Exxaro Resources Ltd. (EXX) agreed to buy African Iron Ltd. for about A$338 million ($349 million), paying a 43 percent premium to the market for a first controlling stake in an iron ore project after its failed bid for a mine in 2011.
Exxaro will pay as much as 57 cents a share and 37 cents an option for Perth-based African Iron, they said today in a joint statement. The Australian company closed at 40 cents on Jan. 9.
The deal would allow Exxaro, which part owns Kumba Iron Ore Ltd.’s Sishen mine in South Africa, to control and operate the project following its failed bid for Territory Resources Ltd. in 2011. The transaction will curb investment risk for the African Iron Mayoko development, which is scheduled to begin production by 2013, according to an analyst at Foster Stockbroking Pty.
“Up to A$300 million in development finance would have been required for Mayoko later this year, a challenge given the current capital markets landscape,” Mark Hinsley, at Foster Stockbroking’s equity research sales desk in Sydney, wrote in an e-mailed report. A competing offer is unlikely, he said.
African Iron, which has operations in the Republic of Congo, rose 40 percent to 56 cents by the close in Sydney. Exxaro will pay a base 51 cents a share and raise that to 57 cents when it gains 75 percent or more in the target. It fell 0.9 percent to 172 rand by the close in Johannesburg.
“We see the acquisition price as being fair when compared to a company such as African Minerals,” Heidi Sternberg, an analyst at SBG Securities Ltd., wrote in a report today. The deal is “positive in the long term” for Exxaro, she said.
While Equatorial Resources Ltd. is the most probable rival for Exxaro’s bid, “it is unlikely Equatorial would have the capacity to match Exxaro’s offer on a cash basis,” Ambrian Partners Ltd. analysts wrote today in a research note.
Exxaro, with a market value of about $7.6 billion, offered to pay 1.46 times African Iron’s total asset value, according to data compiled by Bloomberg. That compares with a median multiple of 1.36 times for nine comparable deals, the figures show.
African Iron hasn’t held talks with other suitors, Chairman Ian Burston told reporters on a conference call. The Australian company’s biggest shareholder, Cape Lambert Resources Ltd. (CFE), has also agreed to the deal, according to the statement. Equatorial Resources Ltd. (EQX), the second-biggest shareholder, said it welcomed Exxaro’s interest in the Mayoko region, according to an e-mailed statement. Cape Lambert rose 2.9 percent in Sydney trading.
African Iron’s projects in the Republic of Congo “will provide Exxaro with the opportunity to realize its stated ambitions of developing a significant iron ore asset in this rapidly emerging and prospective region,” Exxaro Chief Executive Officer Sipho Nkosi said in the statement.
The company, outbid for Territory Resources by Noble Group Ltd., is being advised by Investec Bank Ltd. and Gilbert + Tobin is its legal adviser. African Iron’s legal adviser is Freehills.
The South African company will probably complete a review of African Iron’s project development plan by June or July, Ernst Venter, a business development manager, said today on a conference call. A railway line to Pointe-Noire, and the port itself, would need upgrading for shipments that would probably be headed to European and “Eastern” markets, he said.
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