The collapse in the price of copper and related mining stocks has left many red faces, but the painful falls have left the Chinese bidders of PanAust Limited (ASX: PNA) looking like the smartest guys in the room.
PanAust rejected a bid from its largest shareholder, Guangdong Rising Assets Management (GRAM), to buy shares in the copper and gold miner that it doesn't already own for $2.20 a pop, before the deal was sweetened to $2.30.
Management rejected the offer because the "price remains materially below" what the board considers to be fair value.
GRAM went all quiet since and has watched, no doubt with glee, the price of copper crash 20% to around $US2.54 a pound. This forced the share price of PanAust down 41% to $1.25 on Tuesday.
Shareholders are left on tenterhooks to ponder GRAM's next move. The Chinese shareholder could well walk away.
But there is good news. With or without corporate interest, PanAust is fundamentally undervalued even with the uncertain outlook for copper prices.
You won't find consensus among experts on the supply/demand equation for the red metal. Some believe there will be a shortage of copper by the end of 2015 or 2016, while others predict sustained oversupply for the next few years. It all comes down to the expected ramp up in output of the metal but potential production delays and mothballing of projects are clouding the outlook.
UBS has calculated what is being priced into copper stocks and found that PanAust is the most fundamentally attractive among the four pure-play copper miners under its coverage.
The analysis is based on PanAust's growth options and the implied copper price.
At PanAust's current share price, the market is ascribing an average copper price of around $US1.70 a pound if exploration expenses are factored in. UBS is urging investors to buy the stock with a price target of $2.80 a share.
That's comfortably above GRAM's indicative bid and that should keep the Chinese interested in consummating the deal.
However, it's anyone's guess how this mating game will play out. The only thing one can say is the ball is firmly in GRAM's court and the suitor is holding the upper hand.
