WESTERN Australian copper group Universal Resources will receive a $6.6 million funding injection from Xstrata Copper in an agreement that places it in a better position to defend a takeover attempt by another Western Australian, CopperCo.
The investment will be delivered through a placement to Xstrata of 30 million shares at 22 cents per share, giving the Swiss-based miner 13.2 per cent of Universal’s expanded share capital. This placement is still subject to shareholder approval.
CopperCo has made an off-market takeover offer of 12.6 cents per share for all of the issued shares and options in Universal, which the board has not endorsed as it represents a discount of about 30 per cent on the current market price.
However, Universal’s directors have recommended shareholders approve the Xstrata agreement, which represents an approximate 37 per cent premium, in order to fend off the CopperCo bid.
Universal’s core asset is its fully-owned Roseby copper project in North Queensland, which is one of Australia’s largest undeveloped open pit copper projects with total resources of 720,000 tonnes of contained copper and 193,000 ounces of gold, which is dwarfed in comparison to Xstrata’s recent bid for WMC.
Xstrata Copper would, under the terms of the agreement, participate in an exploration joint venture off-take agreement and assist Universal in accessing infrastructure facilities required for the development of the Roseby project.
In addition, Xstrata would also be granted an option to acquire a 51 per cent interest in the Roseby project based on a fair market price at the time of exercise of the option, which expires in June 2012 and is not exercisable until Universal has completed its feasibility study.
The reaction of CopperCo to the announcement was not surprising given its investment decision. In a release to the stock exchange, CopperCo said that the Xstrata agreement represents “a curious reversal of strategy” by the Universal board.
“Universal’s core assets are being handed to Xstrata Copper for an unknown price and the synergies, which under our proposal will be shared by Universal shareholders, we believe will now largely accrue to Xstrata,” CopperCo told the market.
Universal’s response to this was that it had always planned to deal with the Roseby asset and that the company was frustrated by the lack of progress made by Bolnisi Gold in the past 12-18 months in the Roseby joint venture.
Universal managing director Peter Ingram said discussions with Xstrata had been positive for a while and that it was independent of the Swiss-invader’s beaten offer for WMC, as some had speculated.
“We had been talking to them over a number of months and I don’t think this offer had anything to do with their WMC bid,” Mr Ingram said.
“For them [Xstrata], it was about securing copper for their Mt Isa smelter. For us it was always about securing funding and maximising shareholder value, but also gaining expertise and the use of infrastructure."
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