Takeover Risks: What Could Go Wrong with Bastion’s Conditional Offer for Xanadu?

• Bastion’s A$0.08 per share offer represents 57% premium to recent trading prices
• Offer subject to minimum 50.1% acceptance and other conditions
• Xanadu’s independent Takeover Committee recommends acceptance
• Independent expert values Xanadu shares between A$0.056 and A$0.104 on controlling basis
• Kharmagtai copper-gold project underpins valuation; robust prefeasibility study inputs confirmed

Overview of the Takeover Offer

Xanadu Mines Limited (ASX: XAM) has announced it received an off-market takeover offer from Bastion Mining Pte Ltd (Bastion) to acquire all fully paid ordinary shares not already owned by Bastion for A$0.08 per share. This offer represents a substantial premium of 57% over Xanadu’s closing price prior to the announcement, reflecting a significant valuation uplift for shareholders.

Bastion is a special purpose vehicle controlled by Boroo Pte Ltd, a Singapore-incorporated private company with extensive mining interests, and Ganbayar Lkhagvasuren, an executive director and country manager of Xanadu. The offer is conditional upon Bastion obtaining a minimum acceptance threshold of 50.1% of Xanadu’s shares, alongside other customary conditions including no material adverse changes and regulatory approvals.

Takeover Committee’s Unanimous Recommendation

Xanadu’s independent Takeover Committee, comprising all directors except those with conflicts of interest, has unanimously recommended that shareholders accept the offer, subject to the independent expert’s continuing conclusion that the offer is fair and reasonable. The Committee highlights the offer’s attractive premium, the certainty of cash consideration, and the avoidance of future dilution and funding risks associated with the development of Xanadu’s key assets.

The Committee also notes that no superior proposal has emerged to date, and Bastion’s existing 12.5% relevant interest in Xanadu shares may deter competing bids. The Committee will continue to monitor for any competing proposals and keep shareholders informed.

Independent Expert’s Fair and Reasonable Opinion

BDO Corporate Finance Ltd, acting as the independent expert, has assessed the offer as fair and reasonable to non-associated shareholders. Their valuation of Xanadu shares on a controlling interest basis ranges from A$0.056 to A$0.104 per share, placing the offer price comfortably within this range.

BDO’s valuation incorporates a detailed discounted cash flow analysis of Xanadu’s interest in the Khuiten Metals Pte Ltd Joint Venture, which holds the flagship Kharmagtai copper-gold project in Mongolia. The valuation is supported by ERM Consultants Australia Pty Ltd’s independent technical specialist report, which confirms the robustness of the prefeasibility study inputs, including mineral resources, ore reserves, mining and processing assumptions, and capital and operating costs.

Kharmagtai Project: The Cornerstone Asset

The Kharmagtai project, located in the South Gobi region of Mongolia, is a large, long-life copper-gold deposit with a 29-year mine life and a post-tax net present value of US$930 million based on the prefeasibility study. The project is jointly owned 50:50 by Xanadu and Zijin Mining Group Co Ltd through the Khuiten JV, with Xanadu’s effective interest at 38.25%.

ERM’s technical review confirms the project’s strong fundamentals, including low operating costs, reasonable capital expenditure estimates, and a comprehensive metallurgical test program. The project benefits from existing infrastructure, including road, rail, and power connections, and has identified opportunities for further resource expansion and operational improvements.

Advantages and Risks for Shareholders

Accepting the offer provides shareholders with a certain cash exit at a significant premium, eliminating exposure to the risks of project development, commodity price volatility, and future capital raisings that could dilute their holdings. The offer also avoids the uncertainties associated with securing additional funding for the Kharmagtai project’s substantial capital requirements, estimated at approximately US$890 million pre-production.

However, shareholders should be aware that the offer is subject to conditions and that accepting shareholders will forgo any potential upside from future increases in Xanadu’s share price or project value. There is also no guarantee that a superior proposal will emerge. The offer’s success depends on Bastion achieving the minimum acceptance threshold and other conditions being met.

Next Steps and Market Implications

The offer period is scheduled to close on 1 July 2025, unless extended. Bastion has indicated that if it acquires 90% or more of Xanadu’s shares, it intends to compulsorily acquire the remaining shares and delist Xanadu from the ASX and TSX. This would result in Bastion gaining full control over Xanadu’s strategic direction and operations.

Market participants and shareholders should closely monitor acceptance levels, any competing bids, and developments in project financing and regulatory approvals. Shareholders are advised to carefully review the Bidder’s Statement, Target’s Statement, independent expert’s report, and technical specialist’s report, and seek personal financial and taxation advice before making a decision.

Bottom Line?

With a compelling premium and robust expert support, Xanadu’s takeover offer marks a pivotal moment, yet uncertainties linger over future bids and project execution.

Questions in the middle?

• Will Bastion achieve the minimum 50.1% acceptance threshold to make the offer unconditional?
• Could a superior proposal emerge before the offer closes, potentially altering shareholder decisions?
• How will future commodity price fluctuations and project funding challenges impact Xanadu’s valuation post-offer?