discovery disposal

Alexander Liddington-Cox
22/05/13


Discovery Metals, Cathay Fortune Corporation

There are a number of signs available for those interested to suggest that this is the last play left for Discovery Metals.

Yesterday, Discovery announced that it has begun a sales process, that major shareholder and antagonist Cathay Fortune Corporation has lobbed an indicative proposal of 35-40 cents and that its chairman Gordon Galt is leaving immediately.

The miner also informed the market that it had defaulted a profitability covenant and available cash covenant under its revolving credit facility.

“The lenders have not taken any action in respect to these defaults, but have reserved their rights,” said Discovery in a statement to the market.

Upon hearing this news, along with other details, the African-focused copper miner’s shares started trading for the first time in over a month and plunged 41.2 per cent to finish the session at 20 cents a pop.

There was no mention of the equity raising that Cathay Fortune had objected to last month. UBS AG and Credit Suisse have been appointed as financial advisers for the sale process.

“The process is expected to take approximately four weeks from today, with a closing date for receipt of binding proposals of no later than 10 June 2013,” said Discovery.

As for Cathay Fortune, they were grumpy with Discovery for releasing to the market yesterday a proposal that it had put to the copper miner’s board on April 26, which reads: “Strictly private and confidential. Not for market release. Non-binding.”

Upon hearing that Discovery had released the document, Cathay Fortune released a statement of its own pointing out that its target was “not legally required” to do this and that it was not itself bound to make any statement on the offer.

It serves the suitor right for behaving so bizarrely last month, where it demanded a number of things from the board that simply couldn’t be accepted. That’s not to mention the structure of its original offer late last year that arguably allowed it too many ‘outs’ to leave the Discovery board high and dry.

Still, Cathay Fortune appears to be up for 35-40 cents a share and was never demanding exclusivity, which is fair. Why is the stock languishing at 20 cents, 43 per cent beneath even the lowest edge of its suitor’s range?

It’s possibly because the market doesn’t believe Cathay Fortune will actually follow through with its plans and, more annoyingly, it holds 13.7 per cent of the target so it can prove a pain for other potential bidders.

Read more: http://www.businessspectator.com.au/article/2013/5/22/resources-and-energy/breakfast-deals-discovery-disposal#ixzz2U09CFqL2