The battle for Cornerstone Capital Resources Inc. (TSXV-CGP, OTC-CTNXF) is heating up following a preliminary takeover bid from joint venture partner SolGold. However, Cornerstone is likely to reject the overture, based on its latest press release on the matter and on comments by Glen McKay, a co-founder and former president and CEO of the junior mining exploration company.

Cornerstone has a joint venture agreement with SolGold on the Cascabel project in Ecuador, which is believed to be one of the world’s largest gold-copper deposits. SolGold is the operator of the Cascabel project and owns a majority stake. Larger gold players are also involved, with both BHP Billiton and Newcrest Mining holding minority positions in SolGold.

In a February 8 press release, Cornerstone noted that SolGold had issued a press release of its own on January 31, announcing its intention to commence an offer to acquire all of the issued and outstanding common shares of Cornerstone in an all-stock transaction, providing 0.55 of a SolGold share for every one Cornerstone share tendered.

“As previously announced by Cornerstone, shareholders of the company that collectively own over 50% of the company’s outstanding shares have notified Cornerstone that they will not support the terms announced by SolGold,” the Cornerstone release stated. “As a result, if SolGold proceeds to make a formal offer on these terms, the company believes that SolGold’s offer would be incapable of being successfully completed.”

The Board of Directors of Cornerstone said it had assessed the SolGold proposal with its financial advisor and believes that the proposal significantly undervalues Cornerstone. The Cascabel Project is owned by SolGold’s 85% owned Ecuador subsidiary Exploraciones Novomining S.A. (ENSA). The remaining 15% of ENSA is currently held by Cornerstone. In addition, Cornerstone owns approximately 9.2% of the outstanding shares of SolGold. In effect, Cornerstone has a combined direct and indirect 23% interest in the Cascabel concession.

Cornerstone said it was disappointed by SolGold’s latest press release, stating that it contains “numerous inaccurate and misleading statements and baseless innuendo.” Still, Cornerstone said it remains open to constructively discussing with SolGold and other potential bidders any value enhancing transaction that would garner the support of Cornerstone’s shareholders.

In an interview, Cornerstone co-founder and former chief executive Glen McKay called the SolGold preliminary offer a poor bid, or an offer so far below the current value that under most circumstances it will be rejected. McKay is a major shareholder and a special advisor to Cornerstone. “I know that we can identify 60% of shareholders who have been surveyed and unanimously we are going to reject the offer, if SolGold comes with it,” McKay said. “They may still come with an offer, but it will be a waste of their money to do so and will be really embarrassing for SolGold.” An additional factor is that SolGold is mostly an illiquid stock so that even if Cornerstone accepted the deal there would be little chance of current CGP shareholders being able to monetize their new shares of SolGold in the short term.

The price SolGold is offering is not based on the fair value of the Cascabel project, McKay said. In addition, he says there are a number of issues with the joint venture agreement between SolGold and Cornerstone that have not been fulfilled.

This may not be an issue in the future, if BHP Billiton or Newcrest or some other suitor comes in with an offer for both companies and consolidates them. But for now, McKay says SolGold is not in a position of strength and the deal as it stands is “not going to happen.”

Stressing that he can’t predict the future, McKay nonetheless believes that another bid for Cornerstone will take place, perhaps as soon as this year. Although BHP Billiton has signed a deal which rules out a takeover bid until November, Newcrest Mining is under no such restriction.

Newcrest has signed two major joint venture agreements with Cornerstone in the last couple of months, McKay notes, including an agreement on the Cana Brava project in Ecuador and the Miocene property in Chile.

McKay sees the two deals as an indication that Newcrest is positioning itself for a bid so that they are in a good place in terms of their relationship with Cornerstone. “If I had to make a bet, I would say that Newcrest is the front runner and it may be that they will do it as a partnership,” he says. “I think something will happen before the end of 2019.  We’re hoping that another interested player comes in and starts a bidding war.”

With consolidation on the rise in the metals sector, a SolGold-Cornerstone merger perhaps makes sense, although SolGold may have to sweeten its offer to cement the deal. But Cornerstone’s initial negative response suggests even that won’t be enough. For now, interested observers will have to be content to wait for another missive from SolGold to see if the offer changes or is simply shelved.

Whatever the outcome, McKay believes that Cornerstone will spin off its other assets before a sale of its interest in Cascabel due to the potential of other properties that are under other JVs such as the Bramaderos project in Ecuador. Malcolm Norris, the CEO of Cornerstone partner (Sunstone) on the project was the CEO of SolGold in 2012 when Cornerstone completed a JV deal on Cascabel. Norris and Cornerstone VP Exploration Yvan Crepeau are due the credit for the discovery of Cascabel, McKay says. They are hoping to replicate that success on Bramaderos.

It takes hard work and perseverance to succeed in the mining industry. Glen McKay, the chairman of the board of directors and founder of leading explosives manufacturer, Newfoundland Hard-Rok Inc, has both these qualities, starting his career as a deckhand in the fishing industry in Newfoundland and Labrador before leading businesses in a range of industries, including finance, construction and, yes, mining.

“Motivation and determination are essential attributes of any successful entrepreneur,” Glen McKay explained in a recent interview. “These are attributes that can be unlocked only from inside a person, not by external influences. A desire to learn and cultivating the ability to be insightful are necessary in assessing business opportunities.”

Newfoundland Hard-Rok Inc.

In 1985, McKay became the Dupont Explosives distributor in Newfoundland and Labrador and used the Newfoundland Hard-Rok division of his company MRO Supplies Ltd. to operate the explosives business. In 1987 Newfoundland Hard-Rok Inc. was incorporated as a separate entity by McKay, who then sold part of it to two employees of MRO Supplies Ltd., Carl Foss and Keith Phelan, who were then looking after the explosives division of the company. The drilling, blasting and explosives company has grown since then. In 1994 Newfoundland Hard-Rok Inc. built an ANFO manufacturing plant near Corner Brook, NL and acquired a fleet of hard rock drilling rigs. In May of 2009, Newfoundland Hard-Rok Inc. commissioned its newly constructed, state of the art Bulk Emulsion explosives manufacturing facility west of Corner Brook. It is now the premier supplier of explosives and drilling blasting services in the region.

Newfoundland Hard-Rok Inc. formed wholly owned subsidiary Dyno Nobel Labrador Inc. in 2004, and wholly owned subsidiary Dyno Nobel Baffin Island Inc. in 2013, with McKay serving as the Chair of the Board of Directors of Newfoundland Hard-Rok Inc. and managing the company’s finances and administration.

Dyno Nobel Labrador Inc. was awarded the contract from Vale (formerly Voisey’s Bay Nickel Company) in 2005 to design, build and operate a bulk emulsion (blasting agent) manufacturing plant supplying the needs of the open pit mine at Voisey’s Bay. Recently, Dyno Nobel Labrador Inc. was awarded an additional second contract for the underground delivery of loading equipment and related services at the mine. Vale’s mine site is in Northern Labrador along the coast near the community of Nain. The mine primarily produces nickel ore with some copper and cobalt and is accessible via air and sea only.

As Newfoundland and Labrador Premier Dwight Ball explains, a five-year construction project at Voisey’s Bay will extend the mine’s life by 15 years. Once operational, Ball estimates the underground mine will create an additional 1,700 jobs both at the mine and at the Long Harbour, NL, processing plant. The mining operation in northeastern Labrador opened in 2005 and currently employs about 500 people, Canadian Press reported.

Dyno Nobel Baffin Island Inc. is a wholly owned subsidiary of Newfoundland Hard-Rok Inc. and was formed in 2013 to service the Baffinland Iron Mines, Mary River Project. Dyno Nobel Baffin Island Inc. has been awarded a multi-year contract to supply explosives for the construction and mining phases. A state of the art modular emulsion manufacturing plant was constructed on site in 2014. The operations involve the manufacturing of bulk emulsion, loading, and firing the blast holes. The Mary River Mine is in the remote northern part of Baffin Island within the Arctic Circle. This remote cold location poses many challenges to shipping and logistics, equipment operation and working outdoors.

Cornerstone Capital Resources

But Dyno Nobel Labrador Inc was not Glen McKay’s first foray into the mining industry. In 1997, he co-founded Cornerstone Capital Resources Inc, a mineral exploration company best known for its Cascabel copper-gold project in Ecuador, which was acquired in 2011 during his tenure. While McKay was with Cornerstone, he served as president, chief executive officer and vice chair. He still owns shares in the company and keeps a close eye on its activities.

On July 13, 2018, Cornerstone released an update on the exploration program at its Cascabel copper-gold porphyry joint venture exploration project in northern Ecuador, in which the company has a 15% interest financed through to completion of a feasibility study. Cornerstone has several other projects in Ecuador and Chile.

“The Cascabel project increases in size with each round of drilling and an aggressive drilling campaign continues,” McKay posted on LinkedIn. “I think that they are probably 18-24 months away from a feasibility study, but I also expect that one of the majors will buy out the current owners (SolGold and Cornerstone) before then.”

SolGold owns the other 85% of Cascabel and is funding 100% of the exploration as the operator of the project. Cornerstone is spinning off its assets (except for its interest in Cascabel, shares of SolGold and the joint venture with the Ecuadorian state mining company) into a new company called Cornerstone Exploration, which will own several drill ready projects in Ecuador and Chile. Cornerstone will be re-named Cascabel Gold & Copper.

Apex Construction

That’s not the end of McKay’s entrepreneurial resume. In 1987, he provided the capital for Apex Construction Specialties Inc, which grew to become the largest supplier of commercial construction products in Newfoundland and Labrador. McKay remained as a shareholder and board member until the company was sold in 2017.

In his 40 years of business experience, McKay has learned a lot about people. In his own businesses, he looked for self motivated, bright, hard-workers who had the ability to be a part of a team. The simple but effective premise is that if you really value your people, they in turn will increase the value of your business.