Australia | Jul 24 2006
By Chris Shaw
Some secrets are easy to keep and others far more difficult, but it seems the word had gotten out about Mt Gibson Iron Limited (MGX) making a play for Aztec Resources (AZR).
The West Australian newspaper last week reported Mt Gibson was reportedly interested in Aztec, forcing the company to declare it was one of a number of options under consideration. Today’s action suggests it was the best option it could find, as Mt Gibson has launched a 1-for-3 scrip offer for Aztec valuing the company at about 26.3c per share.
This is a premium of 38.4% to the weighted average price in the month up to July 19th and is attractive enough for Aztec’s major shareholder Cambrian Resources to give Mt Gibson an option over a 19.9% stake.
The benefits of the merger are clear, as the company would be capitalised at more than $600m after the dilution of all the in-the-money options Aztec has on offer, putting the company among the top 200 stocks on the Australian market. This would help attract the attention of funds managers, as the company would be of a size sufficient to allow many managers to consider it for their portfolios.
The other advantages can be seen in the outlook for the combined company, as it would bring together three operations that could produce up to 9m tonnes of iron ore annually by 2009. Mt Gibson is currently producing from the Tellering Peak project, where production is being geared up to reach a target of 3m tonnes annually, while it is soon to commence production at the Extension Hill project. Aztec brings to the table the Koolan Island operations, where production is also soon to start with a target rate of about 4m tonnes annually. Additional growth in the longer-term is also possible through exploration upside.
Following reinstatement to trading after the bid was announced today, Mt Gibson shares have closed down 3c at 75c, while Aztec has risen 2.5c to 24c. In contrast, Thomson One Analytics shows a median price target for Aztec of $0.31, which suggests some in the market may argue the bid needs sweetening before the proposed merger can be completed.
The small size of both companies means they receive little coverage in the market as the FN Arena database showing only one expert researches both stocks, rating them both as Hold.
Aztec management has not been willing to support the plan yet.