wah nam takeover offer for brm and frs??, page-62

The Australian 11 Nov 10
CHINA'S Wah Nam has bid for iron ore plays, Brockman Resources and FerrAus, in a move tipped to drive consolidation in the sector.

Emerging Pilbara producer Brockman Resources said today it had received a all-scrip bid from Wah Nam - a 23 per cent shareholder in the company - that values the iron ore hopeful at around $929.6 million.

The Hong Kong-listed company also launched a takeover offer for East Pilbara junior FerrAus, which Wah Nam has a 19.6 per cent stake in.

Shares in both the local stocks soared on the bids, with Brockman up 17 per cent at $5.52 and FerrAus up 22.09 per cent at $1.05.

An industry insider said the move on the two juniors could be the start of consolidation of the second-tier iron ore players and signal the Chinese are prepared to build a railway to get the sought after commodity to port and shipped to China.

China has long been trying to reduce its dependence on the worlds largest iron ore producers, Brazils Vale, Rio Tinto and BHP Billiton, and has the financial might to build infrastructure needed to support the juniors projects.

Both Brockman and FerrAus would need to do a deal with BHP, Rio or Fortescue Metals Group, to realise any value out of their assets. Otherwise, it is stranded ore.

The majors have made no secret of their desire to reject third party access to their rail, and while Fortescue is prepared to allow others on its tracks, the Andrew Forrest-led miner is known to be a tough negotiator on terms.

The industry source said, if China could secure enough supply to justify building its own infrastructure, it could open up new opportunities to other juniors needing access to rail.

The bids are highly conditional and both companies have advised shareholders to take no action, ahead of a formal bidders statement.

In its offer to FerrAus, Wah Nam said the local miners' investors would benefit from Wah Nam's ability to attract financing for the junior's Pilbara project as a shareholder of the Chinese group.

China's interest in Australia's iron ore region has been closely monitored over the past few years, with the economic powerhouse desperate to secure supply of the steel feed. Deals have centred on the project or equity level and, if approved by the miners, Wah Nam's bids would require foreign investment review board approval.

Wah Nam, a Hong Kong-based mining resources company focused on iron ore and copper in mainland China, is offering 30 Wah Nam shares for every Brockman share.

Based on Wednesday's closing prices for the companies, Wah Nam's offer values Brockman at $6.50 a share, a 37 per cent premium to Brockman's current price. Brockman had a market value of about $677m on its last traded price of $4.74, prior to the bid being launched.

Wah Nam's offer for FerrAus is six Wah Nam shares for each FerrAus share, valued the target at around $1.29 a share.

Brockman and FerrAus are both founding members of the North West Iron Ore Alliance, which has 50 million tonnes per annum of capacity allocation in the Port Hedland inner harbour.

Macquarie analysts said should Wah Nam's offers be successful, it would own two Pilbara iron ore projects and the major share of potential capacity of the NWIOA berth.

The analysts also said while it was not a specified condition, they believe that acceptance of the Brockman offer is also likely to impact Wah Nam's appetite to complete the offer for FerrAus.

Brockman hopes to produce 17 million tonnes a year of iron ore from its Marillana iron ore project, while FerrAus hopes to produce 15 million tonnes a year from its deposits in the eastern Pilbara.

Brockman has engaged UBS and Freehills as advisors, while FerrAus has hired Grphon Partners.