The O'Brien Column: Normandy NFM's bid for Otter will give firm management control of mill

Friday 19th October 2001

It seems to be a seasonal coincidence that takeover activity and its accompanying jockeying steps up during the hiatus between reporting rounds.

US-based Edison Mission Energy, through its wholly-owned subsidiary Mission Energy Five Star Holdings, made a bid for the shares it did not already own in Contact Energy and Australian goldminer Normandy NFM offered to acquire all the shares in Otter Goldmines. Foodland Associated went to war against the government over Commerce Minister Paul Swain's decision to exclude the Court of Appeal decision in the Foodstuffs Auckland vs Commerce Commission from the provisions of the Commerce (Clearance Validation) Amendment Bill.

Normandy NFM's bid for Otter, in the absence of further information which will be forthcoming soon, seemed to have aspects of a helping hand from a company which already had associations with the New Zealand miner.

The Australian miner announced its intention to offer 1.9 of its shares for over 100 Otter shares, after buying 7,798,000 shares from Guinness Peat Group (9.9% of Otter's share capital).

A statement from Normandy said successful completion of the acquisition would provide significant benefits to both companies. It represented a logical consolidation of both groups' extensive interests in the Tanami (Northern Territory) region under one management team.

Normandy NFM has a lease agreement to process ore at Otter's Tanami mill.

Acquisition of Otter would give Normandy NFM management control of the mill, which was "well located to process future discoveries made on either Normandy NFM's or Otter's Tanami tenements."

The announcement said Otter held exploration permits and applications covering about 20,000sq km in the Tanami region and Normandy NFM had permits and applications over 56,000sq km.

Otter owns a 33% interest in mining operations at Waihi, covering the Martha Mine and the Union Hill prospect on the Coromandel.

Normandy Mining (a relative of Normandy NFM) owns the rest of the Waihi operations.

A statement on conditions attached to the offer was a clue to Normandy NFM's move: "The offer is conditional on at least 50.1% acceptance, usual conditions relating to the conduct of Otter's business and affairs, a standstill agreement being entered into with Otter's bankers and Otter's financial position not being materially adversely different from its position previously disclosed to the market."

Normandy NFM said it would guarantee, on normal commercial terms, Otter's liabilities to its principal banks in respect of bank debt of about $A31 million ($NZ37.5 million) should the offer succeed.

It would also guarantee counter parties under hedging contracts, covering about 280,000 ounces of gold at an average gross delivered price of $A530 an ounce on "a reconstructed basis and gold lease rate commitments."

Otter's accounts for the year ended June 30 disclosed a tenuous situation. The company had a finance facility of $31.6 million with Macquarie Bank. Borrowings in respect of the facility were $A29.1 million ($NZ36.3 million at the June 30 exchange rate) and were classified wholly as a current liability.

Macquarie had indicated its intention to finalise a debt repayment schedule before December 31 in accordance with Otter's cash flow projections.

Otter lost $41.92 million in the year ended June, including a $24.3 million writeoff of its interest in former in-substance subsidiary Allstate Exploration NL, $6.3 million for the writeoff of Tanami Mine deferred waste/costs, $5.5 million provision for Tanami rehabilitation (after flooding) and a $3.8 million recognition of unrealised hedging due to reduced Tanami Mine reserves.

Total shareholders' equity fell from $61.5 million at the end of the previous year ($5 million at the half-year ended December 2000) to $11.23 million and the proprietorship ratio dropped from 39.1% in 2000 to 14.8%.

Otter was listed in 1971 under the then name of Mineral Resources (NZ) as an exploration and mining development group, based on Waihi and the Martha mine. It recorded losses for years but came into profit in 1987 when net profit was $381,000.

Recent problems resulted in a slashed share price, which after earlier solid declines, went from 59c to 13c before the Normandy NFM announcement. It closed last week at 19.3c.

Assuming the Australian offer is successful, Otter's New Zealand shareholders would get a stake in a substantial overseas-based miner, in line with a similar happening when GRD acquired all of Macraes Mining.

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