pallinghurst pulls out, page-11

MINING FINANCE AND INVESTMENT
BETTER VALUE OFFER?
Kiernan brings the Territory/Consmin message to London, secures Privat support
The ongoing battle for control of Western Australian miner ConsMin between the Pallinghurst group and Territory Resources has reached a new level with Territory claiming an alliance with Privat. But will that put the Brian Gilbertson-managed Pallinghurst out of the race?

Author: Lawrence Williams and Ross Louthean
Posted: Thursday , 16 Aug 2007

LONDON and PERTH -

In a special presentation in London to mining and financial journalists, Territory Resources' chairman, Michael Kiernan, set out his vision for a combined Territory/Consmin entity as part of his battle to woo Consmin shareholders based in the UK in the direction of the Territory take-over offer. He also told the media that Privat, one of Consmin's major customers with mines and metallurgical works in the Ukraine, and which has secured a 13.5% stake in ConsMin, would be ‘supportive' of Territory's bid. Indeed Kiernan's flying London visit followed a visit to Austria to meet with DCM DECOmetal and Privat.

What does this mean?

If Privat is firmly behind Kiernan then the former chief executive of ConsMin can count on having secured more than 25% support - through the collective holdings in ConsMin of Kiernan's long term associate Noble Group of Hong Kong and the holding of new associate in the Territory bid, metal house DCM DECOmetal which together hold around 12% and, assumedly, Privat's holding.

The situation, at present, is that Brian Gilbertson's London headquartered Pallinghurst Group has put in an offer for Consmin (ASX: CSM, AIM: CNM, FSE: CMN) at A3.30 a share - a little below Consmin's current stock price of A$3.42 a share, while Territory (ASX: TTY) has made a combined cash and stock bid of $2.00 a share cash plus one and a half Territory shares, which Michael Kiernan values as worth around $3.55 based on an independent valuation of Territory at just over $1.00 a share. The only problem with this calculation is that Territory's shares have fallen back in the recent stock market malaise to $0.68 a share today which would only value the offer at A$3.00 a Consmin share.

Both Territory and Consmin profess a vision for their combined entities in the greater iron and steel sector - as the providers of alloying materials. Consmin has some of the world's best manganese assets, and also interests in chromite and nickel, while Kiernan's Territory also has iron ore to bring to the package. Gilbertson looks to Consmin as being a vehicle for a major international production of manganese, and has his eyes on manganese deposits in Southern Africa which could be brought into the equation. Both probably see Consmin as undervalued, although Michael Kiernan, himself a former chief executive of Consmin, makes the statement that he feels the current Consmin board has taken its eye off the ball on operational matters and has made it no secret that he would replace the Board should Territory's bid be successful.

There has obviously been some personal animosity involved in the dealings to date. It would seem that Territory might hold the aces in this, with the backing of Consmin's biggest shareholders and customers in Privat, Noble Metals and DCM DECOmetal.

Despite this backing, Consmin's Board has been decidedly hostile to the Territory bid and, according to Kiernan, been decidedly unhelpful in access to financial data. The Board has, meantime, recommended the Pallinghurst offer unreservedly.

The question then is will the customer support for Territory be enough to douse Pallinghurst which has already produced an upgraded second offer for ConsMin. One thing is certain no peace pipes have been smoked, given the utterances at the Diggers & Dealers Forum in Kalgoorlie last week by Kiernan and by ConsMin's managing director Rod Baxter whose board has made it clear its current directors support Pallinghurst's bid.

Soon after Diggers the Takeovers Panel linked to the Australian Stock Exchange said it had received an application dated August 13 in which Pallinghurst submitted a number of concerns about statements by Territory in relation to both its bid for all of ConsMin's ordinary shares, and Pallinghurst's bid for ConsMin.

Takeover Panel's director Nigel Morris said Pallinghurst seeks a declaration of unacceptable circumstances, and orders that Territory make various corrective disclosures and issue a formal ‘statement of intention' with respect to the consideration payable under the Territory Bid.

"In particular, Pallinghurst seeks orders that Territory confirm the consideration offered or to be offered under the Territory Bid will be varied, along with the nature of the variation and time of effect, or alternatively, confirm the consideration under the Territory Bid will not be varied."

Morris said the Panel had not decided whether to conduct proceedings in relation to the application. "It notes that it has not received submissions from other parties to the application and makes no comment on the merits of the application." However the President of the Panel is appointing a Panel "to consider the application."

When the next shot is fired in this battle is uncertain, but at the time of writing it was likely to be early next week from Territory's side when Michael Kiernan is due back in Perth from Europe.

Kiernan meanwhile made it apparent in is London briefing that Territory is indeed prepared to vary the terms of its offer (i.e. increase it) and claims to have the financial backing from his bid partners - Noble Metals, DCM Decometal and Lehmann Brothers, to enable it to do so if necessary and if markets justify this. Given that he firmly states that the Pallinghurst bid undervalues Consmin, then there may well be scope on both sides for a further upping of the stakes. Territory's Bidders Statement to Consmin shareholders is due out in the next couple of weeks and it will be interesting to see if any changes will be made in this time, or subsequent to it. This takeover battle seems to have some way to run yet.