Shanxi Donghui Coal & Coking Chemicals Group (Shanxi) has released the details of its off-market bid for Inova resources, following the release of the Bidders Statement. In the meantime, the company pushes ahead with business as usual.
An off-market offer of A22 cents per share has been made by the Shanxi Donghui Coal & Coking Chemicals Group, for all the equity in Inova resources that it does not already control. The bid values Inova Resources at circa A$161 million.
A Bidders Statement containing the details of the offer was forwarded to Inova Resources shareholders on 13 September 2013. The offer period opened on 12 September 2013 and will close on 14 October 2013; unless extended.
Inova Resources has yet to respond with a mandatory Target Statement. The company expects the Statement will be forwarded to shareholders prior to the end of September 2013. The Board of Inova Resources has yet to broadcast an opinion on the offer made by Shanxi.
The off-market offer is subject to a number of conditions that must be satisfied prior to completion of the offer.
The key conditions of the offer include a minimum acceptance level of 51% of the Inova share capital, along with Australia’s Foreign Investment and Review Board and Chinese Regulatory approvals. The full details of all the conditions of the offer are contained in the Bidders Statement which can be perused under Section 12.8 in that Statement. We have reviewed the conditions of the offer and consider these not to be onerous on the offer.
Shanxi may withdraw the offer, subject to Australian Securities and Investment Commission approval. Shanxi may also vary the terms of the offer in accordance with Australia’s Corporations Act.
We note that major shareholder Turquoise Hill Resources, which holds approximately 14.9% of Inova Resources share capital has signed a Pre Bid Agreement with Shanxi to accept the offer. Turquoise Hill Resources is controlled by mining giant Rio Tinto.
In the meantime, the company continues to update the market on its activities in the Cloncurry region of Queensland. For the Starra 276 deposit, a revised mineral resource estimate has been released with a downgrade made to the resource tonnage. The ore revision excluding ore depleted through mining was a fall of 41% on the previous number, to 854,000 tonnes of ore. The following table shows the new resource numbers for Starra 276 (eCu stands for equivalent copper).
Source: Inova Resources
The company indicated the reason for the downgrade was due to a better understanding of the geology of the Starra 276 deposit. Work to optimise the returns from both the Starra 276 and Kulthor deposits is now underway. As a result of the resource downgrade for Starra 276, the company may raise an impairment charge of between A$10 and A$20 million for the Osborne project. The impairment charge would be raised against the current carrying value of the Osborne project in the balance sheet, when the company next reports its financial statements.
Although disappointing, the downgrade of the Starra 276 resource reflects a better commercially viable outcome for the deposit. Members should note the resource grade has risen from 1.72 grams per tonne (g/t) copper equivalent to 2.05g/t for the new resource. As a result of the higher grade, the fall in contained copper and gold was less severe. Contained copper fell 26% and gold by 33% on the previous resource numbers (numbers are shown in the prior table).
On a better note, the company’s drilling at its Confucius prospect has returned positive results for gold. The following figure shows the location of the Confucius prospect.
Source: Inova Resources
The current drill results continue to confirm the presences of gold, with the better results being eight metres graded at 10g/t gold from 74 metres deep, a multiple intersection of 5.2 metres graded at 3.5g/t gold from 17.9 metres deep, six meters graded at 1.8g/t gold from 30 metres deep and one metre graded at 12.7g/t gold from 41 metres deep.
We consider these results as excellent and potentially confirm the prospect as a major gold ore zone. The prospect hosts three other strong gold anomaly zones. The company is currently conducting further geological and structural activities at Confucius. We will monitor closely the results from this exploration activity.
With regard to the takeover offer, Members are not required to take any action at this time. We will advise Members of an appropriate course of action following the release of a Target Statement by Inova Resources.
In the meantime, Inova Resources will remain held in the Fat Prophets portfolio.
IVA Price at posting:
21.5¢ Sentiment: None Disclosure: Held
