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China’s Cathay returns to Discovery Metals bid
By Neil Hume in Sydney
Cathay Fortune, the Chinese private equity group controlled by billionaire Yu Yong, has made a fresh takeover offer for Discovery Metals, the latest twist in a long-running takeover saga.
The troubled African copper miner said the new indicative proposal was worth A$0.35-A$0.40 a share, or A$170m-A$195m ($166m-$191m).
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However, Cathay, which abandoned an A$830m cash offer for the Australia-listed company in February after failing to gain access to due diligence, claimed the price was not binding and could be revised.
Shares in Discovery, which have been suspended since the middle of April, slumped 41 per cent to A$0.20 cents after they resumed trading in Sydney on Tuesday.
Discovery’s main asset is the Boseto copper project in northwest Botswana. Production started last year but the ramp-up of the mining operation has taken longer than expected because of bad weather and problems removing waste.
This has put pressure on the company’s finances with Discovery admitting on Tuesday that it had breached the terms of its banking covenants and revealing gross debts of A$176m.
Cathay said it was surprised Discovery had decided to release details of its “indicative, confidential and non-binding proposal”, which it was “not legally required to release”.
“Cathay Fortune is not bound by any statement in the letter as to price, conditions, timetable or any other matter and notes that Discovery is currently undergoing work to restate its Resources and Reserves in respect of the Zeta and Plutus open pits and the Zeta underground,” it said.
News of Cathay’s fresh proposal came as Discovery announced the resignation of its chairman Gordon Galt, who fiercely opposed Cathay’s initial approach.
The company also revealed it had appointed advisers to run a sale process and started discussions with a number of potential bidders.
“Some of the parties have commenced their due diligence investigations,” Discovery said, adding that it had set a deadline of June 10 for “binding proposals”.
It is the latest twist in a saga that started in September when Cathay made its initial approach for Discovery. China is the world’s biggest consumer of copper, used in items such as household appliances and air conditioners, and Beijing has encouraged Chinese companies to expand their presence overseas to gain access to resources.
However, Cathay’s A$830m, or A$1.70 a share, offer was rebuffed, prompting Mr Yu to go hostile – an unusual step for both a private equity group and a Chinese company.
He eventually dropped the offer in February after being denied access to conduct due diligence on Boseto. The collapse of the bid for Discovery Metals added to a growing list of failed Chinese takeovers in Australia.
The two companies clashed again in April when Cathay Fortune refused to back a A$75m equity fundraising and said the company should seek a strategic buyer. Cathay is the biggest shareholder in Discovery with a 13.7 per cent stake.
“As a result, the company has decided to go through a formal process of engaging with interested parties, including Cathay, to evaluate whether a change of control transaction, on terms that the Board would recommend, can be secured,” Discovery said on Tuesday.
UBS and Credit Suisse are acting as advisers to Discovery.