Analysts Mixed on Sherwood-Capstone Deal

On Monday, Sherwood Copper Corp. (SWOPF.PK) and Capstone Mining Corp. (CSFFF.PK) unveiled a rare "at-market" merger, where Capstone is buying Sherwood with no premium. The idea is simple - put the two small companies together to build something that's better than the sum of its parts.

Is that a good idea? Blackmont Capital analyst George Topping thinks it is, because the deal gives Sherwood more scale, increased cash flow to develop new mines, and diversification in geography and production. He does not expect a rival bid because of Sherwood's remote location in the Yukon.

On the other hand, Paradigm Capital analysts Dave Davidson and Jacob Willoughby wrote that investors should not tender their shares, because the deal undervalues Sherwood's assets.

They wrote:

We feel the upside potential for Sherwood Copper on an exploration and production basis is much higher than that of Capstone.

The analysts pointed out that the deal rests largely on support from Goodman & Company, which appears to hold more than 20% of Sherwood's shares. They downgraded Sherwood to "hold" from "buy," but maintained a price target of C$7.75 a share.