HIG

This stock had been dumped many times.  But if you read the news from The Australian, then you cannot believe it is only worth so little.  It has hardly any debt because those who farmed-in paid HIG for the privilege and also paid for significant amount for developing or exploring.

Why a Chinese company does not just take it over?  That is a AUD$64 million dollar question...

I put a buy at 4.1c in case some idiots want to dump their holdings but the investors must be getting smarter.  After waiting for a while, I have decided that I will have to pay much higher now to top up so today, at 6.5c, I have grabbed a parcel.

THE cyclical shedding of assets by the mining majors has long been a source of growth for the smaller resources companies.

And so it is again, with the ­majors high-grading their port­folios and steering clear of new capital commitments.
The latest to benefit is the ­Brisbane-based Laos copper and gold producer PanAust (ASX: PNA). It has emerged as the bene­ficiary of the aversion by Ivan Glasenberg’s Glencore Xstrata to developing new operations for growth’s sake.
The discarded asset is 80 per cent of the Frieda River copper/gold deposit in PNG. It is one of the world’s biggest undeveloped deposits of the two metals: 10 million tonnes of copper and 16 million ounces of gold.
Before Glencore took it over, Xstrata was thinking about a $US6 billion big-bang development. Glasenberg was having none of that, and a deal was struck last year to pass on the 80 per cent interest to PanAust for the knockdown price of $US75 million: $US25m on completion and the rest in December next year, plus a 2 per cent net smelter royalty capped at $US50m.
Of the 22 sizeable copper-­related deals struck since January 2001, none compares with the Frieda River deal for the cheapness of the resource acquired. It works out at US0.3c/lb .
There are some good reasons for the bargain-basement price. Frieda River is an undeveloped resource without a (published) mining reserve, and it is in PNG. Then there is the issue of financing its development.
But PanAust is not planning a big-bang development: it has been busy scoping a smaller and more doable project costing about $US1.6bn.
For that sort of money, Frieda River’s annual production could weigh in at 100,000 tonnes of copper and 160,000 ounces of gold. So, although downsized, it would still be a significant mine.
More to the point is that PanAust has secured its PNG growth option for a knockdown price.
Now that a condition of the deal proceeding has been met (Glencore first had to sell the Las Bambas copper project in Peru to MMG to secure Chinese approval for last year’s merger with Xstrata), the market is prepared to value Frieda River in PanAust’s share price.
UBS values Frieda River at $US1bn ($1.07bn), and PanAust’s 80 per cent interest at $US800m.
But it gives the interest a 30 per cent risk-adjusted value of $US240m or 41c a PanAust share. It underpins the resetting of its net present value at $2.73 a share.
Cathy Moises at Evans & Partners values Frieda River at just under $US1bn, and makes the point that adding just half of ­PanAust’s share of the valuation increases her NPV estimate by 53c to $2.79 a share.
So both UBS and Evan & Partners are valuing PanAust some 18 per cent to 21 per cent higher than PanAust’s market price yesterday afternoon of $2.30 a share.
That is all very handy for PanAust given its 22 per cent shareholder Guangdong Rising Assets Management is still mulling a takeover bid for the rest of the company.
In May, PanAust revealed that it had ejected a $2.30-a-share approach from GRAM, and a $2.20 a share approach before that. It also did the gentlemanly thing and agreed to permit GRAM access to due diligence ­information to assist it to materially improve its indicative offer price. And we haven’t heard anything on that score since.
Remembering that PanAust was trading at $1.58 a share ahead of the GRAM approach becoming public, it goes without saying that GRAM’s next move is critical to PanAust’s near-term share price direction. Should it decide not to proceed with an offer, the downside is now protected to some extent due to the hard ­numbers being applied in the market to PanAust’s Frieda River pick up. And, should it proceed with a bid, the bar just got higher.
Analysts at Canaccord reckon that with the uncertainty over the Frieda River deal now all but gone, the likelihood of a formal bid from GRAM has increased.
It argues that it was the Frieda River deal rather than the Laos operations that prompted GRAM to move in the first place.
But it expects only modest upside from PanAust’s current share price, given its target price for the stock of $2.50 a share.
PanAust releases its interim result on Thursday, and you would think GRAM has had long enough to decide. The occasion of the result — expected to be about $US40m — is as good a time as any for it to clear the air.
The other 20 per cent of Frieda River is owned by Highlands ­Pacific (ASX: HIG). Part of the PanAust-Glencore Xstrata deal on Frieda River involves PanAust moving to 14 per cent of Highlands in a two-step $10m placement priced at 7.7c a share.
That is interesting because Highland’s was trading yesterday at 5.7c a share for a market cap of about $50m, notwithstanding the $US1bn valuations of Frieda River implying its 20 per cent share is worth $US200m. Or $US60m if it is risk-adjusted back to 30 per cent.
Fair enough if that was all Highlands had. But it also has $6m in cash, a passive 8.5 per cent investment in the Chinese-run $US1.5bn Ramu nickel mine in PNG, plus a strategic package of exploration ground near the OK Tedi mine, also in PNG.
All that explains why Moises at Evans & Partners has a ­speculative valuation on the stock of 14c a share.