Ramelius in exclusive due diligence to buy Karora

Money of Mine podcast boys discuss the RMS move on Karora Resources - 07-March-2024

Update: I sold out of RMS (from my SMSF) on Monday 11th Feb 2024, so I no longer have any direct exposure to RMS. I had also previously held them here but sold that position either last year or the year before. I have not turned bearish on RMS, I just don't think they are currently among my very best ideas in their industry (gold) at this point in time, and that is mostly around not knowing how this latest M&A (with Karora) will pan out. I do often get a bit jumpy when companies make largish acquisition bids for other companies and I can't see the obvious upside in the M&A, hence selling out of ABB (Aussie Broadband) at $4.62 ($4.615 average) on the morning they announced their bid for SLC (Feb 26th), a bid that will clearly not go ahead now. ABB closed at $3.55 yesterday (Friday 15th March), so 23% below my exit price. I explained my reasons for selling ABB here.

@mikebrisy explained his reasons here (you might have to scroll down, the straw is titled, "#Divestment Decision") and subsequent comments on that straw can be found here.

I didn't know the Origin thing was going to occur of course, but I did know that from the scant (2 pages of) info that ABB provided to the market in relation to why they thought buying SLC was a good idea, I remained unconvinced that it was, and it seemed like a very opportunistic move based on ABB's big SP pop (+18.59%) on the previous trading day when they released their H1 report. I have also long thought that SLC was an inferior business - i.e. low quality, and with some internal management issues over the years, and I thought that Bevan Slattery, the founder of the business, quitting the SLC Board in 2021 and selling completely out of SLC was a fair indicator that he saw better opportunities in the market himself, and as the company's founder and previous executive Chairman, he of all people should know.

In short, I liked ABB. But I did not like SLC. And I did not like the idea of ABB buying SLC, particularly just a week after their previous acquisition (of Symbio) had settled (the scheme became legally effective). And I can't afford to fall in love with any company. You have to be prepared to exit immediately when you smell trouble, so I did with ABB on the day they announced that SLC bid.

With RMS it took me a weekend to think about it, and then I sold out on the Monday, mostly because the Karora gold assets just aren't close enough to those gold deposits and/or gold mines/mills that RMS already own, so the obvious synergies weren't there. It became obvious to me that this particular M&A (with RMS) was much more about getting some gold assets with longer mine lives than those already held by Ramelius, and my thoughts then turned to the timing, and I figured that this was probably a bad time to be buying good gold assets - with the gold price making new all time highs on a regular basis, particularly buying a company that is actually doing OK, they're not in distress, and they've not been trading (on the TSX) at particularly cheap levels. Anyway, with the deal still being negotiated and very little info to go on, I thought it best to step aside and watch RMS from the sidelines until everything is much clearer.

I should add - that I'm generally a lot happier when I'm holding the target company in this sort of situation (M&A). I am a lot more comfortable holding the target company than the company that is making the bid to takeover another company, unless the company being taken over is a relatively small acquisition that is either a bolt-on or otherwise has clear strategic value.

Anyway, just thought I'd update this thread to show that unlike what I had previously stated, I actually do NOT hold RMS shares now.

I do hold two companies currently that are under takeover offers from other companies, one is ALU and the other is GNX, and in both cases the potential acquirer is a Japanese company that has lobbed in a bid that has (1) got the target company's board onside and willing to recommend the offer to their own shareholders in the absence of a superior offer, and (2) is priced sufficiently high enough that they are unlikely to get involved in a bidding war with anybody else because at those prices everybody else is likely to not want to get involved. This seems to be a feature of Japanese thinking in recent years, longer term thinking in terms of investment horizons, and also preferring to avoid any sort of conflict by making their best offer up-front and not having to deal with any competition for the asset they want to buy. Simple and clean. I like it a lot.