[miningmx.com] — ONE concern for Metorex shareholders is that now that a competing offer for the company is being contemplated, it should be tabled in time.
Brazilian firm Vale’s R7.35 per share offer is due to go to Metorex shareholders at a meeting scheduled for July 22, therefore a rival offer – market sources say north of R8/share – needs to be tabled well before then.
Market speculation is that China’s Jinchuan Group is considering taking a dip at Metorex although compatriot MinMetals may be equally interested, having lost to Barrick Corp in the race to buy Equinox Minerals. The fact that both potential bidders for Metorex could be Chinese is material.
The concern is that both Chinese companies require the kind of bid confirmation from the People’s Republic of China (PRC) government that would truly give Metorex’s board the comfort it needs to recommend it. Confirmations, however, can take time. China may fast be tying up supply of strategic metals, but its business is still driven by a monolithic government.
When Jinchuan Group took out Continental Minerals, for instance, it first required outbound investment approval certificates and approvals from the PRC’s commerce ministry and National Development and Reform Commission respectively. Next, an overseas state-owned assets registation was required from the Gansu branch of the state-owned Assets Supervision and Administration Commission, and finally, foreign exchange approvals.
Up to 170 days passed from the date the bid for Continental Minerals was announced by Jinchuan Group to the date confirming receipt of those government approvals. A bid from a Chinese group often takes this long, but it may be too late for Metorex shareholders looking for a better offer.
“Without some comfort that these approvals are almost guaranteed, I think the Metorex board will have to think long and hard about recommending an offer that is even substantially higher than the R7.35 on offer. The old bird in the hand is worth two in the bush,” a market source said by email.
That said, there’s plenty of evidence that Vale’s R7.35/share bid is opportunistic and that shareholders are justified, not greedy, in expecting a higher offer.
According to a note by UBS at the time Vale’s bid was made public, Metorex could be valued at R7.90/share, before the sale of Sable. According to one shareholder in Metorex, in whose interest eliciting a higher offer is advantageous, an average 35% premium on the 20-day share price was paid for copper companies in 19 deals since 2005. Compare this to the 31% premium offered to Metorex shareholders.
In the absence of cast-in-stone covenants from the PRC, Metorex’s board would not be able to ratify a bid from a Chinese company and will have no other option but to stick to the timetable as set down: Vale or status quo. A competing bid would surely push the Metorex share offer beyond R8/share, but another market source says Vale is loath to get into a bidding war.
