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Afferro offers takeover hope

Afferro is in takeover talks with multiple suitors and one company in particular could make a bid within weeks at a minimum 22 per cent premium to the current share price
January 9, 2013

Afferro Mining (AFF) has received an "initial approach" from Alternative Investment Market-traded International Mining & Infrastructure Corp (IMIC) to take over the iron ore junior at an indicative price between 115p and 140p a share, in an undisclosed mix of cash and shares. Afferro says the approach from IMIC is still in the very early stages and that it has yet to receive a formal offer. But, in the meantime, Afferro "continues to have discussions" with other interested bidders, including one anonymous suitor who Afferro is in exclusive talks with until 13 January.

IC TIP: Buy at 94p

The offer indication caps a remarkable turnaround for Afferro since the summer, when the company's market valuation was less than its cash holdings plus expected payments from a prior sale of non-core assets. Afferro's share price has risen from a low of 40p in June to an intraday high of 110p last week, but has subsequently slid back to 94p.

IMIC's proposed offer, confirmed by its management in a press release on 2 January, has nevertheless created an opportunity for nimble investors to potentially grab gains of between 22 and 49 per cent should IMIC follow through with a formal bid at 115p to 140p.

True, the thinly traded infrastructure development group doesn't have enough cash to foot most of the £129m to £157m bid in cash - it only had around £9m in cash at the end of November as well as $40m (£25m) it could draw down in multi-tranche, unsecured bonds. But we think it could conceivably come up with a lot more money soon.

Not only does IMIC's board of directors and advisers have very wealthy and influential connections - Andrew Buxton, former chairman of Barclays Bank, chairs IMIC's advisory board, for example - but, more importantly, IMIC has an agreement with a leading Chinese state-backed rail company to provide it with investment capital. IMIC announced in July that China Railway Materials Company (CRM) has agreed to "become a strategic investor in IMIC, at an appropriate time in the near term, when the parties decide on their first specific project investment opportunity". CRM will also "intermediate with potential Chinese investors to secure and maintain a significant Chinese participation in IMIC, and will interface with the Chinese authorities if and when applicable approvals of the Chinese government are required".