Chinese bid for ASX-listed W Africa-focused gold producer Tietto

There could be more Chinese consolidation of the African gold sector underway, with Australia-based Tietto Minerals getting a knock on the door from its second-largest shareholder, Zhaojin Mining.

Zhaojin, which owns just over 7% of Tietto since buying in over the past year, is offering 58c per share in an all cash offer, valuing the emerging gold miner at almost $655 million, a 42% premium.

That's around the level that Cardinal Resources was valued-at when Shandong Gold took that company out two years ago after a bidding war with Russia's Nordgold for control of the 5.1-million-ounce Namdini project in Ghana.

Tietto described the off-market takeover offer as a conditional, non-binding indicative proposal, and said there was no certainty a formal offer would emerge, but a formal bidder's statement was released this morning.

At this stage, Tietto said shareholders do not need to take any action.

Tietto has appointed Barrenjoey and Corrs Chambers Westgarth as financial and legal advisers to consider the offer.

Zhaojin's seeking at least 50.1% control.

Tietto's largest shareholder, Chijin International, owns 13%.

Growing interest

China's investments in African have increased substantially since 1997, with gold, copper and iron ore traditionally key metals of interest.

By 2018 Chinese firms controlled 7% of the value of total African mine production, and that has continued to climb and diversify into other minerals, such as graphite and rare earths.

For its part, Tietto has had a tough start to life with its $200 million Abujar project in Cote d'Ivoire battling ramp-up issues, but in recent weeks has moved to reset the conversation with a new nine-year mine plan it hopes will deliver an average of 170,000 ounces per annum at all-in sustaining costs of US$982/oz between 2024 and 2032.

Tietto's early performance has been underwhelming, with the company reducing its production forecast for the current half to 75,000-85,000oz at all-in sustaining costs of $1175-1350/oz.

The miner argues its recent underperformance is a short-term setback, and it was able to more than double production for the September quarter to 33,750oz.

Assuming a $1900/oz gold price, Abujar has a post-tax net present value of $853 million.

A heap leach study is due before the end of the year that could support an increase in production to 230,000ozpa.

The new plan appeared to find favour from Tietto's investors with two unrelated, longstanding high net worth shareholders agreeing to convert $8 million in debt into equity at A34c per share, reducing Tietto's debts by 30% to US$18.2 million.

Premium offer

 Zhaojin chair Jiang Guipeng described the offer as "compelling", saying the premium being offered was 71% over the loan conversion.

Canaccord Genuity analyst Paul Howard said the 58c takeover price was fair when considering the productions risks facing Tietto, but if a has a higher risk tolerance, the offer is low compared to its unrisked valuation of 90c.

Howard noted Chijin owns Wassa in Ghana, Sepong in Laos and attempted to acquire Bibiani off Resolute Mining in 2021, so may be an obvious "interloper" in the bidding.

Tietto ended September with cash and bullion of $45 million.

Its production is completely unhedged, and it expects to generate US$40-50 million in free cash this half.

Its shares were trading at 29c last month, having peaked at 84c at the start of the year.

Tietto shares were up 34% this morning at 57c, capitalising it at $643 million.