As the current offer is 11.1% higher than Bumi Resources' earlier offer of A$2.25 per share, Herald's board of directors has withdrawn its earlier recommendation dated January 23 that shareholders tender their shares to Bumi. It is now recommending the Antam-Zhongjin offer.
Antam is 65%-owned by the Government of Indonesia with the rest of the shares widely dispersed. It already owns 20% of HeraldÆs Dairi project in Sumatra in Indonesia via a joint venture with Herald. The Dairi zinc/lead mining project, which has a forecast capacity of 220,000 tonnes of zinc and 100,000 tonnes of lead, is one of the primary drivers of value for Herald. However, this value is currently unrealised since key approvals for the project have been delayed for two years.
Antam has purchased 21.2 million Herald shares in the open market, accumulating a 10.7% interest in the target.
Zhongjin is a Chinese state-owned enterprise, 38% owned by the government. It is engaged in the mining and processing of zinc, lead and other non-ferrous metals. Its primary asset is a mine in Southern China with a production capacity of 150,000 tonnes of zinc and lead.
The Antam-Zhongjin offer is being made through a special purpose vehicle. Antam owns 40% and Zhongjin 60% of the SPV, with the result that AntamÆs combined direct and indirect interest in the Dairi project will ultimately be 52% while that of Zhongjin will be 48%.
The Antam-Zhongjin offer is subject to a minimum acceptance level of 50.1% as well as relevant approvals, including those from shareholders and regulators.
ôWe believe that the value of the Dairi project can be best optimised by the expertise of Antam and the introduction of an operating partner such as Zhongjin, which has demonstrated expertise in zinc and lead mining and the capacity to enter into long-term production offtake arrangements,ö says the president director of Antam, Dedi Aditya Sumangara.
The Dairi project has been unable to the get necessary approvals to proceed from the Indonesian government, despite the indirect stake that the government holds in the project via Antam. AntamÆs willingness to come to the table and put forward a higher bid suggests that with a larger stake, it is confident of shepherding the project through the approval process.
Bringing Zhongjin in as a partner also ensures that Antam has a ready customer for the supply from the Dairi project. Chinese companies are looking across markets for targets which will ensure the country has a secure and steady source of raw materials for its ongoing plans and to meet the domestic requirements of the worldÆs most populous nation.
Antam and Zhongjin intend to fund the offer through a combination of cash and new and existing debt facilities. Sources of debt were not named. The combine has negotiated a break fee of A$5 million with Herald Resources, which is payable under certain defined circumstances including a successful competing takeover proposal.
The current takeover battle also pits advisers against each other. Bumi is advised û and some say financed though that has not been confirmed - on its bid by Credit Suisse, a firm which has a strong track record both in Indonesia and of working with Bumi.
The Antam-Zhongjin combine has Macquarie Capital Advisers working with them.
Herald is being advised by Euroz Securities, which has obviously been hard at work to bring another suitor to the table. The January 23 endorsement of the Bumi bid by the board of directors of Herald was reluctant and alluded to the possibility of a higher counter-bid, while advising shareholders to wait until the end of the tender period to offer their shares.
Jubilant Herald shareholders sent the share price eight cents higher to A$2.58, on the Australian Stock Exchange yesterday. The share is now trading above the Antam/Zhongjin bid level, leading to some uncertainty about whether shareholders will tender at the current offer price of A$2.50.
Bumi disclosed on January 23 that it had already acquired about 39 million shares of Herald, representing a stake of around 20%. As it could have received further shares in the past week at its offer price of A$2.25 per share, it stands to make a tidy profit, even if it loses the target.
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