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Based on previous transactions, Sino Gold does not expect to require regulatory clearance in China for its scrip-based merger with Eldorado Gold, Sino chief Jake Klein told dealreporter. Both companies have previously purchased Western companies with assets in China without needing to get the green light from Chinese regulators, he noted. In 2007, Sino purchased Golden China Resources for about USD 90m and in 2005 Eldorado bought Afcan Mining for about USD 53m. Both targets were foreign-listed with assets in China.
However, a source close to the Ministry of Commerce (MOFCOM) in China claimed that the deal may need clearance if it falls under its notification threshold. The share exchange ratio of 0.55 Eldorado shares per target share values Sino at approximately AUD 2.2bn (USD 1.83bn), significantly larger than the precedent deals, leading the companies to conclude that Chinese approval will not be needed. The MOFCOM source acknowledged that the merger involves two foreign companies, but said because both own assets in China it could be subject to a review.
Yet no change-of-control provisions at China-based joint-ventures will be triggered by the corporate transaction, it is understood. Therefore it was said that, if China does decide to scrutinize the deal from a regulatory standpoint, it would go against historical precedence. Either way, the non-transparent and less-defined nature of Chinese regulatory policy makes it difficult to determine whether the deal will need its approval.
Another issue lacking precedent is whether Chinese interest in Sino Gold may lead to a rival bid for the company. Chinese companies have not typically been interlopers on deals involving Western companies, however with Sino’s assets being based in China, this deal could be viewed as different, it was said.
This news service previously cited sources familiar with the situation as noting that Gold Fields’ stake in Sino, which was sold to Eldorado in June, had previously been well shopped. This had led to the conclusion that a rival bid was highly unlikely given that potential interlopers had a previous opportunity to make a move on the company and passed.
Sino Gold claims to be the leading international gold exploration and mining company in China. Its 82%-owned Jinfeng Gold Mine in southern China’s Guizhou Province is now the second largest gold mine in China and the 95%-owned White Mountain Gold Mine in northeast China’s Jilin Province commenced commercial gold production in January. Its third project is the Eastern Dragon Project in northern China’s Heilongjiang Province.
A Sino Gold insider said that synergies would not be material at less than AUD 10m. He explained that shareholders in Sino’s Hong Kong listed entity would be able to transfer their shares to the ASX entity on a 1:1 basis. They would also be able to sell their shares through the same share sale facility offered to ASX shareholders, he confirmed. The insider confirmed that this applied to shareholders holding up to 55,000 Eldorado shares and that there is no maximum cap for this. This would equate to about 100,000 shares in Sino Gold, according to the share-exchange ratio.
A source familiar with the deal said that technical details of how the offer is made to Sino’s HK shareholders are still being worked out, and that one possibility is that shareholders may be allotted shares via a nominee company.
It is understood that the delisting of Sino in Hong Kong will likely occur in early December, as it is part of the scheme of arrangement.
Sino and Eldorado were said to be in discussions since December 2005, however the deal came together quickly over the last few days.
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