AsiaPhos to acquire LY Resources for S$36.8m

Singapore

PHOSPHATE miner AsiaPhos is acquiring the entire stake of LY Resources for S$36.8 million in a bid to boost its operating cash flows and expand its resource base. The seller of LY Resources is Luo Yong, who owns half of the equity interest in Mianzhu Dashan Mining Co, the group's cooperation partner in China.

LY Resources is valued at 266.58 million yuan (S$58 million), based on an independent valuation report by Jones Lang LaSalle Corporate Appraisal and Advisory on June 26, 2015.

The acquisition thus follows an earlier condition precedent that LY Resources be valued at no less than 250 million yuan. The acquisition will be paid through the issuance of 101.32 million new AsiaPhos shares to Mr Luo, providing him with an 11.2 per cent stake of the enlarged share capital of AsiaPhos.

Assuming that the acquisition was completed on Dec 31, 2014, the net tangible assets of the group as at end-2014, would have been 13.07 cents instead of nine cents. And if the deal was done on Jan 1, 2014, then the group wuld have made a loss per share of 0.41 cent, against earnings per share of 2.44 cents.

News of the acquisition sent AsiaPhos's counter surging as much as 18.97 per cent, before closing at S$0.121, up 4.31 per cent from the previous trading day. A total of 1.56 million shares changes hands, compared to the three-month traded average of 0.14 million.

The acquisition of LY Resources will allow AsiaPhos to acquire the economic benefits of an existing cooperation arrangement with Dashan. AsiaPhos CEO Ong Hian Eng said: "Dashan's share of profits from the cooperation arrangement which are recognised as our production costs need not be payable to Dashan after the completion of the transaction."

LY Resources also has access to an exploration area of about 17.91 square kilometre, about 4.8 times the size of AsiaPhos's existing mines, the group said in its FY2014 annual report. Acquiring LY Resources will facilitate the group's ownership of a 55 per cent equity interest in Deyang Fengtai Mining Co Ltd, a Chinese-incorporated company which holds the FengTai licence - an exploration licence for barite rocks in respect of an area situated in the vicinity of the group's existing mines in the Sichuan province of China.

Said Dr Ong: "While we have been steadily increasing our mining output over the past few years, having an enlarged resource base will help sustain output growth over the longer term."

Listed on Catalist since October 2013, AsiaPhos focuses solely on mining phosphate rocks and producing phosphate-based chemical products.

The group owns exploration and mining rights to two mines and recently completed the construction of a yellow phosphorus plant.

Pursuant to a service agreement, Mr Luo is required to expand the scope of the FengTai licence to include the exploration and mining of phosphate rocks. In return, he is entitled to receive a payment of 15 per cent of AsiaPhos subsidiary Deyang City Xianrong Technical Consulting Co's net profit for five consecutive years thereafter, subject to a cap of three million yuan per year.