PanAust Limited surges on takeover offer: What should shareholders do?

The copper-gold miner received an unconditional bid that’s priced at a 40% premium to its last closing price, but the offer isn’t as generous as what the face value might suggest.

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Copper and gold miner PanAust Limited surged after its (ASX: PNA) largest shareholder made a second tilt for the company with an unconditional offer that values the embattled miner at over $1 billion.

The stock raced up 39.8% to match the offer made by Guangdong Rising Assets Management (GRAM) of $1.71 a share, which stands in contrast to PanAust’s closing price of $1.22 on Friday.

Shareholders will welcome the bounce but the offer won’t thrill most as PanAust’s share price was hovering around its lowest level since the end of the global financial crisis in early 2009 before the bid was received.

The corporate interest isn’t helping other copper-gold producers either with shares in Sandfire Resources NL (ASX: SFR) and Oz Minerals Limited (ASX: OZL) falling 1.9% to $4.22 and 2.8% to $3.76 in morning trade, respectively.

However, PanAust has been under more pressure in recent months with its stock underperforming over the past six months, with a close to 40% collapse in value (see chart below).


Last month’s worse-than-expected full year loss was marred by $US264 million ($343 million) in impairment charges and a freeze on dividends that has been a big drag on sentiment towards PanAust.

The question isn’t whether GRAM’s bid is opportunistic (aren’t all takeover bids?), but whether the offer is sweet enough to secure it the 90% ownership of the miner that would enable it to compulsorily acquire all shares in PanAust.

GRAM owns 22.5% of PanAust and it had made a conditional and non-binding $2.30 a share offer in May last year for the miner which has assets in Laos, Papua New Guinea and Chile.

Management rejected the bid then as being too low and discussions ended, until today when GRAM took its binding $1.71 offer directly to shareholders.

If PanAust was an iron ore miner, I think shareholders would be more inclined to jump at the offer. But the outlook for base metals isn’t as bleak as the demand and supply fundamentals are much better than for iron ore.

Further, $1.71 would only represent fair value, if not a discount, to most analysts’ valuation of the stock. The lack of a takeover premium doesn’t sit well with me as a shareholder.

Most brokers covering PanAust are bullish on its longer-term prospects. Of the 21 brokers polled on Bloomberg, 17 rate it a “buy” and four a “hold”. There are no sell recommendations.

On the flipside, those who agree to sell their shares will get cash and will be paid within seven business days of the offer acceptance.

It is also unlikely that a competing and superior bid will emerge – not because the offer price is generous but because of GRAM’s large blocking stake in the miner. We also cannot expect a second Chinese bidder to come to the party as the Chinese have an unspoken rule of not bidding against each other.

PanAust is urging investors to wait as it formulates a response to the takeover offer. I suspect most will be taking that advice.

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