With the Chinese government already responsible for pumping millions of tonnes of toxic tailings into the sea in Madang, what future for the Sepik river if the Chinese get their hands on the Frieda mine?
PanAust feels heat of $1.1bn Guangdong bid
Barry FitzGerald | The Australian
Laotian copper/gold producer PanAust has again come under the takeover gaze of its biggest shareholder, China’s state-owned Guangdong Rising Assets Management (GRAM).
The cash offer of $1.71 a share is down heavily from last year’s indicative and non-binding offer of $2.30 a share (increased from an earlier offer of $2.20) that never eventuated. But this time at least, the offer is for real, with PanAust shares soaring 49.5c, or 40 per cent from five-year lows to $1.72.
The bid values PanAust at $1.1 billion, with GRAM already owning 22.5 per cent, most of which was acquired in September 2009 when PanAust was in need of a cornerstone investor in the wake of the global financial crisis.
The unconditional cash bid came as PanAust shares struggled in response to the crash in copper prices, and the looming need to finance the development of the 80 per cent-owned Frieda River gold/copper project in PNG.
Credit Suisse analyst Michael Slifirski said the offer was “highly opportunistic’’ given GRAM’s $2.30-a-share indicative offer 12 months ago. He said it took advantage of the equity market’s obsession with short-term earnings and cashflow, and disregard of long-term value.
Credit Suisse values PanAust at $2.11 a share that includes only 25 per cent of its assessed value of an assumed 55 per cent interest in Frieda River (the PNG government can take up to a 30 per cent interest in the project).
“The GRAM offer is too low in our view,’’ Mr Slifirski said.
BT Investment Management portfolio manager and analyst Brenton Saunders said that ignoring Frieda River (PanAust acquired its stake from Glencore last year), the bid was probably not that far from what the existing operations are worth.
“But we can’t ignore the fact that this company has very consciously chosen to go down a path to buy Frieda River, and to develop it — and that is a strategic game-changing decision for the company,’’ Mr Saunders said.
He added that it would be interesting to see how PanAust responds to the bid. “It is beyond me how the board could contemplate recommending this offer given that they were very quick and were very emphatic, in turning down the $2.20, and then a $2.30 offer, as being almost insulting in terms of what it implied in terms of valuation. For them to now come back and recommend anything less than the last one they knocked back seems implausible,’’ Mr Saunders said.
Fred Hess, PanAust’s managing director since November, was asked at a recent investor briefing if management and the board reflected on knocking back last year’s $2.30 indicative offer. “Well I am not. I am not. I am looking forward to the future and I look at the greater certainties we now have with 80 per cent ownership of Frieda River,’’ Dr Hess said.