Denham platform Auctus offers to buy Australia’s Mungana

Auctus is offering A$0.135 per share for all outstanding shares, which represents a 29% premium to the April 28 closing price, according to a regulatory filing. The Mungana board has advised shareholders to take no action while it considers the offer.

In its bidding letter to shareholders, Auctus notes there are "significant risks" to maintaining an investment in Mungana. It highlights "funding uncertainties due to the current difficult capital raising environment and the impact of the ongoing liquidation of Mungana's majority shareholder," as well as general development and operational risks.

In 2010, Mungana spun out from another miner, Kagara, which retained a 72.16% interest in the business. However, Kagara entered into liquidation in 2013 and its assets are being hived off to pay creditors. Last year Mungana completed the acquisition of the Chillagoe project in North Queensland from Kagara for A$15 million.

In addition to the Chillagoe assets - which comprise a high-grade zinc deposit, two large gold-copper-silver resources, copper resources and other base metals deposits - the company has eight tenements and one application in the North Queensland's Charters Towers area, which is considered a prospect for gold and base metals. It sold two gold projects last year in order to focus on zinc.

Mungana generated revenue of A$98,000 for the 12 months ended June 2014, down from A$435,000 the previous year. Losses widened from A$16 million to A$29.5 million. The company was profitable in the six months ended December, with net income of A$1.4 million, compared to a loss of A$38.8 million for the same period in 2013.

Denham formed Auctus in late 2014 with a view to taking on stalled mining projects following a slump in the resources sector. The private equity firm committed capital of $130 million and appointed Steve Murdoch, former CEO of Karara Mining, to run the new business. Denham Commodity Partners Fund VI and related vehicles hold a near 100% interest in Auctus.

Last year the private equity firm created another platform, Pembroke Resources, to target small but potentially highly profitable coking coal projects that are undeveloped, under construction or producing.

Speaking to AVCJ earlier this year, Bert Koth, managing director at Denham, said the firm waited until 2014 to make these platform investments because previously valuations and execution costs for mining businesses in Australia were too high.

"We looked at hundreds of projects with only a handful making any sense," he said. "Only with the funding crisis have we been able to find attractive terms. Pembroke and Auctus are new companies founded with our capital and led by management teams with a track record of successfully building mining projects ahead of time and below budget."

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Buyouts
• Australasia
• Industrials
• Australia
• Denham Capital
• buyout
• Commodities