Small Talk: Bid battle looms for Peru copper miner Monterrico

The Chinese consortium bidding for Monterrico Metals will this week post its offer document to shareholders in the Peru-focused copper miner. If a deal is accepted, it will be the first takeover of a London-listed company by the Chinese, but with hedge funds hoovering up stock at above the 350p offer price it looks unlikely that their bid for Monterrico will remain the only one on the table for much longer.

Things started getting interesting at the Alternative Investment Market-listed group last month when Zijin Mining unveiled its £91m takeover. Although the offer was recommended by Monterrico, its board has done everything possible to leave the door open for another bidder. Some directors have even reserved the right to tender their shares to a higher bidder as long as it is 10 per cent above the present offer.

There is a consensus among City analysts that Zijin's proposal significantly undervalues Monterrico and its Rio Blanco copper project - widely expected to become one of the 10 biggest of its kind in the world.

Charles Kernot, mining analyst at Seymour Pierce, says that if the group had been able to publish profit forecasts alongside its recent feasibility study, they would have shown how derisory the Zijin offer actually is in comparison with the potential value of the project.

He believes Monterrico is worth at least 486p a share, and that a counter-bid for the group is highly probable. As does John Meyer, analyst at Numis Securities. In a recent research note Mr Meyer pointed out that around 20 significant mining companies have previously expressed an interest in the Rio Blanco project.

Meanwhile, a look at the history of mining takeovers over the past few years shows that an initial approach very often flushes out higher bidders.

A counter-bid is certainly what hedge funds such as Elgin Capital are betting on. Elgin has built up a 2.69 per cent stake in Monterrico, with the investment firm paying a few pence above the 350p offer level for a good chunk of this holding.

From a risk/reward point of view, this strategy makes a lot of sense. If a counter-bid does emerge, it is likely to spark a bidding war that would send Monterrico shares substantially higher than current levels. Given the amount of time that Zijin has spent working on this deal, it is unlikely to give up very easily.

Of course, if a fresh bid fails to emerge, Elgin will lose out, but the important point is that it is risking only a few pence a share in order to win significantly more.

If Charles Kernot's estimate proves is correct, the likes of Elgin stand to make over 120p a share. Now those are good odds.

Monterrico's recent feasibility study - a master plan for its project, detailing everything from how much it will cost to its environmental and social impact - showed that its Rio Blanco mine is capable of producing 25 million tonnes of copper per year.

The group expects construction of the mine to start in 2008 and production in early 2010.

Re-recorded instrumental versions of Beatles songs in hotel elevators. The latest dance floor hits in fashion emporia. Ever wondered who supplies pubs, restaurants, shops and hotels with background music?

Imagesound is one such company. In fact, it is one of the UK's leading operators in the field.

On Wednesday, the Alternative Investment Market-listed group will post annual results showing that its recent troubles are behind it and that a recovery has taken hold across the business.

Derek Mapp, the serial entrepreneur who took over as executive chairman two years ago, has pushed through the turnaround. With the refinancing of Imagesound complete, new banking facilities in place, and recent acquisitions performing well, investors can expect to find the company firmly into the black. For the year to 31 December 2006, Collins Stewart, the firm's stockbroker, expects earnings of £1.6m on sales of £7.1m.

Alongside background music, Imagesound provides radio and TV services to the retail and leisure sectors. At the last count it had over 45 major clients, including Pizza Express, Carphone Warehouse, Nando's and HBOS, with its services present in nearly 13,000 outlets up and down the country. Wednesday's results are likely to show an improvement on these figures.

Recent acquisitions have taken Imagesound abroad and into the higher-margin business of supplying background music to four-and five-star hotels. With the group's finances now on a sound footing, further deals could be on the cards in the year ahead.