/ 11 April 2011

Vale launches $1,1-billion bid for SA’s Metorex

Brazil’s Vale, the world’s largest iron ore producer, bid $1,1-billion for Metorex to tap into its copper and cobalt operations and drive growth via resource-rich Africa.

The R7,5-billion offer at R7,35 per Metorex share was a 20% premium to the South African miner’s closing price on March 25, the last business day before a cautionary announcement related to the matter was made.

“I don’t think the shareholders would get much more than that in this current market,” said Abri du Plessis, chief investment officer at Cape Town-based Gryphon Asset Management.

He added that he would not be surprised if Vale was not looking at other, bigger mining acquisitions in South Africa.

Analyst Daniella Maia of the brokerage Ativa Corretora described the move as positive for Vale, but thought the price was high.

“Based on my calculations, Vale is paying above the fair value, though that may have been a question of the strategic vision the company has for the asset,” Maia said.

Vale said last year it plans to boost copper output by 45% to one million tons by 2015 as it seeks to diversify away from its main business of iron ore.

‘Not afraid of anything’
The company also has copper production in Brazil, Chile and Canada, where copper is produced together with nickel at the Voisey’s Bay and Sudbury mines. Copper represented 3,5% of Vale’s revenues in 2010, compared with 57% for iron ore.

The takeover is the latest in a series of high profile moves into Africa by firms in emerging market giant Brazil. Metorex would give Vale exposure to copper and cobalt resources in Zambia and the Democratic Republic of Congo.

Analysts also said it signalled Brazilian investors were serious about Africa to help drive their own growth plans.

“The fact that a big Brazilian global partner is having a look at African assets might signal something for some of the other majors around the world,” said Sasha Naryshkine, an analyst at Johannesburg-based Vestact.

“Because if you aren’t afraid of mining in the Democratic Republic of Congo, you are not afraid of anything,” he added.

Metorex, which will be delisted in Johannesburg if the deal goes through, recently raised its copper and cobalt reserves estimates.

Its output has also been rising. It said earlier this week that its January-March copper output rose 8% from the previous quarter to 13 344 tons, while cobalt production increased by 10% to 1 041 tons.

Metorex said in March that with a busy project pipeline and potential for other brownfields expansion, it seeks to more than double its current annual copper production of around 50 000 tons.

Metorex’s share price was 0,56% lower at R7,05, underperforming the broader all share index in Johannesburg which was 0,35% higher. — Reuters