Cathy Pacific’s attempted takeover of Discovery Minerals (DML) is relevant to this thread as it is of similar size and scope to what OZL could go after. The takeover attempt, at 1.70/share values DML at $830M.
In summary DML has a key copper asset in Botswana that comprise: • Ore reserves of 30Mt at 1.4% Cu • Ore resources are 210 Mt at 1.3% Cu, with upside likely. • The board approved development of a 3Mtpa operation in late 2010. Forecast production is 35Mtpa Cu at a C1 cost of $1.2lb. The operation is currently in ramp and is experiencing some issues. Most notably is an announcement out today raising questions about reserve reconciliation and projected costs (it will be interesting to see DML’s response). • There is potential to ramp production up to 50Mtpa of Cu by 2015 with 75M extra CAPEX. • Mine life is potentially +25 years (assuming additional resources can be converted to reserves) • Project debt is some $210M, which would be acquired in any takeover. • The DML board is currently rejecting the Takeover Attempt, so it is yet to been seen whether a higher offer price will be required for the hostile takeover to be a success.
OZL could obviously throw their hat into the ring with a higher bid. I would be interested to hear posters views as to whether they would be for or against this sort of M&A.
In my view i prefer the approach taken on Big C, where OZL acquired a significantly superior asset and will value add (hopefully) though resource and project development.
I think the most likely M&A activity for OZL will be acquiring unwanted assets from majors or stressed sellers. RIOs North Parks operation could be a possibility. Non hostile M&A obviously requires a willing seller. Current commentary is indicating the market for non-hostile M&A is ripening, so we might see some action in 2013. Again, i am supportive of TB’s hold and wait approach.
OZL Price at posting:
$7.09 Sentiment: LT Buy Disclosure: Held
