While DRC copper miner Anvil Mining framed a friendly takeover bid from Minmetals as fair, analysts described the pricetag offered by the Chinese-state metals company as a bargain.
Copper-hungry Minmetals Resources, a metals giant backed by the Chinese government, got the blessing of Anvil Mining's (TSX, ASX: AVM) board of directors, management and controlling shareholder Trafigura Beheer in its C$8.00 all-cash bid for the DRC-focused copper miner.
Minmetals and Anvil signed a binding agreement that included lock-up of a 40.1 percent stake in Anvil held by Trafigura, a privately-held commodities company.
Anvil said two of its advisors on the offer, BMO Capital Markets and Paradigm Capital, opined that the pricetag was fair. The C$8.00 bid represents a 30-percent premium to Anvil's 20-day volume weighted shareprice, Anvil said.
Nonetheless a number of analysts contacted by Mineweb Friday morning unanimously described the $1.3 billion takeover bid in terms of a bargain. Scotia Capital analyst Tom Meyer came down the hardest, characterizing the Minmetals offer as "opportunistic" in a note to clients.
"From a timing perspective Anvil was still early in the process of debottlenecking its flagship Kinsevere SX-EW mine and potentially expanding capacity further, so arguably the bid undervalues the company," Meyer wrote. "In addition, a number of exploration opportunities had yet to be fully outlined."
Haywood Securities analyst Kerry Smith said in an email that "this is a cheap copper acquisition." Though he only had time for a brief comment, Smith reasoned that Anvil is going at a bargain, in his view, in part because its Kinsevere copper mine is in the DRC, generally viewed as a riskier jurisdiction in which to do business. Smith noted, however, this was "less of an issue for the Chinese."
Patrica Mohr, Scotia Capital vice president of economics and a commodity market specialist, couched her view of the takeover in terms of softening equities. In an email Mohr said that, beyond Anvil's copper assets, Minmetals was "likely attracted" to Anvil because of "lower equity valuations in recent weeks."
Indeed Meyer framed much of his position that the Minmetals bid was opportunistic in a more general picture of a mining sector experiencing low market valuations. Meyer described a "disconnect" between market and net asset values.
"Many companies in our coverage universe are trading well below net asset values," Meyer wrote. "In our view, the market is undervaluing productive capacity and therefore we expect to see more M&A activity should valuations remain depressed."
Also commenting on acquisitions, Smith noted that consolidation of companies operating in the DRC may be in the works. He singalled out Tiger Resources in which Trafigura also holds a controlling stake.
But Meyer, despite calling the bid opportunistic, advised Anvil investors to tender their shares anyway. He noted "it is unlikely that we will see another bidder enter given the strategic review process that led to the Minmetals bid, the pending DRC election, and certain commercial relationships between Anvil and Trafigura, which may decrease the broader appeal of the asset."
That strategic review started in August after Trafigura told Anvil that it's 40.1 percent shareholding was "non-core" - a sure sign the sizeable stake could have gone up for sale.
Even if some see the bid-price coming as a bargain, Trafigura still stands to profit handsomely from the deal. In 2009 it took a 36 percent stake in Anvil for $100 million through a private placement set at C$2.20 a unit comprising a common share and a 0.232 share purchase warrant payable at C$2.75. (The financing also came with access to a C$100 million loan from Trafigura bearing interest at four-percent plus LIBOR.)
Thus for most of the shares it bought at C$2.20 in 2009, Trafigura will make about C$5.80 or 360 percent profit if, as seems likely, the deal goes through following a shareholders vote.
The $1.3 billion takeover offer also ends canny, un-sourced speculation by the Australian Financial Review in mid-Septmeber that a bid in the billion dollar range was coming. At the time Anvil Mining quickly denied the speculation in a press release, saying there was nothing to disclose.
For its $1.3 billion, Minmetals will get a copper mine that was recently upgraded to the tune of $400 million to produce 60,000 tonnes per year of copper cathode. Though profits have been scarce for Anvil in recent years, which has recorded annual net losses since 2008, it has been pinning a brighter future on that burgeoning production.
AVM Price at posting:
$7.30 Sentiment: None Disclosure: Held
