JUNIOR Perth explorer Herald Resources has implored shareholders to sit tight after Indonesian conglomerate PT Bumi yesterday launched a hostile bid for the company.
Shares in Herald jumped nearly 25 per cent to a record close, after Bumi offered $2.25 cash for each share, valuing the company at $445 million.
The bid is part of Bumi's plans to build a diversified mining company away from its coal assets. It is now the biggest exporter of thermal coal in Indonesia.
Herald, on the other hand, has been continually frustrated in trying to negotiate the maze of the Indonesian regulatory approvals system to develop its Dairi lead/zinc mine in Sumatra, where it has an 80 per cent interest.
The in-ground value of metal at Dairi is estimated at close to $1 billion, but Herald had been advised last month that it needed a Presidential Decree if it was to mine the underground project, which is in a forested area.
Herald executive director Michael Wright said yesterday that planning approval was at an "advanced stage", while port, road and accommodation construction was already under way. The company also has advanced plans to raise $100 million, should the approval be granted.
PT Bumi director Ken Farrell said he could not see any rival bidders emerging for Herald.
But he added that he didn't expect Herald to give Bumi access to its data room under the hostile bid.
"It would be unlikely that people would be wanting to take a position of a strategic asset in Indonesia when the other bidder is the largest Indonesian mining company," Mr Farrell said.
While he could not say with precision how many regulatory hurdles Herald still had to jump before it could proceed with the Dairi project in Sumatra, Bumi was better positioned to deal with the approvals process.
He added that it was "very difficult" to put any quantitative estimates on costs to develop Dairi.
Bumi has strong links to government officials through its association with the Bakrie brothers of which the eldest son, Aburizal Bakrie, was a former chief economic minister.
Bumi's conditions of the offer include a minimum 50.1 per cent acceptance rate and that Herald does not increase by more than 5 per cent its expected capital cost to develop Dairi of $US230 million ($262.6 million).
The Indonesian conglomerate, which has a market capitalisation of close to $US13 billion, can also walk away if the three-month forward delivered price of zinc falls below $US2000 a tonne.
Rival zinc miner Perilya was also believed to have been interested in launching a takeover of its own for Herald.
Herald shares gained 43c yesterday to $2.26.
HER Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
