drillsearch, page-8

Mini miners suffer from tilted playing field

MARK HAWTHORNE

July 17, 2009

A LEVEL playing field — it's all most in the business world want, and they hope the nation's market supervisor will help to provide it.

Unfortunately, a takeover spat at the smaller end of the mining sector shows that different rules can sometimes apply, depending on which city you happen to be operating in.

Last month Adelaide-based oil and gas producer Beach Petroleum launched a takeover bid for Sydney's Drillsearch Energy, valuing it at $50 million in an all-scrip offer. The pair have joint gas exploration projects in the Cooper Basin.

Sadly, the two companies seem to be playing by different sets of rules.

Drillsearch has gone on the front foot to fend off the hostile takeover, labelling Beach's bid "opportunistic" in statements that have made the Australian Securities Exchange website.

Indeed, some of its releases to the ASX have been a tad on the emotional side. The company has informed investors via the ASX that "response to the offer has been dismal", it has asked "how can the offer be fair?" and even warned "don't let Beach grab the upside".

Over at Beach, they have been trying to get the message out to investors that Drillsearch is burning through cash at an alarming rate. According to some well-placed sources, Drillsearch's cash position has fallen by 40 per cent since the end of March this year — from $7.8 million to $4.9 million.

Much of it has gone on legal claims, management bonuses and takeover costs, but Drillsearch has failed to disclose its cash balance as at June 30. If the drill program with Beach goes ahead in the Cooper Basin, that will drain a further $2 million from Drillsearch's reserves.

Beach managing director Reg Nelson wanted to highlight some of those points, and the lack of a recent cash statement from Drillsearch, when Beach extended its offer this month — except the ASX office in Adelaide refused to publish any of it.

The ASX's ever-diligent Adelaide outpost has run the red pen through paragraph after paragraph of Beach's market announcements, deleting any references to the takeover target's dwindling cash reserves. Beach has instead had to rely on mailing letters directly to investors.

On the other side, Drillsearch's statements to the ASX, which come through the Sydney office, seem to be making it through unchanged — emotive comments and all.

Maybe it's just the different business cultures. After all, outside of a couple of blocks of West Perth and the majority of Canberra, few places in Australia can boast as many spivs per square kilometre as Sin City.

Although one source in the Beach camp had a better theory. "There are only 20-odd companies in Adelaide," he quipped. "I don't think they have too much else to occupy their time."