Holding companies make $259-million offer for QGX

Coal and gold explorer QGX (QGX-T), 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 Limited, and MCS Holding LLC, major private Mongolian company.

The offer is for $5 per share which is 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, but subject to certain conditions.

QGX has the option to find a superior proposal but includes 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 tonnes under the inferred category. A prefeasibility study estimated that Baruun Naran has an after tax net present value of US$499 million and an internal rate of return of 33%.

The company holds the Gold Hills project which includes copper-gold-silver mineralization in massive sulphides, gold-silver mineralization in gossan oxides and a high-grade gold-silver mineralization 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, starting with an open pit focused on gold silver oxide ore with 79,000 oz. gold and 521,000 oz. silver produced 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. of copper, 53,900 oz. gold and 235,000 oz. silver could be mined per year. The study said the project would have an after-tax NPV of US$83 million and an IRR of 27%.

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

QGX shares were up a penny today at $4.82 apiece on a trading volume of 183,000 shares.