Chinese increase stake in Frieda river mine ahead of takeover bid

Chinese build PanAust stake

Barry FitzGerald | The Australian

Low expectations of a rival bid emerging have allowed Chinese state-owned Guangdong Rising Assets Management (GRAM) to ramp up its stake in its $1.1 billion takeover target PanAust at its bid price of $1.71 a share.

GRAM disclosed it had picked up 10.58 million PanAust shares at the bid price, increasing its stake in the Laotian copper/gold producer — and PNG copper/gold developer — from 22.49 to 24.12 per cent.

The stake is tipped to ward off would-be counter bidders although the prospect remains that PanAust could extract a higher offer in return for a board endorsement. That in itself was enough for investors yesterday to keep PanAust just above the bid price at $1.72 a share.

PanAust soared 40 per cent from its five-year lows of $1.22 on Monday when GRAM’s unsolicited bid was announced.

Chinese interest in yet another copper/gold producer had a rub-off effect on the valuations of PanAust peers in the market, with OZ Minerals and Sandfire rising 5 per cent and 4 per cent respectively.

The GRAM move follows the 2013 million acquisition by Chinese interests of the Northparkes copper/gold mine in NSW from Rio Tinto for $850m, and last year’s deal for the Chinese state-owned MMG to acquire the Las Bambas copper/gold project in Peru for $US5.8bn.

The unconditional cash bid from GRAM follows last year’s song and dance when PanAust revealed that GRAM had proposed a $2.20 a share takeover bid, then increased to $2.30 a share. But no bid was made at the time.

JP Morgan said yesterday that the latest offer was in line with its base case valuation of $1.70 a share but noted that did not ascribe any value (other than sunk costs) to PanAust’s acquisition last year of an 80 per cent stake in the undeveloped Frieda River copper/gold project in PNG. The broker said that on an unrisked basis, Frieda River was worth $1 a share to PanAust, although much de-risking of the project is required before a development could proceed.

It said an improved offer price would be required to get the approval of the PanAust board. But either way, the broker said the likelihood was that the takeover would eventually be completed.

Preliminary work by PanAust on Frieda River pointed to the potential for a $US1.7bn development capable of annual production of 125,000 tonnes of copper and 200,000 ounces of gold. The remaining 20 per cent is held by Highlands Pacific.

Highlands itself is on takeover alert after international commodities trader Trafigura marched to a 16.03 per cent stake in the company.

That pips PanAust’s 14 per cent stake which was part of last year’s action that saw PanAust acquire its Frieda River stake from Ivan Glasenberg’s Glencore.

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Filed under Financial returns, Papua New Guinea

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