As foreshadowed here in September, Celtic Resources has launched a £14.2 million paper bid for spin-off, Eureka Mining.

Investors have not reacted favourably to the long-awaited bid from Kazakhstan and Russia-focused gold play Celtic for molybdenum, copper and gold hopeful Eureka, sending Eureka's shares down 6.56p this morning to 49p. That price, which values Eureka at £13 million, compares with the 120p at which Celtic, steered by Australian entrepreneur Kevin Foo, spun off Eureka three years ago.

Celtic, which retains a substantial shareholding in Eureka, says it wants to buy back Eureka, in a deal agreed by Eureka's chief executive officer Jonathan Scott-Barrett, because of the problems Eureka has been having on its own financing its Chelyabinsk copper and gold project in the southern Urals. The fall in Eureka's share price and a disappointing pre-feasibility report made a placing by Eureka an unattractive proposition, and it would be hard to release some of the cash flow from its molybdenum-producing operation at Sorskoye in Kazakhstan under the terms of its joint venture with its Sorskoye partner.

The deal, for which brokers Cenkos Securities and Evolution Securities are acting, involves Celtic offering five of its shares for every 16 Eureka shares, and values Eureka shares at 53.4p with Celtic trading at 171p. Celtic shares hit 531.5p in 2004, before it was 'gazumped' of one of its prime assets by Russian interests, although the £44 million pressured sale of its Nezhdaninskoye gold mine to Russian oligarch Vladimir Potanin did enable Celtic to make a £21 million interim profit this year.

Because of the connection between the two companies, the bid needs court sanction as well as shareholders' approval. The Eureka spin off has not, in the event, added value for outside shareholders and they will need convincing reassurance that returning to the status quo ante bellum will help restore their prospects.