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Vale drops $1.1bn bid to purchase Metorex

July 15, 2011 Comments off

“Brazil’s Vale has dropped its $1.1bn offer for Metorex, a central African copper and cobalt miner, clearing the way for China’s Jinchuan Group to complete a $1.4bn takeover that would establish the state-owned miner in risky frontier markets for metals.

The move came a week after Jinchuan, one of China’s largest mining companies, disrupted its Brazilian rival’s plans by offering R8.90 per share for Metorex. Metorex, however, has not yet recommended Jinchuan’s higher offer to shareholders. Its board will “convene shortly to consider its position with respect to the Vale offer and the Jinchuan offer”, the South Africa-based miner said.

‘Africa is a key focus for our company,’ a Jinchuan executive told the Financial Times. He said it aimed to expand production of copper and cobalt, two industrial metals with rising demand being driven by Chinese consumption.”

Source: Financial Times, July 11 2011

Observations:

  • Metorex is a South African copper and cobalt miner with operations in Zambia and Congo. The company’s board has recommended the shareholders to accept Jinchuan’s offer, paving the way for the takeover of the company. Vale withdrew its inferior bid quoting capital allocation rigor as the reason for not doing a higher bid.
  • Jinchuan is a government owned non-ferrous metals miner. The company has been rumoured to plan an IPO for many years. End of 2010 the company announced a small acquisition in South African platinum mining and furthermore the company bought a Canadian developer of a mine in Tibet.

Implications:

  • The acquisition by Jinchuan is an example of Chinese company’s high willingness to pay for foreign assets. The project is certainly not worth more to Jinchuan than to Vale, which owns assets nearby which could cause synergies. However, Chinese companies are willing to pay a high premium to grow internationally, positioning themselves as state champion in a consolidating industry.

©2011 | Wilfred Visser | thebusinessofmining.com

Vale Offers $1.13 Billion for Metorex

April 11, 2011 Comments off

“Brazilian iron-ore giant Vale SA said Friday it will acquire control of South Africa-based copper and cobalt miner Metorex Ltd. for nearly $1.13 billion. The deal will help Vale inch closer to its aim of becoming one of the world’s biggest copper producers, with a long-term production target of one million metric tons a year of the metal.

Vale, which will pay for the acquisition in cash, said the operation still must be approved by Metorex’s shareholders and regulatory bodies in South Africa, Zambia and the Democratic Republic of Congo. As well as being listed on the Johannesburg Stock Exchange, Metorex has a secondary listing on the Frankfurt Stock Exchange and American depositary receipts traded over-the-counter in the U.S. Following the planned acquisition of the entirety of Metorex’s share capital, the company will be delisted, Vale said.”

Source: Wall Street Journal, April 8 2011

Observations:

  • Shareprice of Metorex has doubled since September 2010, driven by high copper price, weakening South African currency. The price jumped from R5.50 to R7.50 in the past 3 weeks.
  • The current 26 thousand ton (long term production target of a million tons of copper per year) adds to Vale’s 208 thousand ton sold in 2010. Other copper expansion projects of the company are the Chilean Tres Valles project and Salobo copper mine in Brazil. These 2 projects together should add approx. 120 thousand tons.

Implications:

  • The stronger diversification into base metals and other geographies is an important means for Vale to become less dependent on iron ore prices. Vale’s 208 thousand tons of copper production compared to 678 thousand tons for Rio Tinto, 913 thousand tons for Xstrata. It is a good sign that the company is trying to grow by carefully selecting bolt-on acquisitions with high growth potential.
  • Next to buying a set of assets and projects with high growth potential located close to the Konkola North project it operates with African Rainbow Minerals, the company gains access to an enormous amount of expertise on doing mining business in Sub Saharan Africa with the Metorex management. Congo clearly is a high-risk business environment, and plunging in greenfield without an experienced management team would greatly reduce the change of success.

©2011 | Wilfred Visser | thebusinessofmining.com

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