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Streetwise Chaparral Gold says it controls enough shares to block hostile bid

A stack of gold bars.

MICHAEL DALDER/REUTERS

Arizona-based Chaparral Gold Corp. said on Thursday that it controls enough shares to block a hostile bid from Toronto-based private equity firm Waterton Global Resource Management.

Chaparral directors, management and shareholders representing more than 50 per cent of its outstanding shares have indicated that they will not tender their stock to Waterton's $58.8-million offer, the company said in a statement.

The company, however, did not enter into a legal binding agreement with shareholders that would prevent them from eventually accepting the 50 cents a share offer by Waterton's March 27 deadline.

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Waterton is after Chaparral for its gold properties in Nevada, which were spun out of International Mining Corp. in December. The company, which recently made its debut on the Toronto Stock Exchange, is trading at 62 cents a share, above Waterton's offer price.

Chaparral considers the bid undervalued and has advised its shareholders to reject it.

The Waterton bid is one of three hostile offers in the Canadian mining sector and comes after mining stocks lost about half of their value in 2013 because of the weak metal prices.

Over the past year, Waterton and International Mining discussed the company's Nevada properties, according to Chaparral. But Waterton never suggested a potential acquisition until four business days before the private equity firm announced its hostile bid, Chaparral said in a securities filing on Thursday.

Last year's talks included Waterton telling International Mining that its target rate of return on any investment was a minimum of 20 to 25 per cent a year and Waterton seeking to acquire a strategic stake in the company through a private transaction.

Discussions heated up in January of this year when Chaparral said it suggested that they sign a confidentiality agreement. Instead, Waterton delayed talking about it.

Then on Feb. 12, Waterton proposed the 50-cent-a-share offer, saying it would prefer a friendly deal but that if Chaparral did not accept the bid within 24 hours, the private equity firm would go hostile.

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Chaparral asked for 48 hours to consider the deal and then told Waterton on Feb. 14 that it could not accept the price but that it was willing to continue talking to Waterton about a merger as long as the private equity firm signed a confidentiality agreement.

Waterton said it would consider the request and then launched its hostile bid four days later on Feb. 18.

Waterton could not be immediately reached for comment.

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