Deals and IPOs

Palmary Bids for Australia's Consolidated Minerals


A long-running battle for a giant manganese mine in the Australian outback heated up on Friday, with Ukrainian-owned investment firm Palmary Enterprises, trumping two other bidders for mine-owner Consolidated Minerals.

Palmary, controlled by Ukraine-based investor Gennadiy Bogolyubov, is offering A$3.95 a share or about A$902 million ($733 million) for Consolidated, which mines about 10% of the world's manganese, an alloy used in steel.

The Palmary offer comes one day after Consolidated agreed to a sweetened A$3.60 a share bid from another investment firm, Pallinghurst Resources while fending off a hostile A$3.50 a share cash and scrip bid from Territory Resources.

Palmary is Consolidated's largest shareholder, with 14.36%. It is involved in manganese mining in the African nation of Ghana, though Consolidated's mine in far western Australia is seen as more of a prize.

Australian miners, given their proximity to major metals markets in China and Japan, have a competitive advantage over producers in Africa and Latin America thanks to lower freight costs.

"We have the upper hand in that geographically we are a lot closer to China and Japan, the biggest users because of the steel industry, hence we can potentially provide a cheaper product," said James Wilson, a mining analyst with DJ Carmichael and Co. in Perth.

On Thursday, Consolidated said it had not received any indication from a third party that made an indicative approach -- rumoured at the time to be private Norwegian company Tinfos -- as to whether it too would lodge a competing offer.

Consolidated Managing Director Rod Baxter said the board will consider the Palmary offer but urged shareholders not to take action for now.

Roughly 75% of Consolidated's annual production is pre-sold, providing a steady long term revenue stream for the company. 

Demand for steel alloying materials have soared in step with rising world steel production and the rise of China as the world's top producer.

But some minor metals, such as manganese, until recently were largely ignored given swollen stockpiles. Those supplies have since disappeared, driving prices up and sparking a dash for new sources.

"For a long time, manganese was treated as a poor cousin among steel alloys, but that has all changed," said Australia and New Zealand Bank commodities analyst Andrew Harrington.

Manganese prices have almost doubled since 2003 and are trading at around $825 a tonne, but are well down from a peak of just under $1,600 a tonne reached in November 2004.

The Palmary offer is a 55.2% premium to the mid-point of an independent expert's valuation which valued Consolidated at between A$2.32 and A$2.77 a share, Palmary noted.

Territory issued a statement saying it would adopt a "wait and see approach," adding it reserved the right to vary its offer. 

Territory is offering A$2.00 cash per share and 1.5 ordinary Territory shares for each Consolidated share, making its offer worth A$913 million at present.

Territory chairman Michael Kiernan said the company's cash and scrip combination reflected volatility and uncertainty in the market.

"We are dealing with a constantly changing landscape which is yet to settle," he said.

Consolidated shares closed 9.7% higher at A$3.71.