WMC claims hostile Xstrata bid is 30 per cent too low

The London-listed Xstrata's A$7.4bn (£3.0bn) hostile bid for the Australian mining company WMC came under fresh pressure yesterday after an independent audit, commissioned by WMC, valued its shares at about 30 per cent more than Xstrata is offering.

A war of words has erupted between the companies after Xstrata offered A$6.35 a share for WMC in October. WMC, which mines copper, is the world's fifth-largest nickel producer and owner of more than one-third of the world's uranium reserves.

WMC's defence document, released yesterday, said that the independent auditors Grant Samuel considered the offer was "neither fair nor reasonable ... shareholders are better off not accepting the offer". The statement concluded: "[Grant Samuel] supports the view we have maintained throughout - Xstrata's offer is materially inadequate." Grant Samuel said WMC was worth between A$7.17 and A$8.24 per share.

The WMC rebuff prompted an immediate response from Xstrata. Marc Gonsalves, the head of corporate affairs, said: "As you would expect with these statements, the headlines look exciting. However, the credibility of WMC directors' defence is critically dependent upon assumptions regarding exchange rates, commodity prices, discount rates and production levels ... Xstrata is sceptical of their conclusion."

Many investors expectan increased offer or counter bid as WMC shares remained substantially higher than the sum offered by Xstrata. WMC shares closed at A$7.32 in Sydney yesterday.

Meanwhile industry sources voiced doubts about another bidder emerging, pointing out that several mining companies were selling off assets - evidence that they may believe the commodities cycle is nearing its peak.

In what is becoming an increasingly acrimonious battle, WMC has been accused of actively seeking to defeat the bid by contravening the conditions set by Xstrata in their offer, including returning potentially large sums of cash to investors. There has also been talk of Australian government intervention, given the geopolitically sensitive nature of uranium mining.

But the Grant Samuel report was not all good news for WMC. An extra A$1bn may be required - in addition to a previous estimate of A$4bn - to properly develop its Olympic Dam site in South Australia, which contains 38 per cent of known global uranium reserves.

John Meyer, at Numis Securities, said Xstrata was unlikely to substantially increase its offer. "If Xstrata were to increase its offer I would expect it to be a nominal amount, but they will be reluctant to walk away," he said.