Dragon hunts Tiberon

With its strong Vietnam focus, investment bank Dragon Capital Management has offered to buy Tiberon Minerals (TBR-T, TBMLF-O) for $251 million so it can help develop the Nui Phao fluorspar- tungsten mine — the largest mining project under development in the country.

Dragon Capital’s offer of $3.65 per share is at a 53% premium over the closing price of Tiberon common shares on Oct. 17, the day before Tiberon announced it had been “approached by a third party” regarding a possible deal.

Nui Phao will be one of the largest fluorspar- tungsten producers outside of China, which has more than 80% of the world’s tungsten. When production starts at Nui Phao, possibly by 2009, it’s projected the mine will provide 10% of global supply.

Tiberon has a 70% interest in the project, while two Vietnamese joint-venture partners each hold 15%.

Dragon Capital already owned about 9.5 million, or 12.2%, of Tiberon’s 78.3 million shares before it made the offer.

Tiberon’s board of directors and senior officers have agreed to tender all of their 6.3 million shares and to exercise their 2.3 million warrants, so Dragon Capital has already secured 23% of the company.

Tiberon’s board unanimously supports the offer but at least two-thirds of its shareholders need to accept the deal, which is expected to close in mid-February. If it doesn’t go through under certain circumstances, Tiberon will have to pay Dragon Capital a non-completion fee of US$10 million.

Recently, the Vietnamese government changed tax legislation for exported commodities, imposing a 10% export tax on ores and concentrates and a 5% export tax on refined commodities.

Tiberon CEO Mario Caron admits the taxes are “heavy.” He says management is planning to meet with the government to discuss the implications for Nui Phao and to see if there are any possible exemptions.

In a report, Research Capital analyst Barry Allan recommended that shareholders tender to the offer, arguing a competing bid is unlikely to emerge. He also said $3.55 per share is fair, especially with the added export taxes and the need to raise US$90 million to completely fund the project.

Senior analyst Jim Mustard of Haywood Securities agrees the deal is good for shareholders since it provides instant liquidation.

“It’s interesting to see a capitalist group in a relatively recent communist country step up to the plate to acquire an asset like this,” Mustard says.

As for the import tax, he says it’s designed to encourage downstream processing in Vietnam.

“It’s an incentive to keep the product in the country and add value to it.”

Mustard also says having local ownership may help speed the project along.

During a recent conference call, Caron said Dragon Capital has a good reputation within Vietnam, having invested more than $1 billion in the country. He believes this will give the company additional lobbying power that Tiberon would not have had on its own.

“Dragon Capital has been in the country in excess of ten years, so definitely, they have a local flavour,” Caron said.

However, Dragon Capital lacks technical and operational expertise, so the Tiberon team in Vietnam will remain intact and some of the management will stay on for the time being, Caron added.

The Nui Phao property contains more than 55 million tonnes of proven and probable reserves grading 0.211% tungsten trioxide, 8.46% acid-grade fluorspar, 0.187% copper, 0.208 gram gold per tonne and 0.095% bismuth.

Annual concentrate production is estimated to be about 4,800 tonnes of tungsten trioxide, 222,500 tonnes of acid-grade fluorspar, 2,000 tonnes of bismuth, 5,600 tonnes of copper, 2,300 oz. gold and 27,400 oz. silver over a mine life of about 16 years. The byproducts — bismuth, copper, gold and silver — will help keep the open-pit mine’s tungsten cash costs at US$18 per metric tonne unit and US$39 per tonne for fluorspar.

According to a September 2006 technical report, Nui Phao is expected to have an annual cash flow of US$71.5 million after taxes for the first five years of production.