Aluminum Corporation Of China Ltd.(ACH: Quote) or Chalco, Sunday said it plans to make an offer to acquire a controlling stake in Mongolian coal miner SouthGobi Resources Ltd. (SGQ.TO) at C$8.48 per share for a total of about C$925.28 million ($928.19 million).
A deal will see Chalco acquiring between 56 and 60 percent of SouthGobi's common shares as part of its strategy to expand its business to other resources.
The offer price represents a 28 percent premium to SouthGobi's closing price of C$6.62 on Friday on the Toronto Stock Exchange.
SouthGobi Resources is a subsidiary of Canadian mining company Ivanhoe Mines Ltd. (IVN: Quote,IVN.TO: Quote), which has agreed to tender its holdings to the offer on a pro-rata basis. Ivanhoe owns 104.81 million shares of SouthGobi, representing about 57.6 percent of its issued and outstanding shares.
The offer values 60 percent of the total issued and outstanding share capital of 181.86 million common shares at about C$925.28 million. Meanwhile, it values Ivanhoe's entire holdings of 57.6 percent at about C$889 million or $898 million, and 60 percent of the holding at about C$533 million or $538 million.
Ivanhoe plans to use the proceeds primarily to fund further development of its flagship Oyu Tolgoi copper, gold and silver mine in southern Mongolia, 80 km north of the China border. The mine is also producing and selling coal to customers in China.
"Ivanhoe's board, in conjunction with our financial and legal advisors, has determined that the value offered by this transaction is an excellent opportunity for our shareholders to realize significant value through our creation of what has become one of the fastest growing coal producers on China's doorstep," said Ivanhoe Chairman David Huberman.
SouthGobi is yet to receive a formal offer on the proposed deal from Chalco, while its board has already established a special committee to consider the offer when it is received. Meanwhile, SouthGobi is advising that shareholders take no action in connection with the offer until they receive further advice from the board.
SouthGobi's special committee has engaged Blake, Cassels & Graydon LLP as its independent legal counsel and will engage an independent financial advisor to assist with its review of the proportional offer.
The deal will be primarily subject to Investment Canada Act and Competition Act approvals, as well as Chinese regulatory approvals and Chalco shareholder approval. Chalco intends to fund the cash consideration from its internal fund, bank borrowings or a combination of both.
The proposed offer by Chalco is also subject to China Investment Corp., SouthGobi's second largest shareholder, confirming that it does not intend to exercise its right of first offer over Ivanhoe's SouthGobi shares.
Further, SouthGobi and Chalco have entered into a cooperation agreement, which will be effective on completion of the stake acquisition. The agreement includes an off-take arrangement for Chalco to purchase up to 100 percent of SouthGobi's coal production at the then prevailing market price for up to 24 months, and assistance with the provision of power to SouthGobi's operations. Chalco will also provide support to SouthGobi's coal-haul highway project.
ACH closed Friday's regular trading session at $11.87, up $0.18 or 1.54% on a volume of 0.43 million shares, and IVN closed at $15.74, up $0.16 or 1.03% on a volume of 3.35 million shares.
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by RTT Staff Writer
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