Vale’s Metorex quest likely to end

[] — ON balance, you’d have to say the chance of a bidding war breaking out for Metorex is unlikely, especially as Jinchuan has set down plans to further improve its R8.90/share offer. Vale’s statements suggest the same: that it doesn’t consider a bidding war likely for this asset.

“We aren’t concerned about the bidding war because we have our limit on price. And we will not go to a bidding war,’ said Vale chief financial officer Guilherme Cavalcanti in a report by Bloomberg News before Jinchuan’s offer was public.

Says UBS in a note on Wednesday: “We believe that with this high offer by Jinchuan, Vale will not make a counter bid.’ Yet the stockbroker says Jinchuan’s offer, which is not conditional on the Sable deal to Glencore, represents a discount to price to earnings multiples that have been applied to transactions in Metorex’s peer group, such as Barrick Corp’s bid for Equinox Minerals (x21).

These comments follow an R8.90/share bid by Jinchuan for Metorex valuing the company at R9.1bn on Tuesday – a 22% premium to Vale’s earlier R7.35/share offer. The offer price is also a 58% premium to the unaffected 30-day volume weighted average price for Metorex. It looks like a knock-out offer.

However, it’s worth bearing in mind a Johannesburg stockbroker’s comments that while Jinchuan’s tilt for Metorex factors in forward copper prices for 10 years, it does not allow for the possible expansion of Metorex’s Democratic Republic of Congo (DRC) properties.

It depends how Metorex’s other suitor, Brazilian iron ore giant Vale, views the importance of Metorex’s footprint in its southern Africa strategy given it has set itself a fourfold increase in copper output by 2015.

What’s also possibly important is the proximity, and potential synergy, of Vale’s Konkola North operations in northern Zambia – which it holds in joint venture with African Rainbow Minerals (ARM) – to Metorex’s Musonoi and Ruashi mines in southern DRC.

Vale may also be deterred by a clause in Jinchuan’s bid which gives it the right to further increase its own offer. Said Steven Meintjes, senior analyst at Imara SP Reid: “Looks like it’s meant to be a knockout bid, judging by the 21% premium to the Vale bid. There is still a little wriggle room left for Vale, but I wouldn’t bet on it.’

“The street is effectively dismissing any chance of Vale returning, which I personally think is wrong,’ said a UK-based broker with shares in Metorex.

Shares in Metorex are not factoring in a competition and were 0.35% lower on the JSE at the time of writing at R8.65/share, but it’s worth remembering just how sluggishly Metorex’s share responded when speculation regarding the competitive bid first emerged.