San Miguel wants more time to decide on Indophil buyout

By Neil Jerome C. Morales, BusinessWorld

Posted at Jan 26 2011 07:12 AM | Updated as of Feb 10 2011 02:55 AM

MANILA, Philippines - Listed conglomerate San Miguel Corp. might seek another extension before deciding on whether or not to acquire control of an Australian mining firm that has a stake in the $5.2-billion Tampakan copper-gold project in Mindanao.

The “exclusivity period,” which was already extended by a month, will end in February but due diligence has yet to be completed, San Miguel’s top executive said yesterday.

“The due diligence is ongoing,” Ramon S. Ang, president and chief operating officer of San Miguel, told reporters.

On Jan. 6, the listed conglomerate secured a one-month extension for the exclusivity period with Indophil Resources NL.

“I am not sure if we will be able to complete [the due diligence],” Mr. Ang said in Filipino.

“If we will not complete it, we might ask for another extension but if they do not want to, we can do nothing,” Mr. Ang added.

Last October, San Miguel purchased an initial 10.1% stake in Indophil Resources for $40 million.

The Australian miner entered into a “binding exclusivity period” with San Miguel, which was supposed to expire on Jan. 10. During the period, San Miguel will decide whether or not to submit a control proposal to Indophil Resources.

Indophil Resources told the Australian bourse last month: “The binding exclusivity agreement means that until Feb. 10, Indophil Resources will not, among other things, initiate control proposal discussions with any interested third parties.”

“Extension of the exclusivity period does not represent a statement of intention on the part of San Miguel to submit a control proposal for Indophil, and there is no assurance that any proposal will be submitted at or before the expiry of the exclusivity period,” Indophil Resources added.

Last November, Mr. Ang said San Miguel was interested to buy 100% of the Australian miner.

Indophil Resources holds 37.5% of Tampakan owner Sagittarius Mines, Inc. The majority stockholder of the Tampakan project in South Cotabato is Swiss miner Xstrata Copper, which has a 62.5% stake.

The Tampakan mine, which is scheduled to start production in 2016, is considered Southeast Asia’s largest undeveloped copper-gold prospect.

It is estimated to contain 13.5 million tons of copper and 15.8 million ounces of gold, at a grade of 0.6% copper and 0.2 grams per ton of gold.

An open-pit mining ban ordered by South Cotabato provincial officials last June, however, could prevent it from taking off.

In December, the Department of Interior and Local Government ruled that the local ban was illegal and ordered the province to review its environmental code that prohibited the mining method.

San Miguel has diversified from slow but stable core businesses of food and beverages into high-growth sectors like power, infrastructure and telecommunications.

Major deals included the sale of its 65% stake in the Philippine unit of Coca-Cola Co. for $590 million, and the sale of a 43.3% stake in San Miguel Brewery to Japanese brewer Kirin Holdings Co., Ltd. for $1.3 billion.

“With San Miguel asking for an extension, they are really very interested,” Claire S. Quiray, analyst at Regina Capital Development Corp., said in a phone interview yesterday.

The Tampakan mine, which is scheduled to start production in 2016, is considered Southeast Asia’s largest undeveloped copper-gold prospect. It is estimated to contain 13.5 million tons of copper and 15.8 million ounces of gold, at a grade of 0.6% copper and 0.2 grams per ton of gold.

Shares in San Miguel, which earned P12.7 billion from January to September 2010, closed P8.00 higher at P160.50 each yesterday.