Vale May Raise Metorex Bid After Jinchuan’s $1.36 Billion Offer for Miner

Vale SA (VALE5), the world’s largest iron-ore producer, may raise its bid for Metorex Ltd. (MTX) after Jinchuan Group Co. offered $1.36 billion to acquire the African copper company, analysts said.

Jinchuan, the biggest Chinese nickel producer, offered 8.90 rand ($1.31) yesterday for each share of Johannesburg-based Metorex, 21 percent more than Vale’s 7.35-rand bid on April 8. Vale, based in Rio de Janeiro, has until July 15 to match or beat Jinchuan’s offer, Metorex said.

“There’s room for Vale to come back with a better price, but that would depend on how bullish they are on the outlook for copper,” said Stephen Meintjes, head of research at Imara SP Reid in Johannesburg. “Jinchuan must have a very clear idea of where copper prices are heading.”

Copper-industry acquisitions are increasing after prices for the metal almost doubled in two years. The contest for Metorex pits Brazil against China in a deal that’s the most expensive purchase of a diversified minerals company. Vale may increase its bid because the price is low relative to its market value and cash generation, said Leonardo Brito, an equity analyst in Rio for hedge fund Teorica Investimentos.

Copper reached a 10-week high of $9,565 a ton yesterday on speculation that slowing growth will allow monetary tightening to ease in China, the largest metals buyer. Copper for delivery in three months traded at $9,463 as of 12:41 p.m. in London.
Price Limit

“We have our limit on price and we will not go to a bidding war,” Vale Chief Financial Officer Guilherme Cavalcanti said in a London interview on Bloomberg Television’s “The Pulse” with Maryam Nemazee, before Jinchuan’s announcement.

Metorex, which controls almost 5 million metric tons of copper resources in Africa, traded little changed at 8.66 rand as of 1:39 p.m. in Johannesburg after gaining 8 percent yesterday, closing at the highest price in 2 1/2 years.

Jinchuan’s offer values Metorex at 9.1 billion rand, the companies said. It’s priced at 36.1 times earnings before interest, tax, depreciation and amortization, according to data compiled by Bloomberg. That compares with Vale’s bid of 30.2 times for the most recent 12 months for which completed financial statements are available. Vale has a market value of about 265.6 billion reais ($169.7 billion).
Xstrata-Jubilee Deal

The previous most expensive takeover of a diversified minerals company of more than $1 billion was Xstrata Plc’s purchase of Jubilee Mines NL for 10.1 times Ebitda, or $2.5 billion, announced in 2007, Bloomberg data show.

“The Jinchuan bid is a good buck higher,” Peter Major, senior portfolio manager at Cadiz Specialised, said by phone from Cape Town yesterday. “I think Jinchuan will get this one, and I doubt Vale will come back.”

Vale fell 1.5 percent to 46.33 reais in Sao Paulo trading yesterday. The stock has lost about 4 percent this year.

“Metorex has not yet approved, recommended or entered into any agreement in relation to the Jinchuan offer,” the company said. Jinchuan has received “irrevocable undertakings” from shareholders representing 8 percent of the stock, Metorex said.

Goldman Sachs Group Inc. is advising Jinchuan and Standard Bank Group Ltd. and One Capital Advisory are advising Metorex. Jinchuan said its cash offer is backed by a South Africa- registered bank guarantee.
Congo, Zambia

Metorex controls the Ruashi open-pit mine in the Democratic Republic of Congo and the Chibuluma copper development in Zambia. It has an estimated 4.74 million tons of copper resources, including 1.8 million tons at Congo’s Lubembe project, the company said in April.

“Jinchuan has had a longstanding offtake relationship with Metorex and we know them to be an impressive operator,” Jinchuan Chairman Yang Zhiqiang said in an e-mailed statement. The company wants to “strengthen” its operations in Zambia and Congo as it builds an African base-metals business, he said.

Jinchuan last year bought Vancouver-based Continental Minerals Corp. for C$432 million ($448 million) and Toronto- based nickel producer Crowflight Minerals Inc. for $140 million.

This year, the Gansu-based company acquired 45 percent of Wesizwe Platinum Ltd., a Johannesburg-based platinum explorer, with the China-Africa Development Fund. Metorex represents “a unique combination of copper and cobalt assets,” Yang said.