now 4.30 on market, page-3

The Bidding For Consolidated Minerals Descends Into Farce
By Our Man In Oz
Seven months ago the directors of Consolidated Minerals were convinced that the company they run was worth roughly A$2.30 a share, and they recommended a partial takeover bid pitched at that price. Today, the same people believe the company is worth A$4.10 a share and they now recommend that price. Tomorrow, who knows, because on the market ConsMin is trading at A$4.30, 4.8 per cent more than what the directors currently recommend and 87 per cent more than the original deal proposed in February by Pallinghurst Resources, a business run by South African deal-maker, Brian Gilbertson.
There are many questions to be asked of everyone involved in the ConsMin saga. So far, no-one seems to have asked the directors what they really (truly, cross-your-heart) reckon their business is worth, or why Gilbertson conceived a merger so complex that it required a 400-page explanatory memorandum, mailed to thousands of shareholders, and now used to press flowers.

To be fair, ConsMin is at the centre of a bidding war with large egos, armed with larger cheque books, tossing cash around as if it were confetti, leading to a corollary question on value: has the price of ConsMin now entered cloud cuckoo land, or is this simply the sharp end of the boom as cash-rich buyers battle for scarce assets?

The answer to the first question about whether the directors know what their company is worth has to be that the poor darlings haven’t a clue. The answer to the second question is that the battle for ConsMin has undoubtedly taken on all the finesse of a rugby scrum, on a sticky pitch, during a thunderstorm. It really is a case of the winner being the biggest and ugliest brute left standing, and not really caring about the prize, or that the prize might well be a wooden spoon.

To understand the ConsMin fiasco it’s best not to call it that. Patient shareholders of the small Australian manganese, chromite and nickel miner are doing very nicely as they enjoy a ride as wild as anything since the days of the Poseidon nickel boom when everyone left their brains at the door of the now defunct Perth Stock Exchange. With ConsMin the game started on the day Michael Kiernan saved it from oblivion after - and remember this- after the Woodie Woodie manganese mine effectively failed, sending its then owner, Valiant Consolidated, almost to the knackers yard.

The historic troubles of Woodie Woodie, a mine worked intermittently for more than 50 years, depending on the price of manganese, have been as conveniently forgotten today as the popped Poseidon bubble. Perhaps this really is a boom forever (note to editor: that was typed with fingers crossed!). On a more serious note what is happening with ConsMin does no-one any credit. Yes, it’s making money for the players involved, but there is an unmistakable odour of boom-time excess wafting off the stock.

Consider the facts. Talk of a takeover/merger between ConsMin and Pallinghurst first surfaced in October last year. A formal merger proposal was delivered on February 23. The four month gap between the referee blowing the whistle and ball actually being kicked should have rung a warning bell. There should also have been warning bells ringing about Kiernan’s desire to get back on the field and repay a few courtesies dished out by some ConsMin directors as he was departing. And, there should have been a warning about the background role of Richard Elman, chief executive of the commodities trading business, Noble Group, a supporter of Kiernan, and the man holding a “life of mine” marketing contract over Woodie Woodie.

In any event, Kiernan counter bid via one of his new companies. Gilbertson countered. Kiernan countered the counter. Then a heavy duty Ukrainian steel maker, Gennadiy Bogulyubov, entered the game, and finally a Norwegian alloy specialist, Tinfos, weighed in. At the last count, Tinfos had 5 per cent of ConsMin, Bogulyubov 14.36 per cent (through a company called Palmary), and Pallinghurst 10 per cent. Kiernan had very little, and appears to have backed away from the bidding.

This final point about Kiernan appearing to “run dead” by not increasing his cash and share swap offer is critical to what’s afoot because no-one, and that includes the board and management of ConsMin, knows Woodie Woodie as well as he does. Unlike the chaps in slick suits, he once lived in a converted bus at the mine gate acting as truck tally man. It was his intimate knowledge, and extreme annoyance at not being paid by Valiant, which led him into his first deal with Elman. The nature of that deal was that Elman finished up with ownership of the mine, hence today’s life of mine contract, but he needed someone to run it. Between them, Elman and Kiernan make an excellent pair of blunt instruments – but they are far from being stupid blunt instruments, and they also know exactly what an asset is worth.

Which takes us back to the top, and the critical questions - what’s ConsMin worth? The market, which is always right, says A$4.30. Gilbertson says A$4.10 , but with a clever rider on his offer that he will match any rival bid, and he’s ready to pay now, effectively a “top up” facility to encourage quick acceptances. That puts the ball on Bogulyubov’s side of the pitch, and it needs to act quickly, or Gilbertson steals the day.

But, even if Gilbertson wins what is it that he’s actually won? For a price, presumably north of A$4.10 once the mud settles, he gets a pre-loved manganese mine which is suddenly being praised as one of the best in the world. Well, 10 years ago, and even 50 years ago, it certainly wasn’t one of the best. Yes, the manganese price has risen, but it has been known to fall just as often, and this is a company which, seven months ago, was valued at A$2.30 by the people who run it, and a company which was once run by a man who is now not interested.

Poseidon time? Jolly close!