Bumi Bids $397 Million for Herald Resources BUSINESS ASIA By Bloomberg

By Jesse Riseborough

Bumi Resources, the biggest coal producer in Indonesia, offered 455 million Australian dollars, or $397 million, for Herald Resources, and will seek to end a two-year deadlock over the company’s planned zinc and lead mine in Sumatra.

Bumi will pay 2.25 dollars a share for Herald, Bumi said in a statement Tuesday. Bumi made the hostile offer after talks with Herald faltered, a Bumi director, Kenneth Farrell, said Wednesday.

Indonesia is seeking to keep more of its resources in local hands after prices for commodities including oil, zinc and copper soared in the past five years. A successful bid would be the second- largest Indonesian takeover of a foreign company. Herald has been waiting for government approval of the $192 million Dairi zinc and lead underground mine for two years.

Dairi “is one of the world’s best undeveloped zinc deposits,” Peter Arden, an analyst at Ord Minnett in Melbourne, said. “It would be a really big prize for a local group.”

The biggest Indonesian foreign acquisition came in October when Berlian Laju Tanker, the largest shipping company in the nation by market value, agreed to pay $850 million to buy Chembulk Tankers, based in the Marshall Islands.

Bumi, whose shares have surged almost sevenfold this year to make it the second-biggest company in Indonesia by market value, is also seeking to expand its coal production, gold, copper and iron ore businesses.

“Bumi’s experience in the Indonesian mining sector and the requirements of the Indonesian regulatory process make it uniquely positioned to advance” the Dairi project, Bumi’s chairman, Ari Hudaya, said in the statement.

Newmont Mining, the second-biggest gold producer in the world, and Sumitomo Metal Mining are being forced to cut their combined 80 percent stake in the $4.65 billion Batu Hijau gold mine in Indonesia.

Australian zinc and lead producer Perilya bought an 8.9 percent stake in Herald last month and may seek to accumulate a strategic stake, Macquarie said in a Nov. 20 report.

Perilya’s chief executive officer, Len Jubber, could not be reached for comment.

It is unlikely a rival offer from Perilya or others would be forthcoming given it i’s an Indonesian asset and the other bidder is “the largest Indonesian mining company,” Farrell said.

“We did note the Perilya position, we haven’t spoken to them and at this point in time we perceive them as a shareholder of significance,” Farrell said. “But only a shareholder of significance, nothing more than that.”

Dairi, 20 percent owned by Aneka Tambang, is scheduled to produce 220,000 metric tons of zinc concentrate and 100,000 tons of lead concentrate a year. Construction costs may rise 15 percent from the initial $192 million estimate because of plant design changes and delays in obtaining approvals, Herald said last month.

“Bumi anticipates there will be a need for significant additional capital before first production,” Farrell said. “We are prepared to make that investment.”

The offer is conditional upon the construction cost of the mine not rising above $230 million, Bumi said in the statement. Bumi will go ahead with the acquisition if it receives acceptances of at least 50.1 percent, gains the approval of the Foreign Investment Review Board in Australia and as long as the price of zinc does not fall below $2,000 a ton for three or more consecutive days of trading.

“It should have been in production three or four years ago,” Ord Minnett’s Arden said. “Where they were going wrong is that they just didn’t have enough local horsepower.”

Zinc for three-month delivery fell $30 to $2,400 on the London Metal Exchange as of 1:37 p.m. Sydney time. The metal, which has declined 45 percent in the past year, last traded below $2,000 for three consecutive days in January 2006.

Credit Suisse is providing financial advice to Bumi for the offer and Mallesons Stephen Jacques is Bumi’s Australian legal adviser.

Herald’s executive director, Michael Wright, could not be reached for comment.

Aneka Tambang’s corporate secretary, Bimo Budi Satriyo, also could not be reached.

Originally published by Bloomberg News.

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