Afferro Mining (AFF) has been locked in takeover talks with multiple suitors for weeks, but the iron ore miner has yet to receive a formal bid. Media reports suggest that Indian steel producer Jindal Steel & Power is in the mix along with at least one other bidder. Now a little-known, Aim-quoted investment company has entered the mix, perhaps significantly.
- In takeover talks with multiple suitors
- Linked to Chinese state-backed enterprises
- Downside limited by large cash holding
- Main suitor is low on cash
- No certainty of a bid
International Mining & Infrastructure Corp (IMIC) says it "has made an approach to Afferro regarding a possible offer" of between 115p and 140p per share for the company and its huge iron ore exploration assets in Cameroon. That values Afferro at between £129m and £157m. The offer would comprise an undisclosed mix of cash and shares. However, the £17m investment company wasn’t able to enter talks with Afferro until 13 January, when an exclusivity agreement with another party ended.
Despite IMIC's declaration of intent, Afferro's shares are trading well below even the minimum proposed bid, suggesting the market doesn't believe IMIC has the muscle to do a deal. Analysts from broker SP Angel are sceptical because IMIC "does not have a meaningful asset base". Nevertheless, we think IMIC can raise the required funds and make a formal bid, presenting nimble investors with a chance to make a quick profit. Here’s why.
IMIC's board and its advisers have wealthy and influential connections - Andrew Buxton, former chairman of Barclays Bank, chairs IMIC's advisory board, for example. More important, IMIC has a deal with a leading Chinese state-backed rail company to provide it with investment capital. In July, IMIC said that China Railway Materials Company (CRM) had 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".
AFFERRO MINING (AFF) | ||||
|---|---|---|---|---|
| ORD PRICE: | 82p | MARKET VALUE: | £86m | |
| TOUCH: | 82-83p | 12-MONTH HIGH/LOW: | 107p | 38p |
| DIVIDEND YIELD: | nil | PE RATIO: | 2 | |
| NET ASSET VALUE: | 81p | NET CASH: | See text | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | nil | -5.51 | -8.3 | nil |
| 2011 | nil | -6.41 | -6.8 | nil |
| 2012* | nil | 73.2 | 69.2 | nil |
| % change | - | - | - | - |
Normal market size: 8,000 Market makers: Beta: 1.9 *Edison Investment Research forecasts £1=$1.60 | ||||
Bid scenarios for Afferro (current price 82p) | |||
| Minimum IMIC bid | Maximum IMIC bid | No IMIC bid | |
| Price (p) | 115 | 140 | 70 |
| Probability | 0.5 | 0.2 | 0.3 |
| Upside/downside | 40% | 71% | -15% |
| Weighted average potential gain: | 29.9% | ||
In addition, Afferro appointed the vice-chairman of IMIC's strategic infrastructure partner, African Iron Ore Group (AIOG), to its board earlier this year in order to encourage "co-operation between the parties". AIOG is privately run by Ethelbert Cooper, the well-connected founder of Afren (AFR), a FTSE 250-listed pan-African oil and gas company with a market capitalisation of £1.5bn.
True, IMIC only had around £9m in cash at the end of November. But the infrastructure development group has other heavy hitters behind it, besides Chinese business. IMIC raised $50m (£31m) in an unsecured bond offering in October to unnamed investors, some of whom were likely to be a group of high net worth individuals who picked up 25 per cent of IMIC's shares in earlier private placements and hold their interest in a nominee account with Banque Benedict Hentsch, a private bank in Geneva.
