BHP&Mitsubishi-QCT Bid State
Broken Hill Proprietary Co Ld
12 September 2000
BHP AND MITSUBISHI DESPATCH BIDDER'S STATEMENT TO QCT SHAREHOLDERS
The Broken Hill Proprietary Company Limited (BHP) and Mitsubishi Development
Pty. Ltd. (Mitsubishi) today confirmed the despatch of their Bidder's
Statement to QCT Resources Limited (QCT) shareholders.
Two weeks ago, BHP and Mitsubishi announced a joint cash offer of A$1.20 per
share for all of the ordinary shares in QCT. The offer by the 50/50-owned
bidding vehicle, MetCoal Holdings (Qld) Pty Ltd, values QCT's equity at
approximately A$830 million.
The document outlines the details of the offer, as well as reasons why QCT
shareholders should accept the offer.
'We see two key reasons for QCT shareholders to accept this offer,' said
President BHP Coal, Mike Oppenheimer, and Mitsubishi Managing Director,
Kenjiro Itadani.
'Firstly, this is a straight forward cash offer that fully values QCT.
Secondly, the offer provides QCT shareholders with an attractive cash exit
from an under-performing investment,' they said.
'Our offer represents a 100% premium to QCT's closing price of $0.60 on 27
April 2000, only four months prior to the announcement of the offer.
'Over a five year period, QCT shares have performed poorly. We note that
$1000 invested in QCT five years ago, would have been worth less than $800 on
August 25 this year, while movements in the All Ordinaries index, including
the re-investment of dividends, over the corresponding period would suggest
growth to just under $1,900 was achievable in the market.
'In addition to this, if our offer were not on the table, the QCT share price
could reasonably be expected to be trading well below its current levels, in
the absence of any other offer.'
The BHP and Mitsubishi offer represents:
Full Intrinsic and Strategic Value for QCT's Assets
QCT is predominantly an investment company whose major assets are
non-controlling interests in the CQCA Joint Venture and Gregory Joint Venture.
BHP is already the manager of, and markets all coal produced by the joint
ventures. As such, QCT (and any new owner of QCT other than BHP and
Mitsubishi) would have limited ability to add value to these investments.
The one asset that QCT operates, South Blackwater, has consistently under
performed and a further $41.1 million has been written off the value of
reserves, alongside the $23.7 million loss after tax (before interest,
currency hedging and abnormals) reported for 2000. This, in addition to the
ongoing problems associated with QCT's currency hedge book, leads to great
uncertainty about the value of these assets and liabilities.
On this basis, we do not believe there is any support for the argument that
QCT's assets have strategic value beyond the significant premium that is
inherent in the offer by BHP and Mitsubishi.
Full Value for Marketing Arrangements
We believe that the CQCA Joint Venture and Gregory Joint Venture's current
marketing arrangements represent the most effective and cost efficient
arrangement available to QCT. Separate marketing of each Joint Venturers'
share in the Joint Ventures' coal would mean significant additional cost as a
result of duplication of coal handling processes, and may result in decreased
customer satisfaction with delivery performance. This would lead to further
erosion in value for QCT shareholders.
Realistic Metallurgical Coal Market Outlook
A modest improvement in the metallurgical coal market for the Joint Venture
mines is expected in the short term. The main factor affecting an increase in
this year's budgeted coal shipments from the joint venture mines relates to
temporary supply difficulties experienced by other Australian coal exporters.
Long term, demand for metallurgical coal is affected by the prospect for
global steel demand, which BHP and Mitsubishi believe is highly cyclical.
When added to the ongoing technological changes occurring in the steel
industry this short-term improvement cannot be considered as contributing to a
fundamental change in the outlook for metallurgical coal.
Consequently, BHP and Mitsubishi do not believe that a fundamental long-term
strengthening of the market for metallurgical coal is likely.
QCT has made a number of comments in relation to the BHP and Mitsubishi offer.
These comments include a number of statements regarding the value of recent
reserve upgrades.
BHP and Mitsubishi do not believe that the increase in the marketable coal
reserves of the CQCA Joint Venture and Gregory Joint Venture has any material
value. The level of reserves has increased solely as a consequence of a
definitional change, which has had no impact upon the resource base of these
assets.
The impact of this change on the discounted cash flow attributable to the
Joint Ventures is not material. This was acknowledged in the announcement
made by QCT on 21 July 2000, in response to a query from the Australian Stock
Exchange. QCT said:
'The Company was advised late on 19 July that BHP Coal, Manager of the CQCA
and Gregory Joint Ventures... has completed its assessment of the Joint
Ventures' coal resources and reserves as at 30 June 2000. Although the Company
does not believe that the announcement of the outcome of this assessment would
have a material effect on the price or value of its securities, it intends to
make an announcement at such time as approval of the form and content of the
proposed announcement ... is received.'
QCT shareholders should receive the Bidder's Statement, including an
acceptance form, and information as to how to accept the offer, in the mail by
the end of this week. The offer is scheduled to close at 7.00 pm (Melbourne
time) on 13 October 2000.
The full copy of the Bidder's Statement will be available on the BHP Website -
http://www.bhp.com
For further information please contact:
BHP Mandy Frostick Manager Media Relations
Phone: +61 3 9609 4157
Mobile: +61 419 546 245
Robert Porter Vice President Investor Relations
Phone: +61 3 9609 3540
Mobile: +61 419 587 456
Mitsubishi Robert Campese Manager General Affairs
Phone: +61 2 9951 4838
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