Wayne Swan’s Diatreme Resources bid bogged down

The hostile takeover bid by Wayne Swan-headed Diatreme Resources for rival silica sand miner Metallica is getting messier with minority shareholders set to be the big losers.

Drilling under way at Diatreme Resources’ operations in Cape York.

The hostile takeover bid by Wayne Swan-headed Diatreme Resources for rival silica sand miner Metallica is getting messier with minority shareholders set to be the big losers.

City Beat readers will recall Diatreme’s offer for Metallica was rejected outright by the target as poor value for shareholders, particularly minority interests.

Metallica produced an independent expert report last month declaring the offer of 1.3319 Diatreme shares for every Metallica share was “not fair and not reasonable” and substantially undervalued the target.

There are now growing fears minority shareholders of Metallica will be disadvantaged if the deal proceeds given that its biggest shareholders - Belgian industrial minerals firm Sibelco, richlister Brian Flannery and German fund Deutsche Balaton that together control 51 per cent of the company - are also the biggest shareholders in Diatreme.

Metallica, headed by former Qld Rugby boss Theo Psaros, has come out swinging against the offer telling the ASX-last week that the takeover could be a move to remove a competitor rather than a legitimate proposal to advance Metallica’s silica sand project, which is adjacent to Diatreme in Cape Flattery in Far North Queensland.

“Diatreme’s inability to articulate operational synergies (at the project level) and the absence of any intentions with respect to Metallica might support a view that the acquisition of Metallica by Diatreme is a defensive move by Diatreme and ... would represent a material risk to the viability of Diatreme’s project.”

Diatreme chair Wayne Swan

Metallica’s expert Advisory Partners Connect says its 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. 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. But 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.

Market watchers are now wondering why Diatreme is spending hundreds of thousands of dollars chasing Metallica when they already have a huge resource with what it claims is multiple logisitical options to export the product.

One wag has even suggested Swanny, who once basked in the glory of being named the word’s best finance minister, is working on the old political logic of spending the bucks and worrying about the details later. Ouch.

Executive Chairman of Metallica Minerals, Theo Psaros