South African diversified miner Exxaro Resources made a bid worth up to $338-million (Australian dollars) for African Iron, targeting the Australia-listed company’s Mayoko iron ore project in the Republic of the Congo.
The cash offer of up to $0.57 a share sent African Iron’s shares up, to close 40% higher at $0.56 on Wednesday, indicating investors expect the deal to go through.
Exxaro, South Africa’s second-largest coal producer and a major supplier to power utility Eskom, is scouting Africa and Australia for projects to expand into other commodities, especially iron ore and also copper.
Exxaro said Africa Iron’s assets would provide it with an opportunity to meet its objective of gaining exposure in iron ore. It believed the deal would go through.
Last year, Exxaro’s $130-million bid for Australia’s Territory Resources was trumped by Noble Group, but the company said it remained keen to buy iron ore assets and eventually to produce 10 million tonnes a year of the key ingredient for steel-making.
“[The bid for African Iron] is good. The project is in its early stage and it doesn’t break the bank for them [Exxaro], they can afford that … they can decide how they want to build the project and the project itself seems reasonably good in terms of resources,” said a Johannesburg-based analyst who asked not to be named.
Production at the project is expected to start in 2013.
Development potential
Exxaro has lined up a 19.99% stake from African Iron’s top shareholder, Cape Lambert Resources, which owns a further 5.26% stake.
Key to the outcome will be African Iron’s other big shareholder, Equatorial Resources, which owns the neighbouring Mayoko-Moussondji project.
Equatorial, which bought a 19.99% stake in African Iron last year at $0.30, did not say on Wednesday whether it would accept the offer.
“Exxaro’s announced takeover offer for African Iron confirms the significant exploration and development potential of iron projects in the Mayoko region and highlights the advantages of the investment friendly jurisdiction of the ROC,” Equatorial said in a statement to the Australian stock exchange.
African Iron expects the deal to go ahead with 75% approval, even if Equatorial doesn’t accept the offer.
Exxaro has already received approval from Australia’s Foreign Investment Review Board and South African approvals.
Cape Lambert’s shares closed 2.9% up at A$0.54 and Equatorial’s shares ended 0.52% lower at $1.91, after rising to more than $2.00 after the news on the deal.
Exxaro shares were down 0.03% at R173.50 as of 11.08am GMT.
Exxaro is being advised by Investec and law firm Gilbert+Tobin. African Iron’s legal adviser is Freehills. — Reuters