Nzuri Copper announced today that it received the last required regulatory approvals in China. When I wrote about the company in July the merger was already delayed, but by then the company was aiming for a close at the end of August. They obviously failed to hit that target, and the expected merger date was pushed back many times more. Of course, it’s still not a done deal, and in today’s announcement the expected closing date of the merger is now early March. But with all regulatory approvals in the pocket I don’t expect that there are more issues remaining that could cause further delays.
While in the end I got the result I was betting on, it’s tough to say in hindsight if my thesis was correct or not. It’s quite possible that those delays were indicative of a real problem that could have blown up the merger. Or perhaps it was just some administrative issue. Who knows?
Author is long Nzuri Copper
A merger that I have had a small position in for some time, and recently bought more of, is Nzuri Copper Limited (ASX:NZC). The company is being acquired by Chengtun Group (SHA:600711) for A$0.37 in cash while it is currently trading at A$0.31 for 19.4% spread. That’s a big spread, but when we are talking about an Australian listed company that has a mine in Congo and that is being acquired by a Chinese company I think it’s clear why many investors aren’t trilled to get involved. While the spread has always been quite big since the deal became public news, it got bigger again when the company announced last week that Chengtun is expecting delays in receiving regulatory approvals in China.
I simply don’t think that those approvals represent a huge risk. China has a long history of acquiring natural resources in Africa, and this acquisition fits perfectly in their long-running strategy. In the press release Chengtun Group also seems pretty optimistic about the regulatory approvals. They expect them to get them at the end of August, which is just a one month delay, and they state that they have no reason to believe that the approvals will not be provided:
“Chengtun Group has submitted all of the applications and ancillary documentation required to obtain the PRC Regulatory Approvals, and has attended to all further requests for information in relation to those applications received to date.
Chengtun Group understands that its applications for the PRC Regulatory Approvals are being processed, and as at the date of this announcement, Chengtun Group has no reason to believe that the PRC Regulatory Approvals will not be provided.
Of course, this requires a bit of trust in what a Chinese company is saying. I don’t see any reason to really doubt this, but at the same time, you never know for sure what is going on in China. But given the very big spread I think you are compensated more than enough for some risk, and I think the other aspects of the deal shouldn’t pose any problems. Chengtun can pay the acquisition in cash, they got regulatory approval in Congo already and shareholder approval should be a formality. At the same time the stock is also not trading a big amount above the pre-deal price, so downside risk in case of the deal breaking should be acceptable. I’m not betting the farm on this deal, but I think it’s pretty attractive.
Author is long Nzuri Copper