Exxaro’s Territory bid meets resistance

[miningmx.com] — EXXARO Resources seems to have a fight on its hands for control of Territory Resources, the Australian iron ore producer for which the South African firm bid $123m in May.

Noble Group, a third-party marketing firm and Territory’s single largest shareholder, lifted its stake in the firm to 32% from 30.1%. In terms of creep provisions, Noble Group’s next move would be an outright offer for the firm.

Territory’s board has supported Exxaro’s offer bar its chairperson, Andrew Simpson, who disclosed to Australian press on Tuesday that the takeover offer would deprive shareholders of the ongoing development of Territory by Noble Group.

According to the West Australian, Simpson is close to Noble which asked him to take charge of Territory and restructure the struggling Frances Creek mine in the Northern Territory after Noble’s billionaire owner, Richard Elman, fell out with its previous boss, Michael Kiernan, three years ago.

In supporting his opposition to Exxaro’s bid, Simpson pointed to a robust iron ore market outlook and efforts under way to transform the miner’s “growth potential through both beneficiations and exploration’, the West Australian said.

If Noble does launch a counter bid, Exxaro may not enter a bidding war because although Territory is an attractive way of accessing Australia, it is not “a strategic must have’, according to The Australian, citing a person familiar with the South African miner.

On May 23, Exxaro offered A$0.46 a share for 100% of Territory Resources, and organised a $36m loan facility through FirstRand Bank/Rand Merchant Bank for the company. This was to release Territory from a debt to equity plan held by Noble which would see the Hong Kong-listed trader convert $20m in debt into shares, taking its stake in Territory to 45%. On receiving Exxaro’s offer, Territory’s board decided to end the debt conversion talks with Noble.

Exxaro, in acknowledging the change in Noble’s shareholding in Territory, said its offer required a 60% acceptance by shareholders, and therefore could pass muster even without the support of Noble Resources.

However, it’s thought that Deutsche Bank, which has a 10.2% stake in the company (including shares held on behalf of clients) and Centaurus Capital, which has a 7.9% stake, might also oppose Exxaro’s offer.

Simpson is also the chair of Blackwood Corporation, a coking coal exploration company in which Territory has a stake, which provides further incentive for Exxaro. In fact, given the relatively high cost nature of Territory’s iron ore production and its short life, it’s thought that without the Blackwood Corp stake, Territory would not be enticing to Exxaro.

Sipho Nkosi, CEO of Exxaro Resources, declined to comment on the blue sky potential offered by Territory. “We are in a contest,’ he told Miningmx in May. “The market may punish us but the value of the offer will be made known in the long term,’ he said.