Pallinghurst gets out the chequebook (September 17, 2007)

Management at Consolidated Minerals (CSMBF-O, CNM-L, CSM-A) has reversed an earlier recommendation that shareholders tender to an offer from a subsidiary of the Ukraine-based Privat Group, now that the original friendly bidding group, Pallinghurst Investor, has come up with a larger all-cash offer.

Pallinghurst, a consortium of two private companies — Pallinghurst Resources, led by Brian Gilbertson, the former chief executive at BHP Billiton (BHP-N, BLT-L, BHP-A), and Swiss-based coal company AMCI — is now offering A$4.10 per share for Consmin, or A$938 million ($818 million or US$774 million). There are 228.7 million Consmin shares floating now; at Consmin’s fully diluted capitalization of 264.5 million shares, assuming all convertible notes and stock options are converted, the offer is worth about A$1.1 billion.

Palmary Enterprises, the Belize-based subsidiary of Privat Group bidding for Consmin, is offering A$3.95 per share in an all-cash offer. Consmin management moved its recommendation to the Privat offer on Sept. 3, forcing Pallinghurst’s hand on a higher cash offer. The new Pallinghurst offer expires Sept. 13.

Reports in the Australian financial press quoted “sources close to Palmary” saying that the company would probably come back with a revised bid too. In that event, a provision in Pallinghurst’s offer could kick in, under which shareholders tendering to Pallinghurst would get the difference between the Pallinghurst bid and a higher bid, provided the higher bid is all-cash and for all shares, and is made before Sept. 27.

At presstime, no return bid had emerged from Palmary.

Neither of the cash offers has a minimum-acceptance condition. A third paper-and-cash offer from Territory Resources (TTY-A), for A$2.00 plus 1.5 Territory shares, puts the value of Consmin at A$3.30 per share, based on the Sept. 11 closing price of Territory shares. That values Consmin at A$873 million, based on the fully diluted share float.

Territory has not moved on its offer since Palmary grabbed a 13.5% shareholding in Consmin in July and August. Territory’s managing director Michael Kiernan — previously managing director of Consmin — met with Privat Group representatives in Vienna in mid- August, in which the parties discussed the possibility of a joint venture on Consmin assets, or a takeoff agreement for manganese from Consmin’s large Woodie Woodie manganese mine southeast of Port Hedland in Western Australia. The Privat Group people have yet to get back to Territory on that matter.

Territory closed at A86.5 and Consmin at A$4.39 on the Australian Stock Exchange on Sept. 11.