06-Apr-2021: I wrote most of the following last night to update a straw under Capricorn Metals (CMM) that was "stale". However, I thought it probably should be added here also, considering I've written up some info on CAI and BGL, who are also developing Australian gold mines, or have embarked on that journey (BGL is still in the study phase but hope to be producing gold by the end of calendar 2022).
Firstly, if we go back to September 2018, Regis Resources (RRL) made a takeover offer for Capricorn Metals (CMM), priced at 11.4c/share, being a price that was 93% higher than the previous trading day's closing price (for CMM), which put a rocket under the CMM SP on the day.
In my straw here about this on that day, I said, "Please note that while the offer is currently unanimously supported by the CMM board, it is still subject to shareholder approval, including CMM's substantial shareholders. Therefore, this deal may or may not proceed, and if it doesn't - there could well be downside from here."
See CMM's announcement here.
And RRL's announcement here.
Regis stated that they reserved the right to terminate discussions (and withdraw their offer) if they could not secure the support of Hawke's Point Holdings, who owned 18.9% of CMM at that time, and Regis added that Hawke's Point were not currently supporting Regis' proposal. That gave me cause for concern that there was a good chance the offer would not go through.
For CMM's most recent corporate presentation at that time - prior to that RRL offer back in 2018 (at the Precious Metals Summit in Beaver Creek, Colorado), see here.
On October 1st 2018, CMM announced that Regis had not been able to secure the support of CMM's largest shareholder, Hawke's Point Holdings and had decided to withdraw their takeover proposal and cease discussions with CMM. That announcement can be viewed here.
The accompanying announcement by RRL (Regis Resources) can be viewed here.
On October 3rd, CMM announced that Heath Hellewell had stepped down as their board Chairman but would continue as Managing Director of CMM. Ms Debra Bakker who was an independent Non-Executive Director of Capricorn has assumed the role of Non-Executive Chairperson. That sounds like a better arrangement. It is usually better to have an independent Chair rather than have the MD also chairing the board.
22-Mar-19: Update: The CMM board has now been rolled and the MD has quit. So has the CFO (Chief Financial Officer) - see here for that 6-Mar-19 announcement. One week later (on March 13th - 9 days ago) their new management released a "Company Update" which suggests to me they would like to sell Karlawinda, or the whole company, rather than proceed with the development themselves. (I still don't hold CMM).
05-Apr-2021: Update: From here on, I wrote this stuff last night (05-Apr-2021): So, back in 2018, Hawke's Point (CMM's largest shareholder at that time) blocked the Regis (RRL) takeover of Capricorn (CMM) by refusing to sell their CMM shares to Regis, so Regis withdrew and have never made a subsequent offer for CMM, despite the fact that Karlawinda would have been a nice bolt-on asset for Regis. My own thoughts were that it was a value play for Regis back in 2018 and they saw upside in developing the project themselves, and now that the KGP processing plant has been modified (greater ore throughput capacity but at a much higher construction cost) and the share price has appreciated so much, it's not attractive to them any more, or not attractive enough.
Hawke's Point later mounted their own takeover campaign for Capricorn Metals (CMM) at a LOWER price than what Regis (RLL) had offered. Understandably, that lower offer was rejected by the CMM board, especially after Hawke's Point had been the one and only reason why the earlier offer (from RRL - at a higher price - which at the time had been unanimously supported by the CMM Board) had fallen over.
My last update above (on 22-Mar-2019) mentioned that the new CMM Board in March 2019 was keen to sell the project, or the whole company. They wasted about 4 months going down that road, paying Macquarie (MQG) millions in fees to try to find a suitable buyer, but none emerged during that time. Meanwhile, CMM had to renegotiate a new $100m debt and bank guarantee package with MQG after the previous agreement was allowed to lapse during the period in which the old board and management either walked out or were replaced when the remaining board members were rolled (and the lack of progress achieved on the KGP during that period). It was not a happy time to be a CMM shareholder - and I was not one. So much promise, and so little progress!
And then, on July 3rd 2019 the CMM Board released an announcement to the ASX saying that they had listened to shareholder feedback and now agreed that the best course of action was for CMM to go ahead and develop the KGP (Karlawinda Gold Project) themselves. This happened to coincide with a number of ex-Regis Resources (RRL) people joining the board and management at CMM (further details of that below).
During this time, GR Engineering Services (GNG) were quietly dropped as the designated EPC (engineer, procure, construct) contractors for Karlawinda, and the new CMM Board expanded the capacity of the plant, at a significantly higher construction cost, and they raised fresh capital, a number of times.
The MQG $100m facility was dependent on CMM raising the rest of the KGP construction costs themselves, so they did, over a number of raisings with mixed success, and existing shareholders (again, I was not one of them) were dilluted, as usually happens, as well as being asked to tip in more money themselves via a 1:5 (one share for every 5 shares held) retail entitlement offer in April/May 2019 which was 33% undersubscribed (they raised A$4.6m of the A$6.9m total they were aiming for). The outcome for CMM of the institutional component of that entitlement offer was even worse - they only raised A$3.18m, a rather pitiful response really, considering the shares were offered at only 6.5 cents ($0.065) each and the share price had been over 8c and up to 9c during and just prior to the offer period.
Capricorn (CMM) did a 1 for 5 (1:5) share consolidation in late 2019, so their share price chart will show that their share price was up to 46 cents during that entitlement offer period in late April and early May 2019, but it was actually one fifth of that at the time because the chart has been adjusted for that 1:5 consolidation. More about this share consolidation in a minute (below).
After that very poor result from the entitlement offer, they went on to raise $18.26m in July 2019 from two placements, and one of those was to Hawke's Point again, and at 6.5cps again, being a 27% discount to the last traded price of Capricorn shares at the time of that announcement (and a 24.5% discount to the 5-day volume weighted average market price of CMM shares at the time). That's what I mean about ordinary retail shareholders getting severely dilluted.
They also added two ex-RRL Marks to their Board in July 2019. The first was Mark Clark, with 28 years’ experience in corporate advisory and public company management. He was a director of successful Australian gold miner Equigold from April 2003 and was their Managing Director from December 2005 until Equigold’s $1.2 billion merger with Lihir Gold in June 2008. Lihir was subsequently acquired by Newcrest (NCM). He was closely involved in the development and operation of Equigold’s gold mines in both Australia and Ivory Coast. Mark was appointed Managing Director of Regis Resources in May 2009 and became RRL's Executive Chairman in November 2016. He retired as an executive of Regis in October 2018. Mark oversaw the development of Regis’ three operating gold mines at the Duketon Gold Project, which culminated in the project producing well over 300,000 ounces of gold per annum. In Mark’s time at Regis, the company grew from a small explorer with a market capitalisation of around $40 million to the significant gold producer it is today with a market capitalisation in the order of $2.5 billion (that was in July 2019, RRL's m/cap today is closer to $1.5 billion). Mark is well known in the industry for his strong financial stewardship and focus on delivering shareholder returns. Mark Clark is now CMM's Executive Chairman and an executive director of the company.
The second addition to the CMM Board in July 2019 was Mark Okeby, who began his career in the resources industry in the 1980s as a corporate lawyer advising companies on resource project acquisitions, financing and development. He has a Masters of Law (LLM) and over 30 years’ experience as a director of ASX listed mining and exploration companies. At the time of his appointment to the CMM Board in July 2019 Mark was also a director of Red Hill Iron Ltd (appointed in 2016) and previously has been a director of Hill 50 Ltd, Abelle Ltd, Metals X Limited, Westgold Resources Ltd, Lynas Corporation Ltd and Regis Resources Ltd. Mark joined the board of Regis Resources in July 2009 as a non-executive director and was a major contributor on the board that transformed Regis from a small gold explorer to one of Australia’s largest gold producers. Mark has a deep knowledge of the Australian resources landscape and the regulatory regimes around mine development and operation. He also has significant experience in the commercial and legal aspects of project development, financing and corporate transactions.
Capricorn’s Non-Executive Chairman, Mr Doug Jendry, said: “The board recognises the very strong feedback from shareholders in recent times that in the current gold price environment the best prospect for Capricorn to deliver maximum shareholder value is for the Company to develop the Karlawinda Gold Project itself. To this end we are very pleased to have attracted two highly credentialed mining executives in Messrs Clark and Okeby to join the board and drive the development of the project. The funding secured through the placement also further bolsters Capricorn’s cash position and will allow the company to expedite the work required to progress towards development.”
They went on to raise another $65 million in August 2019 via a share placement at 16 cents per share (also pre-1:5-share-consolidation, so equivalent to 80 cps now). The issue price of 16.0 cps represented a discount of 15.8% to the last closing price of 19.0 cps on 9 August 2019 and an 11.9% discount to the 5-day VWAP of 18.2 cps. The placement was cornerstoned by two of Capricorn’s substantial shareholders at that time (Paradice Investment Management Pty Ltd and Hawke’s Point once again) and several Australian institutional investors who had been long term supporters of the (new) management team. Also, several of the founders of Equigold, three of whom have also previously been directors and shareholders of Regis Resources Ltd, subscribed for a total of $10 million.
That August 2019 equity raising enabled Capricorn to satisfy a key condition to enable finalisation of the previous (lapsed) offer of $107 million debt and gold hedging facility from Macquarie Bank Limited (MQG) for the development of Karlawinda.
The following day (14-August-2019), CMM announced that they had secured 200,000 ounces of gold hedging with a 31 December 2019 maturity and a price of A$2,249 per ounce. My understanding is that this hedging has been subsequently rolled into further hedging with a later maturity date.
On 16-Sep-2019, CMM announced another 4 Management and Board appointments that were all ex-Regis Resources people:
- Mr Kim Massey as the new Chief Executive Officer (CEO) of CMM
- Mr Paul Thomas to the Chief Operating Officer (COO) role
- Mr Stephen Evans as the General Manager of Operations; and
- Mr Myles Ertzen as a Non-Executive Director of the CMM Board.
At this point (September 2019), while Regis Resources had failed in their 2018 attempt to takeover Capricorn Metals (CMM), CMM was now completely loaded with Executives and Board Members who were all ex-Regis Resources (RRL).
In mid-October 2019 CMM announced that they were consolidating their shares on a 1:5 (one for five) basis, which became effective in November, effectively driving their share price up by a factor of 5 (from around 20c to 24cps to $1 to $1.20/share). Obviously all shareholders at the time also had their holdings reduced by 80%, for example: If you held 100,000 CMM shares worth 20c each (worth $20,000) pre-consolidation, that became 20,000 shares worth $1 each (still $20,000) post-consolidation.
On 15-Nov-2019 they announced that Ms Tammie Dixon was their new Chief Financial Officer CFO) and Joint Company Secretary. She had held senior management roles with several ASX listed companies, including Regis Resources, Equigold and Hardman Resources. They were REALLY getting the old team back together, eh!?! The other company secretary later left the company (in late Feb 2020) leaving Ms Dixon as the sole Company Secretary and the CFO. Tammie Dixon herself gave notice as CFO and Company Secretary of CMM in early March 2021, but she agreed to continue to assist the Company as required on a contract basis for 12 months. CMM's CEO Kim Massey will oversee the Company’s financial functions and perform the role of Company Secretary on an interim basis until a permanent replacement for Tammie is appointed. Tammie is still listed on the CMM website as being their CFO and Company Secretary, but on the ASX and CommSec sites, Kim Massey is listed as being both the CMM CEO and their Company Secretary. I assume Tammie is continuing to perform the role on a contract basis (from her home or other place of business) until at least March 2022 however Kim has assumed the official "Company Secretary" title and the responsibility that goes with it with regard to the ASX and ASIC.
On 17-Apr-2020 CMM announced:
- Karlawinda Gold Project (KGP) Ore Reserves had increased by 35% to 1,201,000 ounces (from 892,000 ounces); and
- KGP Mineral Resources had increased by 41% to 2,145,000 ounces (from 1,525,000 ounces).
With their vast experience in new gold mine and gold processing plant construction and optimisation, it appears that Capricorn's Board and Management are pretty much building Karlawinda themselves, hence why GR Engineering (GNG, who did the original PFS and DFS for the KGP for the previous management at CMM) were dropped when all of the ex-RRL guys took over at CMM. They don't believe they need to pay another company to manage the process when they can do it themselves.
27-July-2020: Project Update and Upscale of Process Plant Throughput
29-July-2020: $32.3m Capital Raising
27-Aug-2020: MACA Ltd Selected as Preferred Mining Contractor [MACA (ASX:MLD) do all of the open pit (OP) gold mining for Regis Resources]
13-Oct-2020: Diggers and Dealers Presentation
20-Oct-2020: Karlawinda development progressing on time & budget
18-Nov-2020: Further significant milestones on Karlawinda development
[On 18-Nov-2020 Mark Clark (CMM's Executive Chairman) bought another $73K worth of CMM shares on-market at between $1.66 and $1.67/share.]
20-Nov-2020: 2020 AGM Presentation
20-Jan-2021: Strategic Investment in DiscovEx Resources Ltd
01-Apr-2021: Quarterly Activities Report
Home | Capricorn Metals (capmetals.com.au)
Analyst Coverage | Capricorn Metals (capmetals.com.au)
KGP (Karlawinda Gold Project) Overview Video
Karlawinda remains on track for first gold pour in the current (June 2021) quarter.
I am not currently holding CMM shares, but I'm thinking about it. I consider this a risky point in their history, with possible cost blowouts and possible commissioning issues, however if the ex-Regis guys now running Capricorn are as good as their reputations and track records suggest they are, then they might sail through this quarter smoothly and get a positive rerating by the market when they announce they are now producing gold at Karlawinda at the plant's nameplate capacity. They are not there yet however, and a lot can go wrong, so for now I'm just on the sidelines watching closely.
They certainly have the potential to become a strong up-and-coming gold producer, with excellent near-mine exploration potential. And they will be first cab off the rank in terms of first gold pour - before Calidus Resources (CAI) with Warrawoona - their first gold pour is expected during H1 of CY 2022, and Bellevue Gold (BGL) who are targeting first gold production towards the end of 2022. Capricorn (CMM) is therefore the potential big 2021 gold story, if everything goes to plan.
09-Apr-2021: Edit: Emerald Resources (EMR) are still targeting first gold this quarter, i.e. the June quarter of 2021, however their Okvau gold project is in Cambodia, so higher risk. The three companies I was discussing in the paragraph above (CAI, BGL & CMM) all have gold project in development that are located here in Australia, so I meant that Capricorn (CMM) is the potential big Australian 2021 gold story, if everything goes to plan. EMR's Okvau could be the big Cambodian 2021 gold story.
Disclosure: Of the companies I have mentioned in this straw, I currently (as at 06-Apr-2021) hold shares in RRL, GNG, BGL and EMR. CAI and CMM are both on my watchlist.