Gold One International Limited 31 Aug 11

Accept the BCX Gold Investment Holdings offer

Gold One International is the subject of an off market takeover, with an offer from BCX Gold Investment Holdings Ltd (BCX). The bidding company is controlled by a consortium of Chinese Corporations. Both the Bidder Statement and the Target Statement have been dispatched to shareholders.

The offer made by BCX is a cash offer of A55 cents per Gold One International share. The offer price represents a premium to the Gold One International 30 day volume weighted average share price (VWAP) at 30 March 2011 of 54%.

After finding support at the 27.5 cents support level in January, Gold One International broke to the upside from the short term downtrend line in February. The upward advance also managed to break above both moving averages, indicating momentum to favour the upside. The all time reached was 53 cents August. Downside support is located at the 50 day moving average should a retracement unfold.

The offer price premium compared to the Gold One International’s share price on 12 May 2011, being the last day of trading pre the offer announcement, was 27.9%. On the Gold One International 30 day VWAP share price to 12 May, the offer price premium was 25.1%.

The average market capitalisation per ounce of gold reserve for the companies listed on the Canadian market at 24 August was A$112.19 (US$117.62). The same figure for Gold One International using the A55 cent offer price at the time of writing was approximately A$290 per ounce. It is this uplift in value of over 150% that we consider cannot be ignored.

Conditions attaching to the offer include a minimum acceptance level of 60% of the fully diluted shares on issue in Gold One International. The 60% share ownership includes the shares accepted by BCX under the offer. It also includes the aggregate of the shares issued to BCX under the initial subscription and maximum shares that may be issued under the additional subscription.

“BCX aims to acquire between 60% and 75% of the shares in Gold One International.”

Should BCX reach the 90% ownership level of shares in Gold One International, it has the right but not an obligation to move to compulsorily acquire all the remaining Gold One International shares that it does not already own.

At the time of writing BCX held approximately 17.64% of the shares in Gold One International.

There will be no scale-back of acceptances. The bidder is required to accept all the shares it receives through the offer mechanism unless it is withdrawn by the bidder on the grounds that conditions were not satisfied. The bidder may however close the offer early on achieving its desired ownership level.

A further condition requires Gold One International shareholders to approve, at a general meeting of shareholders, the placement of 375.0 million shares the ‘Initial Subscription’ with BCX at an issue price of A40 cents per share. The placement price represents a discount of 37.5% on the A55 cent offer price.

A meeting of Gold One International shareholders is to be held on 7 September 2011. We recommend Members vote to approve the ‘Initial Subscription’ Resolution and complete the appropriate form and return the same to Gold One International in the described manner.

We have reviewed the remaining conditions of the offer and consider them not to be onerous on the offer. The conditions of the offer are contained in APPENDIX 2 – CONDITIONS OF THE OFFER in the Bidder Statement.

The offer closes, unless extended, withdrawn or closed early, on 11 November 2011. Payment of the offer consideration is expected to be made to accepting shareholders on 18 November 2011.

Should the offer be declared free of conditions by the bidder during the offer period, consideration will be paid within one month of the declaration being made or by the 18 November 2011, which ever is the sooner.

With reference to the weekly chart, momentum on the MACD is drifting lower, suggesting a pullback at hand.

We are of the view that a higher bid for Gold One International is unlikely, given the premium in the current BCX offer price.

The uplift in value for Gold One International shareholders as a result of the BCX offer, we view as the primary factor for Members to accept the offer. Other factors we have considered include being locked into a minority shareholding and the potential for a misalignment of interests. The potential for Gold One International not to meet the ASX listing rules, post the success of the BCX offer, and be delisted. The liquidity available to shareholders to trade shares on the ASX, in the event it remains listed.

Instructions on accepting the offer are contained in the Bidder Statement that was dispatched to Gold One International shareholders on 8 August 2011.

We recommend Members accept the offer of A55 cents per share for all their Gold One International shares. Members must complete the blue Acceptance Form (included with the Bidder Statement) as instructed and return the same as we recommend in the paragraph below.

We will alert Members on the outcome of the Gold One International shareholder meeting. This alert will be on the status of the ‘Initial Subscription’ resolution and whether or not acceptances of the BCX offer should be forwarded immediately after this meeting.

Fat Prophets will cease coverage of Gold One International on the successful conclusion of the BCX offer.

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