[miningmx.com] — EXXARO Resources has made the move into iron ore previously strongly hinted at by CEO Sipho Nkosi by bidding for Australian junior miner Territory Resources (Territory).
But the group may face strong competition to its A$123m cash offer from Territory’s existing “cornerstone shareholder’ – metals trading firm Noble Minerals (Noble).
Noble holds a “life of mine’ supply agreement with Territory over iron ore production from Territory’s Frances Creek mine, and had been keeping the cash-strapped company going with a $20.7m debt facility.
On May 10, Territory and Noble agreed to convert that debt to equity at A$0.45 per Territory share. Territory also agreed to grant a six-month option over a further share placement, which would raise Noble’s shareholding to 45%.
Exxaro has now offered A$0.46 a share for 100% of the company and organised a $36m loan facility through FirstRand Bank/Rand Merchant Bank for Territory.
According to Territory MD Andy Haslam, the Exxaro bid has been recommended by “a majority of the Territory board’ and each recommending Territory director has agreed to accept the offer in respect of all shares they own or control.
“Territory has ceased discussions with Noble in relation to the non-binding proposal announced on May 10, 2011,’ he said.
But the kicker lies in the following qualification.
Haslam added that “the Territory board of directors has carefully considered the offer by Exxaro and the majority of the board supports and recommends the offer as being in the best interests of Territory and our shareholders, subject to there being no superior proposal’.
Nkosi said: “Territory’s assets provide an excellent match to Exxaro’s stated objective of gaining operational exposure in iron ore.
“Territory represents a reasonably-sized opportunity which will allow Exxaro to leverage its bulk commodity and iron ore beneficiation expertise.’
Territory’s operating Frances Creek mine is located 200km south of Darwin in Australia’s Northern Territory, and currently produces between 1.6 million tonnes (mt) and 1.8mt of haematite iron ore annually.
The mine at this stage is a short-life operation by South African standards with indicated and inferred resources of just 9.28mt and probable ore reserves of 5.22mt, while its exploration effort is targeting a five year plus life-of-mine.
Exxaro clearly believes the mine life can be extended and the size of the operation increased .
Nkosi said: “Exxaro believes its management and technical expertise will supplement Territory’s technical and operational capabilities and will also ensure Territory is robustly capitalised. The company will have improved access to capital to achieve its growth ambitions.’
Territory has major logistical advantages over aspirant South African iron ore producers in terms of rail access to the port of Darwin; this is in close proximity to the main market for iron ore which is China.
Exxaro has also been operating in Australia long enough to avoid the pitfalls which have caused serious problems for a number of other South African mining groups in the country.
Exxaro – through Australia Sands – holds 50% of the Tiwest joint venture in Western Australia, which is a fully integrated mineral sands and titanium dioxide pigment producer.
But takeovers in Australia can be fiercely contested affairs with Territory itself being a prior case in point.
In 2007, then-Territory CEO Michael Kiernan clashed head-on with Brian Gilberton’s Pallinghurst Resources in a fight for control of Consolidated Mining (Consmin).
Both sides lost out when Consmin was eventually taken over by Ukranian company Palmary but not before Kiernan – a colourful character from Perth who started out as a truck driver – put the boot into Gilbertson and Pallinghurst CEO Arne Frandsen.
Kiernan described Gilbertson as being “like Mohammed Ali. He was great – once’, and dismissed Frandsen as a “Norwegian nobody’. Frandsen is, of course, Danish.
Kiernan did not survive and was subsequently forced to resign as Territory chairperson in June 2008, leaving to focus on running another of his companies – Monarch Gold.
Pallinghurst regrouped successfully through building up its stake in ASX-listed Jupiter Mines, which is developing iron ore mines in the south of Western Australia as well as a manganese mine in South Africa.
Exxaro shares dropped 3.4% to R157.4 in early trade on the JSE on Monday morning.
