* Guangdong already owns 23 percent of PanAust
* Second Chinese A$1 billion resources takeover bid in a
* PanAust not recommending bid but allows due diligence
* CEO says bid doesn't reflect outlook for copper prices
* PanAust shares up more than 30 pct but below offer price
(Recasts, adds comments from CEO and market participants)
By Byron Kaye and Sonali Paul
SYDNEY/MELBOURNE, May 13 China's Guangdong
Rising Assets Management has proposed a A$1.1 billion ($1
billion) takeover offer for copper and gold miner PanAust Ltd
, the second bid for an Australian resources firm by a
Chinese state-owned company in two weeks.
PanAust rejected the unsolicited bid from its biggest
shareholder as too low but agreed to allow it to conduct due
diligence in the hope of getting a better offer.
The takeover proposal comes amid a slew of interest in
Australian mining assets from Chinese firms eager to secure
Steel giant Baosteel Resources and an Australian partner
last week offered A$1.1 billion for Aquila Resources Ltd
. In December, Chinese miner Shenzhen
Zhongjin Lingnan Nonfemet Co, in which Guangdong
Rising has a controlling stake, bought Australian base metals
explorer Perilya Ltd.
Guangdong Rising, which owns 23 percent of the Australian
firm, offered A$2.30 per share. That represents a 46 percent
premium to its most recent close and values the whole company at
A$1.5 billion. Shares in PanAust jumped 34 percent to close at
A$2.12 - its highest level in nearly three months.
PanAust Chief Executive Gary Stafford told Reuters the
Chinese firm needed to pay a bigger premium to reflect the
outlook for copper prices, which he said are unlikely to stay as
low as $3 a pound if copper supplies move into deficit within
the next two years as analysts expect.
Stafford added that recent sales of copper mines and
projects at rich premiums highlighted the big gap between the
valuations of mines and the shares of mid-tier copper miners
"There's a big disconnect between what people are paying for
the assets and the overlying equity," he said.
PanAust produces copper in Laos, has undeveloped projects in
Chile and Thailand, and is in the process of buying a majority
stake in the undeveloped Frieda River copper-gold project in
Papua New Guinea from Glencore XStrata Plc.
Market participants noted, however, that undeveloped
projects also carried big risks.
"One of the issues where the market has struggled has been
how to value Frieda River. A lot of people in this region see it
as a very big resource with lots of potential but a fair bit of
risk for someone like PanAust to take on," said CLSA mining
analyst David Radclyffe.
"This is the second Chinese M&A deal in Australia in the
last two weeks and with both of those companies the market is
discounting the large greenfield options," he added.
Aquila has a 50 percent stake in the $7 billion West Pilbara
Iron Ore project.
ATI Asset Management portfolio manager Ben Lyons said
Guangdong Rising risked overpaying since Frieda River and
PanAust's Inca de Oro project in Chile were untested.
"One has to take a view on some very early stage projects
which in my opinion have some questionable financial viability,"
PanAust said Guangdong Rising had offered A$2.20 per share
in April before revising the bid higher.
($1= 1.0685 Australian Dollars)
(Editing by Edwina Gibbs)