African Iron to unveil Exxaro offer

[] — A BID for Australian-listed African Iron by South African diversified miner, Exxaro Resources, is set to be unveiled on Wednesday, a source close to the transaction told Miningmx.

This follows an application by African Iron for a trading halt on its shares today pending “an as yet incomplete significant transaction involving the company”. The company’s shares gained 11% on Monday to trade at A$0.40c/share.

Citing a report by Dow Jones, Miningmx said on Monday Exxaro Resources was considering a A$300m offer for the company which owns an early stage iron ore exploration prospect in the Republic of Congo

Analysts familiar with the assets said that unlike Exxaro Resources’ bid of A$123m last year for another Australian listed iron ore company, Territory Resources, African Iron was a higher risk exploration asset.

Yet Exxaro was paying a higher value for this asset – a 50% premium on African Iron’s A$0.40c/share close if A$300m is the actual value of the bid – because there may be room for consolidation among other iron ore exploration firms operating in the region. In addition to African Iron, Equatorial Resources and Xstrata-owned Zanaga are digging for iron ore in that area.

Liberum Capital said in a note today that the appeal of African Iron’s Mayoko Lekoumou deposit was that it could bring production on rapidly for “relatively low level of capital intensity”.

This was owing to its African Iron’s 5 million tonnes/year (Mtpy) allocation on the 10Mtpy capacity rail infrastructure that runs past Mayoko Lekoumou which gives African Iron the means to scale up. However, African Iron must share the allocation with Equatorial Resources which is developing the adjacent Mayoko Moussondji project.

“There is clearly optionality around scaling up with additional investment in rail capacity (more passing loops etc) or through regional consolidation with Equatorial,” said Liberum Capital.

Exxaro Resources told Miningmx on Monday that it had long sought direct access to iron ore and that the prospect in the Republic of Congo “wasn’t far away” as opposed to the failed bid for Territory Resources in Australia.

Shares in Exxaro Resources were up a marginal 0.3% on the JSE today.