• Turned down US$ 848 million offer from Cathy Fortune Corp, the Chinese firm that desperately wanted its control
• Now lives hand to mouth; struggling for survival compounded by falling commodity prices
Discovery Metals Limited - the cash-strapped Australian mining company which owns Boseto Copper mine in Toteng, near Maun - might have made a business mistake in 2012.
When the Australian Stock Exchange-listed company commissioned the opening of the Boseto mine, their copper production capacity was 36,000 metric tonnes and 1.1 million ounces of silver annually against strong commodity prices.
Though the mine was promising to be profitable it was faced with mammoth tasks among them high operating cost environment which included the high fuel cost. In 2012 a Chinese private equity firm, Cathy Fortune Corp., offered US$ 848 million for control of Discovery Metals Ltd., which the former initially considered and was approved by the Competition Authority.
Cathy Fortune Investment Ltd., the bidding group consisted of Shanghai-based Cathy Fortune and partner China-Africa Development Fund.
The private equity firm founded by a Chinese billionaire Yu Yong led an offer of A$1.70 share which was flatly turned down by DML board of directors. “The Board and management of Discovery Metals continue to work hard to deliver further value for shareholders and will keep investors informed about progress with Boseto, its planned expansion and our exciting exploration opportunities. For the reasons set out in the Target’s Statement, we recommend that shareholders reject the offer,” reads the statement from Board Chairman Gordon Galt in November, 2012 to shareholders.
At the time DML was optimistic that they will increase their production and copper prices will improve and planned low cost expansion of Boseto production to more than 50ktpa production by 2015. In February 2013 Cathy Fortune withdrew their offer and sold off their 17% shareholding at the troubled Australian company.
In October 2013, DML Chairperson and Non-Executive Director John Shaw resigned, a move that was suspected to be linked to the rejection of Cathy Fortune offer by most of the board members. He had been a non-executive director for DML since 2006. His resignation was followed by that of Jeremy Read as Executive Chairman to Non-Executive Chairman and that of Paul Frederiks as Chief Financial Officer and Company Secretary of the Company.
Some industrial experts viewed the resignation as an indication that trouble was brewing at the copper mining company. One of the reasons that forced the executives to resign is that few months after rejecting a mouthwatering offer from the Chinese private equity firm, they executed a legally binding term sheet with Blumont Group Limited including a proposal of USD100 million in convertible bonds convertible into fully paid ordinary shares in the capital of Discovery Metals at AUD0.15 per share.
Meanwhile, the securities of Discovery Metals Limited were placed in Trading Halt Session State at the request of the company, pending the release of an announcement by the company.
Trouble escalate for DML
After the resignation of some of their top executives the company started to experience some serious problems. In October 2013, Australian-based mineral processor Sedgman launched proceedings in the Supreme Court of Queensland against Discovery Metals claiming unpaid items totalling US$20 million over the Boseto copper project in Botswana. The company was contracted by DML in 2010 as engineering procurement and construction contractor but the copper mining company failed to honor the payments.
DML also had outstanding $ 5 million with loan finance facility with Cupric Canyon Capital and other financial institutions. Early this year, they announced that they will close their open pit operations due to high operational costs thus leading to job losses of over 300 employees.
In an interview with The Patriot on Sunday, DML country manager Mokwena Morulane confirmed that they have clinched a P1 billion deal with Castlepines Global Equities Limited. Castlepines Global Equities Limited under the signed memorandum of Understanding will acquire 34% shares of DML’s Discovery Copper (Botswana) (Proprietary) Limited. He revealed that the deal has to go for 90 days of due diligence before it is completed.
Asked if the company has not a mistake of rejecting Cathy Fortune Corp deal, Morulane answered in negative noting that the situation by then was different. “Their offer of $1, 70 was below the market value during that time while the share price was higher at between $1, 74 and $2, 20,” said Morulane.
DML country manager noted they don’t regret rejecting the Cathy Fortune offer as the conditions are different, “During that time copper prices were good compared to the current situation.”
Asked if the rejection of the Chinese private equity firm by the then DML is the one that could have led to some resignation of senior company executives, Morulane said that every person has his/her own reason for quitting. “Maybe they had other opportunities elsewhere or just wanted to retire,” he said.
An economic analyst with Motswedi Securities, Garry Juma said that Cathy Fortune pulled out of the deal citing some irregularities in the company’s financial statements. “After they pulled out DML shares dropped significantly but we cannot make a conclusion that they made some miscalculations by turning down the Cathy Fortune offer,” said Juma.