Out just minutes ago:Macquarie: CSM - The Game Has Just...

Out just minutes ago:

Macquarie: CSM - The Game Has Just Begun
18/07/2007

Territory Resources (TTY) has formally announced an off-market takeover bid for Consolidated Minerals (CSM). The offer price consists of $2.00ps cash and 1.5 TTY shares for each CSM share, implicitly valuing the bid at $3.60ps. Macquarie Research Equities (MRE) believe that CSM is worth considerably more following the recent movements in the global manganese market. In fact, MRE believe that it is possible that the bid price moves closer to $4.00/ share.


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Coming over the top. The TTY bid compares with the current Pallinghurst/AMCI/Investec offer for CSM of $1.68ps cash plus two shares in NewCSM for every five shares in CSM. At the CSM closing price yesterday of $3.35ps, the Pallinghurst bid implies a value of $3.02ps.

Booming manganese. Record manganese ore price levels were recently confirmed for sales to China between August and October. Landed prices range between US$7.25-7.50/dmtu CIF, representing more than double the average price received for 2H07 (US$3.50/dmtu CIF). We have upgraded our FY08 and FY09 received manganese price assumptions (by c90% in the case of FY08).

FY07 result. CSM announced unaudited FY07 NPAT of $30-31m (pcp $6.5m loss) with its June quarter production report. This was broadly in line with our forecast of $33.8m after accounting for higher corporates (associated with the Pallinghurst transactional work) and Jabiru equity accounted losses.

Macquarie Research Equities Recommendation

MRE maintain outperform recommendation on CSM and price target upgraded to $3.80ps.

In an environment of mining equities typically trading at premiums (many significant) to their fundamentally derived DCF value, and at much higher short-term earnings multiples, CSM continues to look pretty attractive.

Given the recent movements in the global manganese market, CSM is now worth considerably more than it was several months ago. In our opinion, both bidding parties will need to, and are probably capable of, paying closer to $4.00ps (in risk-weighted value terms).

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