Well that’s one way of getting bigger, even in an easy money environment: use some of your highly-priced paper to make a hostile bid, even if it is a billion dollars.
Uranium explorer Paladin Resources yesterday revealed such a move with the start of a hostile paper $1 billion takeover offer for base metals company Summit Resources.
Even in these days of banks throwing money into takeovers and placements and private equity deals, the likes of Paladin and Summit are a long way off their radar, so the currency becomes paper.
It has taken the same approach as the much richer Oxiana which is offering more than $415 million in OXR shares for Agincourt Resources to boost its gold resources.
Paladin’s move is aimed at bringing Summit’s existing interests into the fold.
It described Summit as “a Western Australian based exploration company with interests in uranium, copper, gold, phosphate and iron ore exploration projects in northwest Queensland.
“The most advanced project in Summits portfolio is the Valhalla uranium deposit situated near Mount Isa.
“The Valhalla deposit, together with Skal is part of the Isa Uranium Joint Venture Agreement (“IUJV”), of which Summit is manager and holder of a 50% interest. Paladin holds the other 50% interest in the IUJV.”
The offer is one Paladin shares for every 2.04 fully paid ordinary Summit share, implying a price per share of $5.12 based on recent trading levels.
At yesterday’s close of $10.01 for PDN shares, the bid was down to $4.90 per SMM share. SMM shares were trading at $5.12, up $1.12 or more than 20 per cent on the day.
The shakeout in the market today will alter that valuation and test the confidence paladin has in its own valuations.
Paladin said the offer values Summit at approximately $1.01 billion and represents a premium of about 34 per cent over the volume weighted average price for Summit shares in the last 10 days. The value is now under a billion dollars (the billion valuation sounds sexy!).
Summit reacted by declaring the offer hostile. “This offer is not unexpected and, in my opinion, is designed to capture value that will otherwise flow to Summit’s shareholders,” Summit managing director Alan Eggers.
Mr Eggers said today “Paladin has announced that it will serve its bidder’s statement today and we will carefully consider that documentation before providing a formal response. The board of Summit will convene shortly after we receive the bid documentation.
“We will be communicating more fully about this with our shareholders shortly.” At this stage shareholders should take no action, ignore all communication from Paladin and await our further advice.”
“Summit shareholders should also note that despite the disruption that this hostile offer will cause, it remains business as usual for Summit. We will continue to progress the development of the Mount Isa Uranium Project and to forge ahead on other fronts including the proposed spin out of Pacific Mines Limited, which we confirmed in our last quarterly report.”
Perth-based Paladin said yesterday its offer comes after it last week signed a development agreement with the government of the Republic of Malawi.
Its board has approved the construction of the Kayelekera uranium project, where it’s targeting an annual production profile of seven million pounds of uranium oxide a year by 2009.
Paladin said the proposed takeover represents a significant step forward in its strategy.
“By accepting the offer, Summit shareholders will become shareholders in a uranium producing company which enjoys excellent exposure to current strong uranium pricing.
“Paladin believes that a 100% interest in the Valhalla/Skal deposits will further strengthen the post-2012 development opportunity at Mt Isa. Paladin notes the recent public comments by Summit suggesting that it will commence uranium production by early to mid 2010 (assuming the Queensland State Government reverses its policy stance so as to permit uranium mining in that State). Paladin’s view, based on its own development experience and understanding of the likely development process in Queensland should uranium mining be allowed, is that a target of production commencing in or after 2012 is a more realistic expectation.
“By accepting the Offer, Summit shareholders will become shareholders in a uranium producing company which enjoys excellent exposure to current strong uranium pricing and has no legacy pre-2006 sales contracts.
“Summit shareholders who accept the Offer will also retain significant exploration upside, retain upside exposure to potential changes in Australian uranium mining policy, inherit a management team and board with the requisite skills and demonstrated ability to bring a uranium mine into production and obtain increased liquidity of their investment through Paladin shares.
“Paladin’s strong balance sheet and upcoming operating cash flow will support the development of Summit’s uranium assets and the eventual unlocking of the upside potential at the Valhalla/Skal, Andersons and other Mount Isa deposits.”
The future of the deal is in the hands of market forces now, so it will be a case of battening down the hatches for a while.
