Holding companies make $259M offer for QGX

Coal and gold explorer QGX (QGX-T, QGXLF-O), one of the first Western companies to get an exploration permit in Mongolia, has received a $259-million takeover offer.

The bidders are Mongolia Holdings Corp., an indirect subsidiary of a private investment company based in Hong Kong called Kerry Holdings Ltd., and MCS Holding LLC, a major private Mongolian company.

The offer is for $5 per share, a 32% premium over QGX’s average share price for 20 days up until July 21.

Management has instructed shareholders to tender their shares. About 43% of shareholders have already agreed to do so, including directors and officers, subject to certain conditions.

If a superior offer materializes, QGX would be on the hook for a $9.1-million break fee.

QGX has been exploring in Mongolia since 1994. The company’s projects include the Baruun Naran project in the South Gobi desert, which has a measured and indicated resource of 252.9 million tonnes of coking and thermal coal, plus 11.1 million inferred tonnes.

A prefeasibility study estimated that Baruun Naran has an after-tax net present value (NPV) of US$499 million and an internal rate of return (IRR) of 33%.

The company holds the Gold Hills project, where copper-gold-silver mineralization is hosted in massive sulphides, gold-silver mineralization in gossan oxides and high-grade gold and silver in quartz-telluride veins.

In 2007, QGX filed a positive preliminary economic assessment on the copper-gold-silver mineralization that called for a two-stage development plan with a 15-year mine life. Mining would start with an open pit focused on gold-silver oxide ore, producing 79,000 oz. gold and 521,000 oz. silver per year. That would be followed by underground mining of the copper-gold-silver sulphide and high-grade quartz-telluride vein resources.

It was estimated that 56.5 million lbs. copper, 53,900 oz. gold and 235,000 oz. silver could be mined per year. The study pegged the after-tax NPV at Gold Hills at US$83 million with an IRR of 27%.

Barrick Gold (ABX-T, ABX-N) holds a 9% interest in QGX.

QGX’s camp at its Baruun Naran coal project in southern Mongolia. The company has agreed to a $5- per-share takeover bid by Kerry Holdings and MCS Holding.