Diversified FTSE 100 miner ENRC is committing close to a billion dollars in acquiring Aim-traded copper/cobalt play CAMEC . Its 20p a share all-cash offer (already boasting 55 per cent acceptances) totals £584m, or $935m, - not counting another $230m the company plans spending to boost production at the core CAMEC assets in the Democratic Republic of the Congo (DRC). So where does this leave the other Aim-traded African resource play ENRC has reportedly been eyeing up, African Minerals ?
Like CAMEC, African Minerals is developing a mineral project in a sub-Saharan state with shaky government and a recent history of bitter civil war - the Tonkolili iron ore project in Sierra Leone. But, unlike CAMEC, the considerable political risk attached in buying African Minerals does not bring the added benefit of diversification into the ENRC portfolio. ENRC already has its own existing iron ore operations in Kazakhstan, and also spent $300m last year buying into the undeveloped BML iron ore export project in Brazil. ENRC business development manager Jim Cochrane says the feasibility study for this multi-billion dollar project will be completed by the end of November. Does ENRC need another undeveloped iron ore project in the Atlantic Basin with a $2bn-plus development bill, on top of the initial acquisition costs? And those initial costs would be significant; African Minerals' current market value is north of £800m after bid speculation was fuelled by the company itself last week, sending its shares higher.
Admittedly, at the end of 2008 ENRC had a cash pile of some $2.5bn. The first half of 2009 saw it pull in $500m net cash from operations, but this was more than offset by significant ongoing capital spend plus piecemeal payouts on previous acquisitions, dividends and suchlike. A cash outflow of $717 saw its cash pile drop to $1.65bn. Now another billion is earmarked to go on CAMEC, and even though operational inflow in the second half will exceed the first-half figure, there remains almost another $800m or so to find for still-committed capital expenditure elsewhere in the business in the second half alone. Mr Cochrane points out that ENRC is as-yet essentially unleveraged and remains in the market for further merger & acquisitions (M&A) opportunities, but adds: "you won't get me to tell you whether I think we can afford African Minerals."
