Australia's Bradken rejects another private equity approach

Bradken has rejected a A$430m bid from Pacific Equity Partners and Koch Industries, which is half the value of two previous offers made for the Australian mining products group since August.

The cut-price offer highlights the pressures affecting the country's mining industry, which is slashing costs amid a commodity price crash .

Bradken on Thursday said the proposal "does not represent fair value", adding that its board decided "not to engage further".

Following the takeover proposal shares, in Bradken closed up 18 per cent at A$2.29 in Sydney trading.

The price of iron ore fell below US$50 this week - the lowest level since The Steel Index, a price reporting agency, began publishing assessments in 2008. Last year iron ore prices almost halved due to a glut in supply and weakening demand in China. Prices have fallen a further 30 per cent this year.

The price of thermal coal, which is burnt in power plants to produce electricity, has halved since peaking in 2011.

"It's not surprising Bradken's offer price has fallen when you see its mining customers struggling," said Ross MacMillan, analyst at Morningstar. "This bid offer looks opportunistic, but clearly private equity is struggling to value assets given the volatile market."

Last month Rio announced hundreds of jobs cuts as part of a drive to reduce costs by US$750m this year. BHP Billiton and Glencore are also axing jobs and slashing capital expenditure.

Smaller iron ore and coal miners face a struggle for survival as many are operating at a loss due to the plunge in commodity prices, their higher costs of production and debt servicing costs.

Australia's third biggest iron ore miner Fortescue faces a race to refinance its US$7.5bn net debt following its decision to pull a bond issue last month. Deutsche Bank said this week that Fortescue may have to sell a stake in its mines or even raise equity if the iron ore price falls below US$50 a tonne for a sustained period.

"Fortescue remains in a tough position with the falling iron ore price outpacing the fall in costs and capex," said Deutsche.

In recognition of the dire state of the industry, the Western Australian state government is deferring royalty payments due to it from some smaller miners. BC Iron said this week the government scheme would defer in the roder of A$8m-A$10m royalties for 1-2 years.

Bradken has been pursued by Pacific for almost a year. The private equity group teamed up with Bain Capital in December to make an indicative proposal to acquire Bradken at A$5.10 per share in a bid valued at A$870m.

Bradken allowed due diligence to be performed, but the two private equity companies failed to obtain support from lenders for a bid. The December offer by Pacific and Bain was 15 per cent lower than a A$6 per share proposal tabled by the same two bidders in August.

"The big question for prospective buyers is are we getting close to the bottom of the mining downturn? The boom lasted a decade so we could have another 3 to 5 years of tough conditions," said Mr MacMillan.

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