PERTH (miningweekly.com) – China’s Cathay Fortune said on Wednesday that it was willing to make a cash offer to ASX-listed Discovery Metals to pre-empt the company from making a A$75-million placement.

It has been suggested that the A$75-million would be raised through a share placement worth A$25-mllion and A$50-million offering to existing shareholders.

Cathay, which owns a 13.7% interest in Discovery, had previously said that it would not support the miner’s plans to shore-up its funding, and on Wednesday said that the financing arrangement to raise the A$75-million was a “serious mistake”.

“Considering the current status and outlook of the commodity and capital markets, we believe it will be very difficult for companies such as Discovery, that have failed continuously to generate positive cash flow, to successfully issue bonds at a reasonable cost,” Cathay Fortune said in a public letter to Discovery shareholders.

It noted that even if the bond issuance was successful, the funds would not be sufficient for the required capital expenditure on the Plutus openpit, the Zeta underground mine, the construction of a coal-fired power plant, exploration, administration, and payment of interest on bonds over the next 12 months.

“Even worse, the funds to be raised will run out quickly under the current continuous significant negative cash flow situation. Discovery will have to engage in ongoing capital raises in the near future, likely at a lower price, which will push the shareholders into the abyss step-by-step,” Cathay Fortune warned.

The Chinese shareholder instead suggested that the Discovery board allow bidders a quick due diligence and no more than ten days to propose a binding cash proposal to acquire the company.

Cathay Fortune said that selling the company was a better alternative, adding that when a solid buyer was acquired, it would encourage the banking syndicate to engage, thereby reducing the risk of Discovery going into receivership.

In February this year, Cathay Fortune walked away from an A$824-million takeover bid for Discovery, saying at the time that the copper miner had breached the change of control clause for the offer, and adding that there had been a material adverse effect since the offer was initially made in November 2012.

To dispel claims that it was aiming to be the sole suitor for the now-proposed takeover, Cathay Fortune said on Wednesday that to facilitate competition, the company was willing to make the due diligence nonexclusive and agreed to accept any offered break fee in the proposal to be recommended by the Discovery board to its shareholders.

However, the company noted that as it had already obtained regulatory approvals for a takeover of this nature, and had sufficient funding, the proposal would be completed quickly and with certainty.

Cathay Fortune has given Discovery a deadline of April 26 to consider the proposal.