Emerald Resources takeover offer for Bullseye Mining moves a step closer to finality

About Emerald Resources

Emerald Resources NL (Emerald, the Company, ASX: EMR) has its headquarters in Perth and has been listed on the ASX since July 1994. The Company is a developer and explorer of gold projects with the Company’s key project being the Okvau Gold Mine in Cambodia which has been in full production since September 2021. The Company’s other Cambodian project is the high-grade Memot Gold project. Emerald’s interest in Cambodia extends over a combined area of about 1239 square kilometres. Emerald also has a 78 percent controlling interest in Bullseye Mining Limited, an unlisted Australian public company with two Western Australian gold projects totalling more than 1200 square kilometres of highly prospective gold tenure including the North Laverton Gold Project in the Dingo Range Greenstone Belt. Directors and management own 20 percent and institutional investors own 47 percent of Emerald Resources.

Details of Minority Shareholder claim

A claim by a dissident Minority Shareholder in takeover target, Bullseye Mining (Bullseye) that unfair benefits were exclusively provided to certain other shareholders in Bullseye by Emerald Resources Directors, has been rejected by an Independent Expert appointed by ASIC to review the matter.

A Minority Shareholder in Bullseye claimed that Emerald Resources favoured two Bullseye shareholders (Xinhe and Au Xingao) who received 22,800,000 shares in Bullseye in settlement of prior litigation that dates to July 2020. The original litigation proceedings brought against Bullseye by Xinhe and Au Xingao in the Supreme Court of Western Australia related to alleged oppressive conduct by Bullseye and its Directors.

Emerald’s scrip takeover offer for Bullseye was launched in December 2021 when it already owned 19 percent of Bullseye shares and by February 2022 Emerald controlled Bullseye by owning 55 percent of Bullseye shares. However, in February 2022 Xingao announced a competing bid for Bullseye of up to 35 cents cash per share if certain conditions were met, including the right to conduct due diligence. The Emerald Board, who controlled Bullseye, declined to give Xingao due diligence access and in March 2022 recommended Emerald shareholders reject Xingao’s competing cash takeover offer.

Subsequently in August 2023 Emerald settled the Court proceedings that were brought by Xingao through the issue of 22,800,000 Bullseye shares to Au Xingao in final settlement of the ongoing and costly litigation. The Independent Expert determined that the Fair Market Value of the Bullseye shares issued by Emerald to Au Xingao was $13.4 million. Prior to this date, Emerald Resources had incurred $5.3 million in legal fees defending Au Xingao’s claim.

Minority Shareholders in Bullseye, now controlled by Emerald Resources, considered the settlement amount to be unfair and took their grievance to ASIC. Subsequently, ASIC ordered that an Independent Expert review the circumstances of the 22.8 million share issue to Au Xingao and determine whether the benefit received was unfair to other Bullseye shareholders who didn’t participate in the benefit.

The Independent Expert’s opinion

Price Waterhouse Coopers as the Independent Expert assessing the unfair treatment claim filed by certain Bullseye Minority Shareholders have found that the benefit paid to Xinhe and Au Xingao was not unfair to other Bullseye shareholders. The Independent Expert determined that if Bullseye was unable to successfully defend the legal claim and did not settle with Xinhe and Au Xingao, then Bullseye would have been exposed to claims for loss of between $17 million and $26 million if adverse costs were awarded. Accordingly, the Independent Expert declared that a settlement of 22.8 million shares in Bullseye at a Fair Market Value of $13.4 million was appropriate and fair.

What’s Next

Emerald currently owns 78 percent of Bullseye, and its takeover offer is unconditional and has the unanimous support of the Bullseye Board. Additionally, Bullseye currently owes Emerald approximately $17.5 million in loans, interest, and management fees.

Emerald Resources has disclosed that if at the end of the Offer Period it owns less than 90 percent of Bullseye shares, it intends to support Bullseye conducting a pro rata entitlement issue of new Bullseye shares to ensure that Bullseye can repay Emerald’s outstanding loan as well as meet its immediate and future strategic and operational objectives. It is highly likely that should this pro rata issue of new shares in Bullseye occur, then Emerald would own more than 90 percent of Bullseye shares and be entitled to compulsorily acquire the balance needed to give it 100 percent of Bullseye. This would be a positive share price catalyst for Emerald Resources shares and explains much of the share price strength observed over the past week.