Shares in PanAust Limited (ASX: PNA) may not have reacted to this morning's better-than-expected quarterly production report from the copper-gold miner, but the strong figures will certainly complicate the attempted takeover of the miner by its largest shareholder.
Management is forecasting a 25% increase in copper production from its Phu Kham mine in Laos over the next few years with no additional development capital required.
Annual production is expected to peak at around 90,000 tonnes in 2018 and 2019 and PanAust claims that its cost cutting initiatives are delivering savings ahead of the initially forecast $US50 million a year.
The March production report and outlook is certainly geared toward defending against the takeover bid by Guangdong Rising Assets Management (GRAM), which is offering $1.71 a share for the 77.5% of the miner it doesn't own.
The takeover bid means the new chief executive has no time to settle into his new leadership role following his appointment in November last year.
While most new chief executives or managing directors are given six months by the market to throw out all the bad news and turn the ship around, the new chief exec had to immediately show why PanAust is worth more than GRAM's offer price, which is a 40% premium to the stock's last traded price before the bid was announced.
But the new chief exec looks like he is on the right path. Production of copper in concentrate increased by over 6% in the March quarter to 21,146 tonnes compared to the previous quarter, as all-in-sustaining-costs (AISC) fell to $US1.50 from $US1.93 a pound.
While gold production has been declining (something that has been flagged to the market), total costs have also been falling. Gold production at its Ban Houayxai mine is off 19% at 24,530 ounces for the three months to March, but the AISC is down to $US862 from $US959 an ounce.
Total gold production is predicted to stabilise between 70,000 and 75,000 ounces a year from 2016 onwards.
PanAust shares are trading flat at $1.74, which indicates that the market believes either GRAM will need to up its offer or that another suitor will emerge.
No doubt the latest production forecast will feature heavily in PanAust's upcoming obligatory Target Statement, which will outline the company's recommendation to shareholders. Management considers the bid opportunistic and is asking shareholders to take no action until the Target Statement is released in the coming week or two.
This is the second attempt by GRAM to acquire PanAust. Coincidentally, Bradken Limited (ASX: BKN) also got a second chance offer last week from Pacific Equity Partners and Koch Industries.
As I wrote then, other second chance takeover candidates are likely to come back into the spotlight. You can add Skilled Group Ltd. (ASX: SKE) to this list.
Let the games begin!
