and September of last year are still sitting at a loss, as the company’s shares at that point spiked at over 100p in London.

But that’s not the tricky bit.

What’s tricky is that while the board of Dalradian is recommending that investors accept the sale of the company to Orion, they themselves will be hanging onto their own shares.

And they’re not alone.

Osisko Gold Royalties, one of the key investors in Dalradian, and a highly respected and successful operator in the Canadian resources space, will also be allowed to keep its shares.

The reason for this anomaly hasn’t been spelled out. But investors will be forgiven for thinking that there’s still upside in Dalradian’s valuation to be had, and that those that stay in will be looking to benefit from it.

The usual attractions for a deal like this have duly been presented to shareholders. The premium is approximately 60%, and an independent valuation put together by analysts at Raymond James reckoned the value of the shares at between C$1.37 and C$1.70.

The offer price, handily, is at C$1.47, plum in the middle of the range.

The offer is also pitched at a higher price than the shares have ever traded at, with the one exception of those couple of months last summer.

Two directors connected to the counter-parties

So most Dalradian investors will be on to a winner, and the deal will almost certainly proceed. Especially as major investor Blackrock is backing the deal, probably because it will realise a very tangible gain in a sector that has been pretty treacherous over the past few years.

But note that two directors are connected to the counter-parties. Michael Barton, an independent director, is a principal with Orion. Sean Roosen, also an independent director, with a remit for safety, is the chief of Osisko Gold.

Of course, as is right under the strict letter of the law, these men have recused themselves from voting and discussion of the deal at the Dalradian board level. But Osisko can be counted on as supportive of the deal, even as it retains its own shareholding.

It would be interesting to know whether other shareholders would have appreciated being offered a similar opportunity to stay in at the equity level in one of Europe’s most outstanding mining projects.

More broadly, of course, this deal is just one more sign that the market is opening up for mining transactions, following the agreed acquisition of Arizona Mining by South 32 earlier this week, and Gina Rhinehart’s move on Atlas over in Australia.

The implications for Dalradian’s near neighbour, Galantas Gold Corp (CVE:GAL), are also interesting. Galantas is much smaller, but chief executive Roland Phelps has made no bones about the likelihood of a significant resource expansion, should funds become available.

Will Orion look to consolidate the region once it’s got its hands on Dalradian? And if it does what kind of deals will it be offering?

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