Kenmare Rejects Iluka Approach for Undervaluing Company

Kenmare Resources Plc (KMR), an Irish mining company, rejected an approach from Iluka Resources Ltd. (ILU) because the world’s biggest zircon producer didn’t recognize the value of the target’s asset in Mozambique.

Iluka offered stockholders in the Dublin-based company 0.036 new shares for each one in Kenmare they own as part of the “preliminary” proposal, a statement from Kenmare today shows. Kenmare stock climbed the most in more than five years.

Iluka is seeking to take advantage of depressed markets to secure future growth as Rio Tinto Group, the world’s second-biggest mining company, forecasts a return to demand growth for zircon, used in ceramic tiles and refractories. Perth-based Iluka failed to acknowledge the value of Kenmare’s Moma mine in Mozambique, which contains reserves of zircon and produces ilmenite and rutile, the company said.

“The board of Kenmare has rejected Iluka’s proposal, which it believes does not recognize the value inherent in Moma as a long-life, low-cost asset,” it said in the statement.

The rebuffed deal would have valued Kenmare at about 468 million pounds ($796 million), or almost 17 pence a share, based on Iluka’s closing price today of A$8.45. That’s about 40 percent more than the Irish company’s close yesterday of 12 pence.

‘World-Class’

Kenmare climbed 25 percent to 15 pence at 1:43 p.m. in London trading, the biggest intraday gain since April 2009, giving the Irish company a market value of about 417 million pounds. The stock dropped 42 percent this year through yesterday.

“The Moma asset is world-class and replacement value for a similar project far exceeds the value placed on Kenmare in today’s offer,” said Troy O’Dwyer, an analyst in London with Panmure Gordon & Co., who has a buy rating on Kenmare shares. “Investors would have some expectation that there will be a follow up to this offer.”

M&G Investment Management, a unit of Prudential Plc (PRU) that oversees funds owning 19 percent of the company, supports the decision, the statement shows. Michael Carvill, Kenmare’s managing director, also backed the rejection, he said by phone, declining to make any further comment.

“A potential transaction involving Kenmare is consistent with Iluka’s strategy of assessing various mineral sands opportunities,” Iluka said earlier today in a statement. “There is no certainty that any transaction will be progressed or, in particular, that an offer will be made.”

Iluka rose 1.8 percent by the close in Sydney, trimming its decline this year to 2.1 percent, and giving the company a value of A$3.5 billion ($3.3 billion).

Carvill recently had been approached by Iluka with an offer of 20 pence a share, The Times reported today.

(An earlier version of this story was corrected because it described M&G Investment Management and Prudential Plc as separate investors.)

To contact the reporters on this story: David Stringer in Melbourne at dstringer3@bloomberg.net; Donal Griffin in Dublin at dgriffin10@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net John Viljoen, Ana Monteiro

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