Why GRAM will need to cough up more for PanAust Limited

PanAust Limited (ASX:PNA) is trading firmer following its solid quarterly report. This will encourage a higher takeover bid from its largest shareholder.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Copper producer PanAust Limited (ASX: PNA) is putting its best foot forward to stay ahead of a takeover battle, with management unveiling record production and a sharp improvement in costs.

PanAust is fending off a hostile takeover by its largest shareholder Guangdong Rising Assets Management (GRAM), who is offering $1.71 a share for the 77.5% of the miner it doesn't already own.

Management considers that to be a lowball bid and is hoping the March quarterly activities report will dissuade shareholders from selling their stock to GRAM through its unconditional offer that closes on May 15.

The strategy appears to be working with shares in PanAust inching up 0.5 cents, or 0.3%, to $1.74. That's comfortably ahead of the offer price and the gain comes on a day when the mining sector is wallowing in red ink.

This includes the 2.9% crash in Independence Group NL (ASX: IGO) to $5.64 despite the miner also delivering a solid quarterly report, and BHP Billiton Limited's (ASX; BHP) 1.7% fall from grace to $30.09 as it too handed in its March quarter update.

PanAust produced 21,146 tonnes of copper in concentrate for the three months to March as cash cost of $US1.05 a pound fell 24% over the previous quarter. The more holistic cost measure, called the all-in-sustaining cost (AISC), also fell 22% to $US1.50 a pound for the period.

The miner produced 24,530 ounces of gold at a cash cost and AISC of $US674 and $US862 an ounce, respectively.

The improved cost performance was largely due to lower labour and sustaining capital costs that were a result of its efficiency review initiatives.

Copper is the main game for PanAust and I am taking the cost improvement in copper production with a small grain of salt as I wonder if operations are geared towards near-term performance at the expense of the longer term.

Don't get me wrong, I think GRAM's offer is too low. GRAM is sending out feelers to retail investors to gauge their interest, according to a report by the Australian Financial Review, and I suspect most feel the same way.

GRAM had initially proposed a non-binding $2.30 a share offer nearly a year ago that was rejected by the miner as being too low. I would think that GRAM will need to come back closer to that price point to gain wider support.

It is also worth noting that management recently upgraded its production outlook for the next few years and is forecasting copper and gold production to range between 74,000 and 76,000 tonnes and 195,000 and 205,000 ounces for 2015, respectively.

I can't speak for other shareholders, but I would rather hold on to my shares for the long run and suffer the volatility than sell them at $1.71.

Motley Fool contributor Brendon Lau owns shares in PanAust and BHP. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »