Sakari Resources Limited

OCBC on 28 Aug 2012

Sakari Resources Limited (SRL) announced yesterday that PTT Mining Limited (PTTM) – a wholly owned subsidiary of PTT International – has made a mandatory conditional cash offer at S$1.90/share for all the shares in SRL that it does not already own. As the offer is also some 31% above our previous DCF-based fair value of S$1.45, we think that shareholders should ACCEPT THE OFFER, especially in light of the still uncertain longer-term outlook for global coal prices. In addition, we do not expect a competing bid as PTT group already owns such a large stake.

Cash offer at S$1.90/share
Sakari Resources Limited (SRL) announced yesterday that PTT Mining Limited (PTTM) – a wholly owned subsidiary of PTT International – has made a mandatory conditional cash offer at S$1.90/share for all the shares in SRL that it does not already own. The PTT group, which already owns some 46.43% of SRL, says its offer is in line with its strategy to increase its presence in the minerals and energy sector and further diversify its resource base and income streams.

Conditional on PTTM owning >50% of SRL
The offer is conditional on PTTM receiving valid acceptances, when taken together with its current stake that will see it owning more than 50% of the maximum potential issued shares in SRL. And in the event that the free-float of SRL falls below 10% as at the close of the offer, PTTM does not intend to maintain the listing status of SRL. However, PTTM reserves the right to re-evaluate its position, depending on the ultimate level of acceptances received and the prevailing market conditions.

Attractive premium of 39% to 1-month VWAP
The offer price of S$1.90 represents a premium of 27.5% to its 24 Aug close; 34.9% to the 1-month volume weighted average price (VWAP); 39.1% to 3-month VWAP; and 23.1% to 6-month WAP. We note that the last time SRL’s share price was around S$1.90 was on 8 May 2012; since then, it has fallen 39% to a low of S$1.16, likely spooked by uncertain outlook for global coal prices.

Accept the offer
As the offer is some 31% above our previous DCF-based fair value of S$1.45, we think that shareholders should ACCEPT THE OFFER, especially in light of the still uncertain longer-term outlook for global coal prices. In addition, we do not expect a competing bid as PTT group already owns such a large stake.