Takeover Targets in the mining sector Message Board

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Gold/Mining/Energy : Takeover Targets in the mining sector

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To: Claude Cormier who wrote (76)	11/21/2000 12:20:56 AM
From: russwinter	Read Replies (1) of 81

<No bidders will take over a company at a multiple of 3-4 the current market price> It would be interesting to hear a take on this from a bidder. I feel they know these current market prices are rather fictional or at least overly depressed. I really think the current prices are not especially relevant to a bid and transaction. A miner should be willing to pay a price that gives a good rate of return. Maybe to compensate for the risks of mining, that needs to be an IRR of at least 15%, or even 20%. The NAV equation needs to be discounted more, but the deals should still be done for substantial premiums over current prices. The deals over 100 million capex might be tough if costs are over 150, given the degree of financial commitment a company must make. Smaller development costs would allow more room for "forgiveness". 250 million capexes might be very difficult except for a handful of companies. That size of the capex issue may be what is killing MAN's price, especially if there is any question about the situation at all. It may be a bit of a problem for GBU as well? Outfits like BAY, FGX, and MFL need to consider the liquidity issue for their shareholders. Ultimately we need securities that have real trading markets. Today's MFL reaction illustrates our problem. A stock swap merger for a premium with a mid tier like GLG or MDG would improve that aspect while still exposing the junior investor to the long term potential of the project. The financing would go easier as well, and help avoid the dilution issue. For example, I would much rather swap my BAY or MFL shares one for one with MDG or one for three GLG, then watch BAY and MFL dilute themselves and risk the whole shooting match going it alone. The combinations would make both companies more viable and stronger and thus lower our risk and enhance our long term return.

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