re: News: Minemakers release positive feasibi... UCL investor move adds a twist to bitter Minemakers scrip bid
by: Bryan Frith From:The Australian April 20, 201212:00AM
THE increasingly complex Minemakers scrip bid for UCL Resources has taken a twist, with plans by the target company to introduce a cornerstone investor.
There's no love lost between Minemakers and UCL. The two companies each own 42.5 per cent of the Sandpiper marine phosphate project off the cost of Namibia, which could become a major global operation.
Their stakes are held through a joint venture, Namibian Marine Phosphate, of which they are the operators. The remaining 15 per cent is held by Tungeni Investments.
The Sandpiper deposit was originally held by Bonaparte Minerals, which bought in UCL as a joint venture partner in 2008.
In 2009, Minemakers came on the scene with a recommended takeover bid for Bonaparte. Union countered with a rival bid and the two companies had an arm wrestle before Minemakers finally carried the day and secured 100 per cent of Bonaparte, making it UCL's partner in Sandpiper.
Two years ago, Minemakers requisitioned a meeting of UCL shareholders and removed one of the directors.
Combining the companies to develop Sandpiper makes obvious sense. One larger company in full control of the company would have better prospects of obtaining finance than two companies each separately seeking to finance their share and with neither having control, creating the potential for a stalemate.
Moreover, combining the two companies would bring synergy benefits by removing the duplication of head-office costs.
Both companies can see advantages and are believed to have been talking for 12 months or so but have been unable to agree on price and structure.
Minemakers, by far the largest of the two companies and already owning 13 per cent of UCL, has sought to bring things to a head by mounting a hostile scrip bid, offering of nine Minemakers shares for every 10 UCL shares. The offer is conditional on 50.1 per cent minimum acceptance.
UCL has strongly recommended rejection, saying the offer substantially undervalues the company, implying a value of only 7c per tonne of phosphate -- almost 95 per cent below the $1.26 per tonne average of eight other phosphate explorers.
UCL says it is best positioned to unlock Sandpiper's value and questions the value of the Minemakers scrip.
UCL is backed by the independent expert Grant Thornton, which has valued UCL in the range of 43c to 46c a share, well above the value of the Minemakers bid.
Moreover, UCL chairman Ian Ross says the target board is "astonished and disappointed" that Minemakers did not engage with UCL "in any meaningful way" to discuss working together to advance Sandpiper. That's not how Minemakers sees it.
Minemakers has not been helped by the fact that its share price has fallen since the bid was announced in mid-February, implying a value of 32c per UCL share -- a premium of almost 60 per cent to CLS's previous closing price of 19c.
Since then Minemakers' share price has retreated to 23.5c, which reduces the implied value of the offer to 21.15c a UCL share.
By contrast, UCL's share price has risen strongly, closing yesterday at 29c, well above the offer value.
That could suggest the market considers Minemakers will need to increase the offer to have any chance of success. An improved offer would almost certainly need to include a cash component, as Twynam Agricultural and Donwillow, owned by the Kahlbetzer family and owner of 32.9 per cent of UCL or 36.88 per cent on conversion of notes held by Donwillow, have said they would not accept Minemakers' offer, or "any revised or superior scrip offer from Minemakers".
It's unusual for a target shareholder to rule out accepting a superior offer from a bidder, but the Kahlbetzer's language was firmly within the ambit of ASIC's truth in takeovers policy, which means they can be held to it.
The family's attitude may have been influenced by the fact that its stake would be only about 7 per cent if Minemakers was to secure full ownership of UCL.
Minemakers has attacked what it considers deficiencies in the UCL target's statement, including what it argues is inadequate disclosures of the key risks facing UCL, including its cash position, the funding strategy for its share of the Sandpiper project and the potential dilution faced by UCL shareholders if the offer does not proceed. It says UCL has low cash reserves, relatively illiquid shares and the ownership structure of the Sandpiper project is unnecessarily complicated.
On Wednesday Minemakers and UCL released the results of a definitive feasibility study of Sandpiper that shows it is economically feasible and could be a long-life project capable of delivering strong returns for the owners.
The study is based on production of 3 million tonnes of phosphate concentrate annually over an initial mine life of 20 years, after a two-year construction period.
The capital cost is estimated at $US260.8 million ($251.25m), or $US355m if a desalination plant is needed. The working capital requirement is estimated at $US60.7m, making total required funding of $US387m.
Based on the study, UCL estimated a geared net present value for Sandpiper of $US297m, an internal rate of return of 23.6 per cent and a payback period of 3.5 years.
Minemakers said it did not endorse UCL's economic analysis of the project and considered it premature. It said it would require greater clarity on some material items before it would be in a position to provide an economic analysis.
It will be interesting to see how ASIC views the matter. The regulator has required a number of resources companies to clarify forward-looking statements.
UCL also announced on Wednesday a placement to MB Holdings, a natural resources company based in the Sultanate of Oman, to complement the positive outcome of the study.
It's not yet a placement but more an expression of interest.
UCL says it has entered into a "non-binding" agreement with MB to make a placement of 15 per cent of UCL's capital, after a rights issue to be undertaken in the near future. The placement would be subject to due diligence.
UCL says the placement will be at 30c a share, marginally above the market price, but a discount of 32-35 per cent to the independent expert's valuation.
UCL has offered no terms of the proposed rights issue except that it will be non-renounceable and raise $2m.
A placement to MB would trigger a defeating condition of the Minemakers offer and could be considered action designed to frustrate a takeover bid. The placement will therefore be subject to the approval of UCL shareholders, which should address any concerns the Takeover Panel might have had.
Whether the rights issue raises any concerns could depend on issues such as the discount at which the shares are offered (one-for-10 at 25c a share would raise $2m) and whether the issue is underwritten and, more importantly, sub-underwritten
AEV Price at posting:
23.0¢ Sentiment: None Disclosure: Not Held
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