[miningmx.com] – PALABORA Mining (Palamin) has never reached the R110/share imputed to the company by the takeover bid of the China-led consortium which includes the state-owned Hebei Iron and Steel Group.
In fact, Palamin is currently trading at R102.76/share, approximately the level to which it jumped when the R5.3bn bid was unveiled in December.
Peter Major, an analyst with Cadiz Corporate Investments says investors are probably factoring in deal risk.
“They have seen a few deals with the Chinese before that take a long time to fulfil,’ he says. In a cautionary announcement issued on March 27, Palamin said its selling shareholders – Anglo American and Rio Tinto – expected the deal to take up to half a year to finalise.
“There’s many-a slip “twixt cup and lip’, as the saying goes; half a year is a long time for deal consummation. It allows ample room for competing bids, for markets to deteriorate; sometimes the bidders just walk away.
Just ask Australian-listed Discovery Minerals, a copper miner in Botswana, which saw China’s Cathay Fortune Corp. change its mind on a $865m bid last year.
And today, Sundance Resources, another Australian firm with iron ore assets in Cameroon, terminated its $648m takeover bid by Sichuan Hanlong fail after the Chinese company failed to secure credit approved terms sheets by the March 26 deadline.
“There’s a chance the Chinese could drag it out, or investors don’t trust deal completion in its current form, and that Palamin will panic and agree to a discount,’ says Major. Part of the problem is the significant red-tape in China’s permitting system; the other is that the Chinese are as vulnerable to the markets as any other company.
What, then, might this mean for the much-trumpeted but highly open-ended agreement between South Africa’s logistics utility, Transnet, and the China Development Bank?
Brian Molefe, CEO of Transnet, told Miningmx in an interview last week that the agreement was not too prescriptive. While this was in the spirit of creative enterpreneurialism, it also raises issues as to how binding they might be.
“These government type contracts don’t really mean anything although they do get good home press,’ says Major.
Molefe views it differently: “Sourcing funds from China Development Bank shows that we won’t struggle for external funding. We can raise money in New York and in Johannesburg.’
In terms of its funding proposal for the R300bn infrastructure development plan, called its Market Demand Strategy (MDS), only a third is being raised through international loans or bonds.
The problem is generating enough revenue in the existing business. “It is a worry,’ says Molefe mindful that GDP growth of 2.7% is insufficient to support the kind of cash generation it needs to self-fund the R300bn.
