[miningmx.com] – THE word from the grapevine is that Equatorial
Resources will remain a 20% shareholder in African Iron, the iron ore exploration firm
with two properties in the Republic of Congo (RoC).
According to Exxaro’s bidder’s statement, it means the listed status of the Australian
firm will remain (90% is needed), despite Exxaro Resources seizing control of the firm
with a R2.8bn offer, first unveiled in January.
While awkward for Exxaro Resources to have an unfriendly presence among the ranks
of its newest and highly strategic project, it also presents an opportunity to further
consolidate the iron ore properties in the RoC where both African Iron and Equatorial
Resources operate; in fact, they are next-door neighbours.
So, in addition to the R1.6bn in capital expenditure that Exxaro has set aside in its
2013 financial year for the development of African Iron’s Mayoko’s iron ore project,
its next step might be a bid for Equatorial Resources itself.
As one analyst explains, iron ore mines need large economies of scale and a 20 million
tonne/year iron ore mine is better than one more than half its size, which is the best
Exxaro can hope for from Mayoko.
Perhaps this is why Equatorial Resources is unlikely to accept Exxaro Resources’ bid
for its shares in African Iron; because it knows it can drive a harder bargain for itself,
currently valued by the market at A$280m, or R2.3bn.
As for the R1.6bn set aside in capital by Exxaro, the market won’t know how this will
be allocated until February 28, when the two-week extension to shareholders who
haven’t yet vended into Exxaro’s offer expires. As of February 14, Exxaro held 66% of
African Iron.
I’m unsure just how frosty relations are between Exxaro Resources and Equatorial
Resources, but an alternative to a takeover of its neighbour is simply to slowly dilute
its 20% stake.
Of the R1.6bn in capital next year, Equatorial Resources would have to stump up
R320m, or some A$39m. According to Bloomberg, Equatorial Resources has A$52m in
cash or near cash resources.
GROWTH
It’s intriguing and unusual to see former management turn up at the results of their
former provenance. In this case, it’s Exxaro’s former CEO and COO Con Fauconnier,
and Mike Kilbride respectively. But, in fact, they often do. It’s endearing to see how
proud Fauconnier is, in particular, of Exxaro’s advances subsequent to his resignation
in 2007.
The company produced a cracking year-end result and paid a relatively handsome
dividend, despite a fairly full-looking stable of projects. As if to prove Exxaro is built
on the solid foundations of Fauconnier and his team, current CEO, Sipho Nkosi, was
happy to quote his predecessor’s advice not to “grow the company to death’.
As a result, we are not expecting Exxaro to make moves into the copper business
any day soon, although further coal developments are possible.
Nkosi said it was important to “go where the markets are’ for export coal, the
commodity he feels in which Exxaro is under strength. The best new market for coal
mining currently is Mozambique.
“We’re there,’ says Nkosi after the year-end presentation. “We’re looking at
exploration, but also to buy into existing operators,’ he added.
