Tungsten alloys can be used in artillery shells, grenades and missiles. While there are no actual weapons involved, the metal is at the centre of a battle of sorts between Irish company Ormonde Mining and a Canadian group, Almonty Industries, which says it is willing to pay around €27 million for the Dublin-listed vehicle in either cash or new shares.

Ormonde owns a tungsten mine at Barruecopardo, near Salamanca in western Spain. It has proven quantities of the metal, which has plenty of non-military uses, but the company has taken some time to get financing for the project together. After almost three years of trying, it has recently come up with a partner, US private equity player Oaktree Capital. Shareholders are due to vote on the proposal on May 19th.

Oaktree has agreed to provide €90 million to fund the project. A new company, Barruecopardo Joint Venture BV, will own the mine. The US fund will get 70 per cent of this in return for a direct investment of €40 million and a €50 million loan. Ormonde will keep 30 per cent and will receive €1 million a year in management fees, which it says would cover its working capital needs.

However, Almonty has said that its analysis shows that the deal values Ormonde stock at 2.6 pence sterling – it is listed in London and Dublin – a figure far below its offer, which is the equivalent of 4 pence a share. It argues that Ormonde shareholders should be given more time to consider both deals and are not getting sufficient information.

Its view of the agreement is simple: Ormonde’s shareholders will end up with 30 per cent of a joint venture controlled and financed by somebody else. The Irish company will simply be a manager. The Canadian player argues that its proposal will give investors a stake in several tungsten mines which it owns and operates, including one close to Barruecopardo.

Relevant facts

Almonty has suggested that the Ormonde management and board only favour Oaktree because it protects their positions. Not so, according to Ormonde. Its executives say that the circular sent to shareholders contains all relevant material facts and that the offer is in fact in the company’s best interests. Its terms are agreed while Almonty’s bid is subject to due diligence and various other conditions.

Ormonde’s board also says that Almonty is actually undervaluing the company and it has serious concerns about its ability to deliver on any offer. It backed this up last month with a statement outlining the basis of those concerns, which it said were based on two independent assessments of the bidder’s financial situation. Summing them up, it argued that Almonty’s own resources are running out and it could have problems servicing its 27 million Canadian dollar debt.

Another industry player, Woulfe Mining, recently announced that it was terminating an agreed merger with Almonty, it noted. On the basis of all this, the Ormonde board says it could not recommend any deal that involves Almonty shares while it has concerns about the Canadian operator's ability to come up with the actual cash.

Almonty is adamant that it has the money and is well capable of servicing its debts and paying Ormonde shareholders.

Price fall

Almonty initially approached Ormonde in 2013 but, after five months, no offer materialised. At the same time, Ormonde has taken a good deal longer than intended to get Barruecopardo off the ground. In 2012, its chief executive,

Kerr Andersen

, said that it was hoping to recruit a partner to fund the project the following year.

That did not happen. Part of the delay was down to getting licences from the Spanish authorities. Since then, tungsten’s price has fallen from around $45,000 a tonne to $24,000. (Miners, such as Almonty, and someday, Ormonde, get a percentage of that.) Prices are expected to recover this year, and possibly head towards $35,000. If all goes to plan, Barruecopardo, should begin producing in 2016.

The deal now on the table sprang from Ormonde's efforts last year to borrow money through a bond issue. One of its advisers, Swedbank, introduced it to Oaktree and the subsequent talks led to the current offer. The US fund is an opportunistic investor more associated with property, distressed debt and securities than with mining.

The fact that its fund managers are prepared to muddy their Derby shoes in a metals mine means that they believe Barracueporado represents a good opportunity, if not a bargain. In a similar vein, Almonty, which is at least familiar with the industry, must have framed its offer to get the best value for its backers.

The difference is that the Ormonde board has chosen to back Oaktree and is in a position to bring enough shareholders with it. It looks like the only option left to Almonty is to throw a metaphorical grenade at the process and launch a hostile bid for the Irish company.