Besieged mid-tier miner, Consolidated Minerals, today announced a strong return to profitability, with the company forecasting net profit of $30 – $31 million for the year ending 30 June 2007. A mere ten minutes later, the company announced that the scheduled scheme meeting to approve of Pallinghurst’s offer for the company was still proceeding.

ConsMin’s stated that the scheme meeting would proceed on 19 July 2007 on the basis that rival bidder Territory Resources indicated that it only “may” make an offer for the company.

Territory’s indicative offer (of cash and scrip or pure scrip) values ConsMin at $3.13 (cash and scrip) or $3.39 (scrip only) compared with Pallinghurst’s cash offer of $2.80 for 60% of the company. Currently, ConsMin is trading at around $3.20 per share, well above Pallinghurst’s offer.

Territory’s arguable superior offer aside, given ConsMin’s recent profit results and the increased manganese prices negotiated by the company, the board would be facing an uphill task getting the scheme approved by 75% of shares voted (and 50% of shareholders) anyway.

It is pretty unusual for schemes of arrangement to be voted down by shareholders. They are always ‘friendly’ and generally, the board wouldn’t proceed with an expensive scheme unless it is highly confident of the scheme being approved by shareholders.

However, schemes do fail. The most famous instance was when Lend Lease proposed to merge with former subsidiary, General Property Trust. In that instance, the scheme failed after Frank Lowy voted Westfield’s 6.5% stake in GPT against the deal, meaning that only 68% of shares were voted in favour – below the required special majority.

At this stage, the ConsMin scheme vote looks like it will go the same way as GPT. The largest shareholder in ConsMin is the Noble Group (which owns just under 6% of the company) and is aligned with Michael Kiernan’s Territory Resources.

Assuming that around 10% of shares won’t vote at the scheme, the board would need more than 83% of other shareholders to support a scheme which values the company at around 15% less than the market price – a difficult task for even the most able of salesmen.

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

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Peter Fray
Peter Fray
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