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White knight tip emerges in battle for Mt Gibson control
5th November 2008, 6:00 WST

Mount Gibson Iron could find itself targeted by a white knight suitor to stymie plans by two Chinese steel groups to all but seize control of the struggling miner, analysts said yesterday.

A day after Mt Gibson unveiled plans to see China’s Shougang Concord and APAC Resources lift their collective stake in the Mid-West miner as high as 40.5 per cent and secure discounted ore for the life of the mine, Macquarie Research Equities analysts Len Eldridge and Jim Copland suggested the battle for the miner might not be over.

“The shareholder vote (to approve the deal) is set down for around eight weeks, leaving time for a white knight to enter the race for control of Mt Gibson and its offtake,” they said in a note to clients.

“Our previous stance that Mt Gibson would not be an attractive takeover target was premised on the existence of (life-of-mine) offtake agreements, leaving little upside for an integrated steelmaker. This is no longer the case following the default of customers and the full 10mtpa production profile is up for grabs.”

Russian billionaire Alisher Usmanov’s decision to sell his 19.7 per cent Mt Gibson stake in April had fuelled speculation the company could become a takeover target.

But other analysts said any rival suitor would have to contend with the fact APAC already held about 20.2 per cent of the company, making any bid a tricky prospect. Unless a bid emerges APAC and Shougang stand to end up with between 28.6 per cent and 40.5 per cent of Mt Gibson, depending on the uptake of the rights issue.

Mt Gibson shares dropped 2¢ to a 3 1 /2-year low of 37.5¢ yesterday as investors digested the terms of a deal that will keep the ailing miner on its feet but seriously trim its profits and dilute shareholders’ stakes.

Although the company’s plans still require approval from shareholders, as well as the Foreign Investment Review Board, analysts said investors were unlikely to oppose the planned equity raising and medium to longterm offtake contracts, given the lack of alternative rescue plans and the need for customers and cash to keep the miner afloat.

A team of Goldman Sachs JBWere analysts led by Stephen Gorenstein said: “Overall, we feel that the ability to continue as a going concern offsets the negative impact of the revised prices negotiated and the diluting of shareholders through the placement.” Shareholders contacted by WestBusiness were mostly sanguine about the deal, given recent fears the company may face collapse.

“They really didn’t have a lot of choice … they were left in a very difficult position so I think that all we can do is support them,” one long-standing institutional investor said.

Analysts were savagely downgrading their profit forecasts for Mt Gibson to factor in a 31 per cent drop in production and lower ore prices.

Among the most bearish, Goldman Sachs analysts tipped 2008-09 profit to fall by as much as 73 per cent to $29.6 million, down from this year’s record $113.3 million.

KATE EMERY