Nagging doubts as LionGold stalks its quarry

Will Castlemaine Goldfields have a bar of the LionGold offer?SHAREHOLDERS in Castlemaine Goldfields have more than 16 million reasons to proceed with caution as they ponder a takeover offer from their Singaporean suitor, LionGold.

LionGold has been collecting gold assets around the world over the past year, and in early April offered two LionGold shares for every nine Castlemaine Goldfields shares in an all-scrip deal.

LionGold has promised to use its financial might to unlock extra value in struggling Castlemaine’s assets, which include the historic Victorian goldfields, scene of the Eureka Stockade in 1854.

But yesterday’s release of the Bidder’s Statement has raised doubts about LionGold’s financial strength, with a significant portion of the company’s finances tied up in overdue payments from an opaque private company based in the Marshall Islands.

LionGold confirmed that a private company, Enchante, had repaid barely 15 per cent of the more than $19 million it owes LionGold.

LionGold blamed delays in getting money for Enchante’s failure to pay the outstanding $16.39 million, and LionGold conceded in the Bidder’s Statement that there was some risk of Enchante defaulting on the debt.

Earlier this year when bidding for another ASX-listed goldminer, Signature Metals, LionGold conceded that Enchante had no accounts or financial statements that were publicly available for inspection. The outstanding $16.39 million is triple the $5.48 million of cash that LionGold has on hand, and comprises about half the $32.6 million that LionGold expects to have on hand by the end of 2012.

But LionGold’s chief operating officer, Errol Smart, told BusinessDay yesterday the company had dealt closely with Enchante in the past and had ”strong comfort that that money will be forthcoming” before the end of the year.

Mr Smart said LionGold had easily completed a recent convertible bond raising for $US23 million, demonstrating its ability to get finance when needed.

”We are not concerned at all about access to finance,” he said.

”We do have other avenues of financing as and when required.”

Castlemaine’s non-executive chairman, Gary Scanlan, also pointed to that raising as proof that LionGold could get funds, despite the difficult economic conditions.

He said the takeover offer was a case of ”relative risk assessment” for Castlemaine shareholders, and he stood by his recommendation that shareholders accept the offer.

Investors did not appear to be deterred by the state of LionGold’s finances, with Castlemaine shares closing half a cent higher at 15.5¢. The stock was fetching closer to 9¢ before the takeover offer was launched in April.

Aside from Castlemaine and Signature, LionGold has tried to get the private Australian gold explorer Brimstone Resources, which holds leases in Western Australia and Victoria. Other acquisitions have been for assets in Mali, Ghana and might soon include Bolivia.

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