Guangdong Rising Makes Bid for PanAust in $1.4 Bln Deal

Guangdong Rising Assets Management Co., a state-owned Chinese investment group, offered to take control of PanAust Ltd. in a cash bid that values the Laos-focused copper producer at A$1.5 billion ($1.4 billion).

Guangdong Rising offered A$2.30 a share in a conditional proposal, PanAust said today in a statement. That’s 46 percent more than Brisbane, Australia-based PanAust’s close yesterday. PanAust rejected the bid as being too low and agreed to give Guangdong Rising, its largest shareholder, access to financial information. The producer closed at A$2.12 in Sydney trading, signaling some investors may be concerned the deal will fail.

Buying PanAust would give Guangdong Rising control of mines in Laos as well as the Frieda River project in Papua New Guinea, described by the target as one of the world’s largest undeveloped copper and gold deposits. PanAust agreed last year to buy Glencore Xstrata Plc’s stake in Frieda River in a deal it expects to be concluded before September, estimating the development costs at as much as $1.8 billion.

“It’s an opportunistic offer, as PanAust are potentially a few months away from taking control of Frieda River,” UBS AG analyst Jo Battershill said by phone from Sydney. “They want to try and get it done before PanAust takes ownership, because there’s currently zero value attributed to that in their valuation.”

Better Offer

PanAust, whose shares traded as high as A$4.475 in 2010, had lost about 64 percent of its value to yesterday since that peak. Its gain today was the most in more than five years.

PanAust expects to attract “significant interest” from other groups and the producer’s holders would expect it to talk with any parties that make competing proposals, Managing Director Gary Stafford said today in a phone interview.

Offering Guangdong Rising access to information is intended to help “facilitate them perhaps coming back with a better offer, but doesn’t indicate that they are close, or nearly there,” said Stafford, who announced in March he plans to step down within 18 months. “It remains to be seen how high they are prepared to go.”

China Demand

China’s demand for assets may help fuel a doubling in the number of mining deals worldwide this year, according to Jay Leary, law firm Herbert Smith Freehills’s joint global relationship partner for BHP Billiton Ltd., the world’s biggest miner. Copper, iron ore and coal are the top targets, he said.

China Minmetals Corp., the state-owned metals trader, led a group that agreed last month to pay $5.85 billion for Glencore’s Las Bambas copper project in Peru as China seeks greater control over material supplies.

PanAust plans to decide next year whether to focus on the development of Frieda River or the Inca de Oro project in Chile, a joint venture with Codelco, the world’s biggest copper producer, Stafford said in March.

“It’s probably more likely those projects will go ahead under a new ownership,” Gareth James, a Sydney-based analyst with Morningstar Inc. said today by phone. Guangdong Rising has “access to capital and that removes the uncertainty,” he said.

The producer can fund development of its growth projects without a change of control, with options to use cash flow generated from its Phu Kham mine in Laos, or by raising more than $500 million in bond sales, Stafford said in the interview.

Mine Takeovers

Mining acquisitions by Chinese companies surged 63 percent in the first four months of this year and are forecast to accelerate as new rules in China from last week mean most overseas deals under $1 billion don’t need government approval. The decline in prices, with metals from copper to iron ore dipping into bear markets since April last year, has heightened appetites.

China’s inbound shipments of copper surged 52 percent in April from a year earlier. Stockpiles monitored by exchanges in the U.K., U.S. and China have dropped 31 percent this year to the lowest since December 2008, according to data compiled by Bloomberg.

China imported 3.2 million tons of copper metal and 10.1 million tons of copper ore and concentrate last year, data from the country’s customs authority shows. Its consumption totaled 9.83 million tons in 2013, or 47 percent of global demand, according to the World Bureau of Metal Statistics.

Guangdong Rising bought a 19.9 percent stake in PanAust for A$2.02 per share in 2009, data compiled by Bloomberg show.

Frieda River could produce 100,000 metric tons of copper and 160,000 ounces of gold annually and have a mine life of 18 years, according to PanAust, which is being advised by Rothschild.

(An earlier version of this story was corrected because Gary Stafford’s name was misspelled.)

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