Mine wrangle knocks down DML share price

Brian Benza
Staff Writer | Friday January 25, 2013 00:00

Chinese firm, Cathay Fortune Corporation (CFC) launched a P6.5 billion takeover bid of Discovery Metals late last year, which turned hostile when the Boseto Mine promoters spurned the 'low' offer. Since then, Discovery's share price traded up to $1.75 on 24 October 2012 before dropping to $1.52 on 22 January 2012 on the Australian Stock Exchange where the company has a primary listing.

On the Botswana Stock Exchange, the stock price has followed a similar pattern weakening from an average of P13.60 in mid October to around P12.30 this week. In a statement released this week, DML said it believes that the share price performance over this period primarily reflects uncertainty in the market about the bidder's preparedness to proceed with the offer rather than any deterioration in the macroeconomic environment or the fundamental value of DML.

'While the price of DML's shares has fallen since 5 October 2012 there has been an improvement in sentiment towards listed mining exposures with the price of BHP Billiton shares increasing by 10 percent, the price of Rio Tinto shares increasing by 21 percent and the ASX200 Resources Index increasing by 4 percent. At the same time over this period, DML has continued to enhance the value of its assets,' said the company.

The company said the share price has fallen when it has continued to de-risk the Boseto project by progressing through the commissioning stage of development.  DML is moving production rates towards design parameters, and is systematically identifying and implementing mining and processing performance improvements. CFC has set a February 8 deadline for DML to accept the conditional offer and has so far refused to up the bid price.

On the other hand, DML said it has also had considerable exploration success. 'The company's mineral resources inventory has increased from 131 million tonnes to 207 million tonnes as a result of successful exploration,' added DML.

Meanwhile, the company said plans to expand the Boseto plant throughput by 67 percent to 5 million tonnes per annum (mtpa) have been advanced through the appointment of GR Engineering Services to undertake a detailed Front End Engineering Design study.

This study is almost half way through with construction anticipated to commence before the end of 2013, if approved by the DML board. This will lift annual output rates at Boseto to an estimated 50,000 tonnes of copper metal in concentrate from early 2015.  CFC's bid is through a special purpose vehicle, Cathay Fortune Investment (CFI) in which another wholly owned special purpose vehicle of China-Africa Development Fund, China Africa Liantuo, plans to acquire 25 percent worth of shares.

China Africa Liantuo has already applied to the Botswana Competition Authority to take up a stake in CFI.  CFC already owns a 13.7 percent stake in Discovery Metals. The company has set a minimum acceptance condition of 51 percent, which means it only needs just over 37.3 percent support to buyout other shareholders.