Wayne Swan’s sand venture bogged down

Former Labor treasurer Wayne Swan may have once been named the world’s best finance minister, but his career as a corporate raider has become bogged down of late in Far North Qld.

Bogged down ... former Treasurer Wayne Swan

Former Labor treasurer Wayne Swan may have once been named the world’s best finance minister, but his career as a corporate raider has become bogged down of late.

Swan’s silica sand outfit Diatreme in Far North Queensland has hit another big snag in its hostile takeover offer for rival Metallica, with an independent expert this week declaring the offer of 1.3319 Diatreme shares for every Metallica share was “not fair and not reasonable” and substantially undervalued the target.

Advisory Partners Connect says Metallica’s fair value is between $164.3m and $205.1m with the fair value of the merged group between $305.4m and

$382.7m on a minority basis.

Diatreme’s offer only values Metallica at $24.3m. Accordingly while Metallica’s contribution to the value of the merged group is 53.7 per cent, the offer if successful would result in Metallica shareholders only receiving 25.5 per cent of the combined company.

Cape Bedford in Far North Queensland. Picture: Kerry Trapnell

That’s a big gap that has prompted Metallica’s board to advise shareholders to hold onto their shares. The deal would create one of the world’s largest silica mines at Cape Flattery, north of Cairns, amid surging demand for the raw material used in solar panels, computers and phone screens. The expert points out Metallica’s proposed mine has significant advantages over Diatreme including the fact it has competed a feasibility study while Swan’s outfit has only done a scoping study. That scoping study materially underestimates the capital expenditure required to build a jetty and related infrastructure to get the silicic off to markets.

Metallica will need to spend significantly less on its jetty on the leeward side of Cape Flattery to load the silica while Diatreme’s site on the windward side will be exposed to stronger wind and waves. This may result in lost days of operations in the absence of an outer breakwater, overtopping or revetement structures, the expert concludes.

Diatreme also will have to contend with the adjacent Mitsubishi silica mine which may not wants its own operations disrupted. As if that was not enough to spell trouble for the world’s best treasurer, our spies tell us Metallica may be in discussions about a rival offer that could top Diatreme’s bid. Complicating matters is the fact firms have the same substantial shareholders, namely richlister Brian Flannery and Belgian resources group Sibelco.

Drilling at the Diatreme site

City Beat readers will recall Diatreme, which is chaired by Swan, hit problems from the start. A standstill undertaking dating back to October, which appeared to have been forgotten by Diatreme when it launched its bid earlier this year, restricted its ability to acquire any shares in Metallica. That undertaking was linked to an early attempt by Diatreme to kick the tyres on Metallica. Diatreme will either have to obtain the written consent or a waiver from Metallica before it can advance the takeover offer.

Surely balancing the budget back in the day was less complicated. One wag has suggested that perhaps Swanny should wander over to his old alma mater, the University of Queensland that offers a courses on mergers and acquisitions for a refresher.

Swanny is sticking to his guns saying the offer represents a “compelling opportunity for the shareholders of both Metallica and Diatreme.” Watch this space.