China's Zijin Mining Group has made a bid to take over Australia-listed miner Indophil Resources for A$545 million ($497 million).
Zijin is offering to buy all of Indophil's outstanding shares for A$1.28 per share. The price represents a premium of 18% to Indophil's closing price on the Australian Securities Exchange (ASX) on November 26, the day before the shares were suspended pending an announcement, and an 83% premium to Indophil's six month volume-weighted average price.
The board of directors of Indophil supports the takeover bid by Zijin and is recommending shareholders to accept it. Xstrata Queensland, Indophil's largest shareholder, has agreed to tender its 19.9% stake to Zijin.
Xstrata Queensland is a wholly owned subsidiary of Xstrata, a diversified mining group listed on the London and Swiss Stock Exchanges and headquartered in Switzerland.
Indophil's main asset is a 34% stake in the Tampakan copper-gold project in the southern Philippines. The project is managed by an Xstrata affiliate company Sagittarius Mines. The latest resource estimate done for the project on October 20 estimated reserves of 2.4 billion metric tonnes, comprising 13.5 million tonnes of copper and 15.8 million tonnes of gold. The project is due to complete its feasibility phase by 2010 and commence production in 2016.
Indophil has an option to acquire another 3.27% in the mining project to give it 37.5% of the equity. The balance 62.5% is held by Xstrata Queensland directly.
"The Zijin proposal recognises Tampakan's inherent value and follows a comprehensive ownership review process in which the board, management and advisers have considered a range of strategic alternatives and proposals from interested parties," said Indophil chairman Brian Phillips in an ASX filing.
Somewhat surprisingly, Zijin has not appointed a financial adviser and is working on the takeover solely with its legal advisers, Charltons Hong Kong and Minter Ellison. Chinese state-owned enterprises which have been aggressively pursuing takeovers of natural resources firms in Australia since last year have generally used a bulge-bracket investment bank for financial advice. However, no one firm has been able to corner the lion's share of the China outbound business, with every bank having one or two deals to their credit.
Indophil is being advised by Gresham Advisory Partners and is taking legal advice from Freehills and Baker & McKenzie.
Zijin is the largest producer of gold and the third-largest producer of copper in China. It is listed on the Hong Kong and Shanghai exchanges.
Zijin has already used cross-border M&A to secure supplies of resources. In 2007 it led a consortium of Chinese companies to take over Montericco Metals at an equity value of $186 million.
The takeover of Indophil is subject to Zijin cornering 90% of the shares outstanding as well as relevant regulatory approvals in China and Australia, including from Australia's Foreign Investment Review Board.