[miningmx.com] — VALE’s R7.5bn bid for Metorex at 735c per share has effectively put the mid-tier copper producer in play and, according to market sources, there are two other potential bidders.
Both are Chinese investors, with one believed to be Jinchuan Mining – which earlier this year took control of Wesizwe Platinum – and the other a major industrial/banking consortium.
Relatively muted response to the Vale offer as shown by movements in the Metorex share price – which briefly touched 730c before pulling back to current levels of around 710c – is being attributed to a belief in the market that Metorex shareholders are unlikely to approve the deal.
This seems to be because of a belief that the price offered is too low as well as prevailing sentiment that it’s too soon to sell the company, given the way business fundamentals have turned in Metorex’s favour.
The outlook for the copper price appears excellent for the next two years, while Metorex has now convincingly turned around its flagship Ruashi copper/cobalt plant in the Democratic Republic of the Congo (DRC).
Asked why the Metorex board had agreed to accept the Vale offer – which still has to win a 75% vote in favour from Metorex shareholders to be implemented – chairperson Rob Still said: “We have no fundamental right as a board to say “no’ to an offer if it is above a certain level.
“We have to say to the bidder effectively ” yes, we hear you’, and then our job as a board is to let the shareholders make their own decision on the offer.
“This is not an unrealistic offer. It’s at a 44% premium to the VWAP (volume weighted average price) of Metorex on the JSE for the six months up to and including the publication date of the offer.’
Asked about other possible bids for Metorex and the fact that he and fellow director Aberto Barrenchea had granted “irrevocables’ to Vale over their own shares, Still referred to the clauses in the announcement regarding “third party approaches’.
These impose a number of restrictions on Metorex in terms of soliciting an alternative offer from other parties, but still leave the option open.
The agreement states: “Should an alternative proposal constitute a superior proposal then, prior to the board approving or recommending and/or entering into an agreement in respect of the superior proposal, Metorex shall provide Vale with a copy of the document in which the superior proposal is made and afford Vale eight business days to amend the offer on financial and/or other terms equivalent to, or more favourable than, those contained in the superior proposal.’
Still also referred to the clarification published on Monday over share dealings by Metorex directors.
This stated the announcement was required by the JSE because of the agreement with Vale, but that “the Metorex shares referred to in the directors’ dealing announcement have not yet been sold and will only be sold should the offer become operative’.
In assessing what could happen next, a number of tangible and intangible factors must be taken into account.
The first is which group will have the most appetite for Metorex’s assets which, while attractive, are mainly situated in the DRC which must be viewed as high risk.
Then there’s the strategic management situation within Vale, where current CEO Roger Agnelli is being replaced following pressure by the Brazilian government – which controls Vale – to get the group to focus more of its attention on Brazil.
How that might affect Vale’s ability to respond to a competing bid is not clear.
The published agreement does not go into detail, but it’s likely there’s a “threshold’ any competing bid must meet to break the irrevocable agreements between Vale and Metorex, which impose a “break fee’ of R75.24m Metorex must pay Vale.
Any competing bid would probably have to be 5% to 10% higher, which means it should be around 770c to 810c/share.
Still’s successful track record in this kind of negotiating situation should also be kept in mind.
Still was the chairperson of Zimplats when it was sold to Impala Platinum. He also oversaw the sale of the Corridor Sands titanium project in Mozambique to WMC Resources when he was CEO of Southern Mining.
Asked about strategy, Still replied cryptically: “There are better and more effective ways to take Rome than marching down the Appian Way in broad daylight.’
The final issue in the valuation of Metorex is that the group’s Sable assets – a copper/cobalt processing plant near Kabwe in Zambia – are left out of the Vale deal.
The value of the Sable assets is not specified, but they could be worth an additional 10c to 25c a share.
The writer owns shares in Metorex.
