Stock of the Day – PanAust (PNA)
 
PanAust is a copper and gold miner with operations in Southeast Asia and undeveloped deposits in South America and Papua New Guinea. It’s Phu Kham copper gold mine in Laos started in 2008 and produces more than 60,000 tonnes of copper and 55,000 ounces of gold a year. PanAust has received a non-binding, indicative proposal for an off market takeover from major shareholder Guangdong Rising Assets Management (GRAM). The proposal is for AUD 2.20 per share in cash and is subject to satisfactory due diligence, regulatory approvals and minimum 50.1% acceptance. GRAM has since revised the offer to $2.30 per share. PNA’s board has advised GRAM that the offer is materially below the level at which it would be prepared to recommend to shareholders.



Inca De Oro Copper Gold Project (Source – Company Reports)

GRAM is a Chinese provincial state owned enterprise. According to the company’s website, GRAM is the second largest shareholder of china Telecom and has various mining sector investments. GRAM assumed a 19.9% PNA shareholding and board position in September 2009 as part of PNA’s post GFC recapitalization and has since increased this position to 23%.


Phu Kam Copper Gold Project (Source – Company Reports)

PNA now looks fully valued on common valuation metrics. There are risks around a formal offer for PNA eventuating and GRAM’s 23% shareholding in PNA will likely deter competing bids. We believe the reported offer price adequately reflects PNA’s near term earnings and free cash flow profiles and medium term capital requirements. A counter bid for PNA will likely be impeded by GRAM’s 23% shareholding in PNA. 


PNA daily chart (Source – Thomson Reuters)

It is not clear as to how a change in control of PNA will impact the proposed Frieda River transaction with Glencore Xstrata. The remaining condition precedent for this transaction is indicative approval of the Investment Promotion Authority of Papua New guinea. The sunset date for satisfaction of conditions precedent is 30 September 2014 with the option to extend. Assuming that the Frieda River transaction completes, PNA’s capital requirements will increase. PNA’s purchase consideration is around US$75m and the company expects to spend a further $25m on feasibility studies over the next 18 months. We gave a BUY recommendation on the stock at the price of $1.55 on 12/03/2014. We recommend a SELL at the current price of $2.17

Note - The following report on PanAust Limited was covered in the Kalkine Daily section on 10/06/2014. The following report could also be found in the special reports section

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