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Copper miner loses much of its sheen
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EDITED BY LUKE FORRESTAL

Almost 12 months after first making his designs on Botswana copper miner, Discovery Metals, known, Chinese billionaire Yong Yu appears to have abandoned any lingering thoughts of taking over the troubled company.

Over the past two weeks, Yu’s private equity firm, Cathay Fortune Corporation, has been progressively selling down the 13.7 per cent stake it accumulated in Discovery prior to making an $830 million takeover bid for the company in October last year.

On Monday, Discovery advised the market that Cathay Fortune was no longer a substantial shareholder, meaning its stake has dropped below 5 per cent. Cathay Fortune ended up pulling its initial bid in February this year due to Discovery’s repeated rejection of its request to conduct due diligence on the Boseto copper mine in Botswana.

The lapse of the offer was accompanied by a sharp fall in Discovery’s share price, as details about the company’s precarious financial position emerged and it was forced to cut the estimated amount of copper held in reserves at Boseto.

In a slap in the face to the directors that had turned down the $830 million bid, Cathay Fortune returned in May with an indicative takeover proposal valuing Discovery at just $175 million to $190 million.

However, the sell-down of its holding is a reasonable indication that Cathay Fortune has no intention of formalising the proposal and has moved onto other things.

The Chinese company’s exit from the scene appears to leave US-based private equity firm Cupric Canyon Capital in the box seat to make a play for control of Discovery.

As Blue Sky reported in August, Cupric Canyon was established by a group of former Phelps Dodge executives in 2010 to acquire undeveloped copper assets and is backed by Barclays Bank’s Natural Resources Investments team.

Earlier this year, Cupric Canyon bought out Discovery’s Botswana neighbour, Toronto-listed Hana Mining, in a $C82 million ($85.41 million) deal and many believe there is logic in consolidating that part of the Kalahari copper belt.

Cupric Canyon is understood to have spoken to Discovery’s lenders, Credit Suisse and Standard Chartered Bank, which are now calling the shots in takeover discussions.

The banks have several times extended a waiver on a $30 million payment Discovery is due to make on the project loan for Boseto while change of control negotiations drag on. At last notice, they had given the company until September 16 to have a final, board-recommended offer in place.