Wrench thrown in Pallinghurst-Consmin deal

Australian metal producer Consolidated Minerals (CSMBF-O, CNM-L, CSM-A) now has a rival suitor, of a sort.

Northern Territory iron ore developer Territory Resources (TTY-A) is offering to take over Consmin in a cash-and-scrip deal conditional on getting access to Consmin’s financial data.

The proposal is in opposition to an offer made in March by Pallinghurst Resources Fund, headed by former BHP Billiton (BHP-N, BLT-L, BHP-A) executive Brian Gilbertson, and privately held coal producer AMCI to reorganize Consmin as a mid-tier metal producer. Offering a cash distribution plus shares in the reorganized company, Pallinghurst and AMCI launched that bid with the backing of Consmin’s board.

Consmin’s board, citing its fiduciary duty to examine other offers, has indicated it would arrange access for Territory, in return for reciprocal access to Territory’s financial information. Consmin wants that access to end by July 13.

Pallinghurst and AMCI have increased their offer to A$1.68 cash plus two shares in the reorganized company for every five Consmin shares, adding A30 cash to their previous bid. A fairness opinion provided early in June to Consmin’s board by accounting firm PriceWaterhouseCoopers put the fair price for a controlling block of Consmin at A$2.33 to A$2.77 per share; the first offer fell short of that and the recent increase brought the bid into range. Consmin management still supports that proposal.

Territory, which had requested a trading halt from the Australian Stock Exchange on June 27 in advance of announcing its offer, first sent what Consmin called an “incomplete indicative proposal” for a takeover bid. Territory’s first announcement to the public said it would offer A$1.50 cash plus 1.5 Territory shares, which — using pre- announcement share prices — valued Consmin at A$3.73 per share. (Territory shares have since fallen to around A$1.05, bringing that offer down to A$3.08.)

Consmin fired back a dismissal of that proposal, saying that recent valuations on Territory share transactions off-market — from A35 to A50 — were substantially lower than the market price. Consmin had already advised that the Pallinghurst-AMCI proposal valued the company at A$2.82 per share. With 228 million Consmin shares outstanding, the Pallinghurst deal values Consmin at A$643 million ($582 million or US$549 million), with A$383 million of it in cash.

Five days later, Territory returned with an announcement that it was “prepared to consider” upping its cash offer to A$2.00 while cutting back the share portion to one share, or offering an all-paper trade of three Territory for one Consmin. Offers in that range impute a value of A$3.05 to A$3.15 to Consmin shares, or about A$707 million to the whole company.

Backing the Territory proposal were Hong Kong-based metal traders Noble Group and DCM Decometal International Trading, which are large customers for Consmin’s chromite and manganese, and which together own about a 12% interest in Consmin.

Consmin also declared a dividend of A4.5 per share for 2007, payable in August to shareholders of record on July 17.