csm uk broker quits not happy, page-2

March 12, 2007

Consolidated Minerals Confuses Its Own London Broker


By Our Man In Oz



Jump aboard the Gilbertson Express, or stand aside until the speed, direction and ability of the crew can be better tested. That’s the question confronting shareholders in Consolidated Minerals, a medium-sized Australian producer of manganese, chromite and nickel which has a strong London-following but which has become the latest tool of the multi-talented South African businessman, Brian Gilbertson. The announcement this morning that Numis Securities has decided to step aside as London broker to the company with immediate effect says a lot about the uncertainties being expressed by investors about this deal which seems to be more about Mr Gilbertson trying to put value into a South African manganese project for a Russian friend of his than coming up with a value adding deal for Consolidated Minerals. Numis Securities has long been involved with Consolidated Minerals and would have thought hard before making such a move. The directors of the company say they are talking to a possible replacement, but there are unlikely to be many eminent brokers in the queue.

Brian Gilbertson
If the people promoting the deal deliver on their promises ConsMin is set for a new life as a business with the potential to rival bigger miners. The copper and gold miner Oxiana is occasionally being whispered in the same breath as ConsMin, as is the even bigger Xstrata. But, while the potential seems to be there for a period of growth there are obviously nagging doubts about the way the deal is being packaged, and whether South Africa is really such a terrific place to commit part of your capital. As far as Minesite is concerned it comes quite high on the political risk list.

Nowhere are these doubts easier to measure than on the Australian Stock Exchange. Since Gilbertson, a man who once ran Billiton, then BHP Billiton, then the Indian miner, Vedanta, and now the Russian aluminium producer, Sual, launched his complex plan to restructure ConsMin the share price of the Australian stock has barely moved. ConsMin directors, who are supporting the deal, say it values each share in their company at A$2.28. But, since the day the scheme of arrangement was first aired, February 23, ConsMin has “rushed” all the way from A$2.20, up to A$2.44, and then back down to A$2.30 – scarcely a ringing endorsement by the market. And roughly the same performance has been seen in London sp perhaps the Gilbertson magic is wearing a bit thin.

A series of problems are confronting everyone involved. The deal seems to be (a) unnecessarily complicated, (b) appears to offer minimal financial incentive to accept, and (c) involves the injection of a smart new management team which has great ambition, but is yet to reveal precisely what it is it proposes to do with ConsMin. And then there is Gilbertson himself, a man of undoubted talent, but who rarely seems to stay in the one place for very long.

What’s happened so far is that ConsMin suffered a “man overboard” problem less than two years ago when it’s charismatic chief executive, Michael Kiernan, fell out with some young fund managers and went off to build a gold business. The people left in Kiernan’s wake have not inspired investors, and ConsMin, from being a market favourite, has limped into relative obscurity despite having some modestly attractive assets. Meanwhile, somewhere in Moscow, London, or Johannesburg, a plan was hatched to give ConsMin a shot in the arm, led by Gilbertson who formed a private equity business called Pallinghurst Resources.

The proposal is to create a new business which will be 60 per cent owned by Pallinghurst and its associate, the U.S. coal miner, AMCI, and 40 per cent by existing ConsMin shareholders. ConsMin chairman, and former BHP executive, D. Carter, said in a letter to shareholders that ConsMin shareholders would “receive an attractive cash offer and scrip package” comprising A$1.38 cash for each ConsMin share and two shares in the new company for every ConsMin share they currently hold. Carter went on: “This values your Consolidated Minerals shares at A$2.28, representing a 32.6 per cent premium to the ConsMin share price of A$1.72 (being the price prior to the takeover speculation in October, 2006”.

It is at this point that the eyes of outside observers start to glaze over somewhat. Comparing a bid this year with a share price last year is a bit of a stretch, especially as ConsMin back in October hosed down any takeover speculation. Then there is the “what next” step, which is where a leap of faith is required because no details of what Pallinghurst and friends brings to ConsMin has been released. Rumoured deals include the possible purchase of a manganese project in South Africa owned by Russian Oligarch, Viktor Vekselberg, or perhaps other South African assets are on the radar screen. Manganese is said to be a favoured target, and South Africa the country of choice.

Carter said the deal would lead to a company with greater stability and security of earnings, accelerate expansion of nickel production, focus on delivering new projects and take advantage of “strategic growth opportunities in the manganese ferroalloys business globally and in new commodities.” But, precisely what those deals are will have to wait as ConsMin proceeds through a tortuous scheme of arrangement. Documents are due to be mailed out next month, with a vote taken of shareholders in May – making ConsMin today very much a work in progress. In the meantime it will be interesting to hear feedback from the roadshow proposed for London.