china ante portas? takeover story to begin?

"The Chinese, have a big interest in the Panguna mine, one of them said they can buyout Rio Tinto ... that shows how powerful they are and that they have the money," Mr Momis said.

(Source: http://www.postcourier.com.pg/20101115/mohome.htm
HOME / REGI0NALS / islands post / (Mon 15th November, 2010) / Momis returns from China )

Momis comments in my eyes are breaking news. Fascinating that the market did not catch up with a potential take-over story so far.

For me the situation looks as follows:

Scenario 1: RIO TINTO does not get any take-over offer or the offer price is not sufficient; then still the Chinese could participate via a Joint venture; in my opinion this would be the first best solution for all stakeholders; BOUGAINVILLE COPPER then would be a very attractive long-term investment with a very nice short-term catalyst which is the renegotiation of the Bougainville Copper agreement (BCA) which could make the share price fly.

Scenario 2: China makes a very attractive bid for the shares held by Rio Tinto, let?s say AUD 20+. Then things start getting exiting. In such a scenario I would assume China to bid as well for the shares held by PNG. If that was true they also would look forward to getting the shares of the minority shareholders because they want 100%. The offer will be at the same conditions, I simply can not believe that one can cheat a minority shareholder who owns 28%, even in PNG. Afterwards I would expect a Squeeze Out. Such a scenario might be very attractive for shareholders short-term. But in my honest opinion it would not be the 1st best solution for Bougainville.

Scenario 3: Same as scenario 2 with the difference that China does not buy the 19% share owned by PNG. In such a case I would still expect an offer for minority shareholders at same conditions like RIO TINTO. Obviously no squeeze out and no delisting; otherwise PNG can not check on daily basis how much worth their stake is at a then hopefully much higher price ;-))

All in all I think that the trip of Momis to China might speed up things in Bougainville. I think despite some hurdles to take the only valid question will be if it is Bougainville Copper or the Chinese to run and open the Panguna mine. Still I think the first option is the more likely outcome. In all scenarios the share price should be significantly higher. There is one remaining risk which is China buys the shares from Rio Tinto and does not make an offer to minority shareholders or only at a low price and delists the shares afterwards. Without being a legal expert in ASX-rules or the PNG law if this is possible at all, I think this is unlikely. Of course the Chinese are well known for playing tough games but I can not imagine a scenario where they would breach good international practise. Also I think that would cause serious problems for Rio Tinto in a way that selling shares under such circumstances would mean that this would be to a significant disadvantage to other shareholders. I think good Corporate Governance would not allow such a step.

All in all I am quite confident that we migt get some breaking news soon, hopefully before Christmas: either regarding Rio Tinto/China or the the BCA review.