Copper producer Discovery Metals Limited (ASX: DML) has received a non-binding takeover offer, and is currently in a trading halt.
The initial offer is for all shares in Discovery Metals at $1.70 per share, from a Chinese private equity company, Cathay Fortune Corporation and its partner China-Africa Development Fund. The board of Discovery Metals has yet to give its support to the proposal.
Discovery Metals is one of just a handful of Australian listed pure copper plays, which include Sandfire Resources (ASX: SFR), Blackthorn Resources (ASX: BTR) and Tiger Resources (ASX: TGS).
All three stocks have seen their share prices rise in trading today, with Tiger up by more than 10% at the close of trading, possibly on speculation of further consolidation and merger and acquisition activity in the sector. Tiger operates in the African copper belt, which has seen many of the large miners take-over the smaller players in the past three years.
Although the price of copper has fallen in recent times, along with many other commodities, analysis suggests that demand for copper is outstripping supply, and only likely to worsen in the near future. As China and other emerging nations move towards a consumer based society — from an industrialised one — copper is likely to be in high demand. After all, it's used in many products middle class people in many countries aspire to own, including consumer electronics, white goods and cars.
The takeover bid for Discovery Metals comes just as the company has commissioned its plant and commenced production, which means for the bidder that most of the risks have already been removed. Therefore, Discovery Metals is a much lower risk proposition than Blackthorn Resources, for example, which is still in the project evaluation stage.
What is interesting is that Discovery Metals notified the market today of the takeover bid, but it appears they received the offer on the 21st September — almost two weeks ago. Since that time, shares in the company had jumped more than 24%, before today's trading halt.
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Motley Fool writer/analyst Mike King owns shares in Discovery Metals and Tiger Resources. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
