The increasingly bitter bid for mid-tier miner, Consolidated Minerals, continued on Monday with private investment firm Pallinghurst increasing its offer for ConsMin to $1.68 plus two shares (for each five currently held) in a new, listed vehicle. The increased offer is equivalent to $2.82 per ConsMin share.

Despite considerable shareholder concern, the ConsMin board continues to recommend the offer noting that “the transaction with Pallinghurst is driven by compelling commercial and strategic logic.” Apparently, shareholders don’t agree with the board’s assessment, with ConsMin currently trading at $3.13 per share – well above the offer price (although this is also due to speculation that ConsMin shareholder and Michael Kiernan’s Territory Resources are preparing a rival bid).

Pallinghurst, a private investment firm chaired by former BHP Billiton boss Brian Gilbertson, and ConsMin initially announced the proposed scheme back in February. The scheme initially involved Pallinghurst acquiring a 60% interest in ConsMin through a cash payment to ConsMin shareholders of $1.38 per share. The initial offer price (which was equivalent to $2.56 per share) was pitched at a miserly 13.7% premium to ConsMin’s share price at the time. (However, based on the cash payment, Pallinghurst would be paying an equivalent of $2.30 per ConsMin share).

While the ConsMin board supports the scheme, PwC, the “independent” expert hired by ConsMin deemed that the “consideration to be paid is lower than the value of the CSM shares being acquired”, and that the price being offered was not fair (PwC did however, deem that the offer was “reasonable” as “CSM shareholders will be enhanced under the proposal).

The scheme also certainly hasn’t received universal support from ConsMin equity holders. Irate shareholder, Glenn Stedman, has even taken the rare step of creating a Vote No website, which is extremely critical of the ConsMin board’s acceptance of Pallinghurst’s offer.

Stedman and other dissident shareholders make a pertinent point. On the same day as ConsMin managing director Rod Baxter stated that the company was endorsing Pallinghurst’s increased offer, the company also announced significant price increases for its manganese ore (which has traditionally been the major source of ConsMin’s earnings).

ConsMin stated that “landed manganese prices for lump ore shipments to China between August and October have been confirmed in the range of US$7.25/dmtu to US$7.50/dmtu CIF, representing just over double the average price received for the second half FY2007.” PwC, who deemed the bid “not fair”, used a long-term manganese price of only US$2.50/dmtu – around a third of the price negotiated by ConsMin.

Even ignoring the rampaging manganese price, the value of ConsMin’s investments in other listed Australian mining companies alone (including Jabiru Metals, BC Iron and Vital Minerals) is now worth $215 million – $73 million more than the value attributed by PwC in its expert’s report. Based on that alone, the mid-range of PwC’s valuation (before the increased manganese price is taken into account) would increase to $2.60 and the upper level to $3.04 per share.

Pallinghurst chairman Gilbertson has outmanoeuvred an Australian company before (with Billiton’s now infamous $25 billion value shift from BHP), however, he may have a tougher time convincing ConsMin shareholders.

Disclosure: The writer holds an economic interest in the performance of ConsMin shares.