China Sci-Tech Bids For Chariot

After putting down a dissident shareholder manoeuvre led by Lukas Lundin last September, a triumphant Ulli Rath — Chariot Resources’ (CHD-T) president and chief executive — told a gathering of shareholders that his management team was the best one to get the job done of selling its Marcona copper project in Peru.

Rath has remained true to his word.

Chariot announced on March 1 that it has entered into a friendly agreement with Hong Kong-based investment house China Sci-Tech Holdings that will see the firm pay roughly $255 million in cash for all of Chariot’s outstanding shares.

The 67¢-per-share offer represents a 52% premium based on the volume-weighted average price of a Chariot share over the 20-day period prior to the company’s Feb. 22 announcement that it was in exclusive negotiations with an unnamed firm.

And the premium is far heftier compared to when Rath took the reins in late 2004, when Chariot’s market cap was under $10 million.

Chariot — which has held a 70% interest in Marcona — has spent roughly $70 million acquiring and developing the project to its current state. The remaining 30% stake is held by two South Korean entities: state-controlled Korea Resources and LS-Nikko Copper.

Rath, who has already brought four mines into production in South America, would have preferred to have seen Chariot develop Marcona all the way through. However, the financial meltdown in 2008 forced the company to set more modest goals after a term of sheet with six lenders for US$350 million in debt financing evaporated.

The situation left Chariot in a precarious situation that could have seen it lose the project altogether.

So with just $30 million in its treasury, management went into cash conservation mode.

The plan worked, and Chariot was able to keep its chief asset. But Rath and his team were painfully aware they didn’t have the capital to develop the project themselves and would have to dress up the project to sell.

A feasibility study was also completed last year that envisioned building a $578-million mine that would produce 244.5 million lbs. copper per year — some of that as copper cathode, some as a premium concentrate with a grade of 37.8% copper.

Next on the to-do list was to get an environmental and social impact assessment (ESIA) finished and approved.

Rath, who is proud of the work that Chariot has done on the social and environmental side (the company has received third-party accolades for some of its local youth programs), says that he expects the ESIA to be approved by mid-year.

And the Peruvian government’s selecting the project for its “National Interest” designation in early February signalled its support for development.

And while the bidder carries China in its name, Rath argues that there is a difference in how mainland Chinese and Hong Kong companies like China Sci-Tech conduct business.

“Mainland Chinese companies have gathered a bit of a bad reputation, and deservedly so, because they don’t have a particularly strong record on the environmental and social side of things,” Rath says. “But I believe Hong Kong companies are completely different.”

Rath explains that while financed with Hong Kong capital, China Sci- Tech is using an experienced outside mining team, in this case from Australia, at its recently acquired gold project in Indonesia, and will likely do the same at Marcona.

Rath says China Sci-Tech would like him to stay on and guide the project, but it’s too early for him to decide.

Of course China Sci-Tech may not even end up with the project, as Chariot spoke with as many as 20 interested parties over the past few months, and a rival bid is possible.

China Sci-Tech has the right to match any such bid, and Chariot would have to pay it a $7.6-million break fee if it were to accept a higher offer.

Chariot and China Sci-Tech are looking to hold shareholder meetings in mid-April. The deal would need 66.7% shareholder approval.