Vale’s $1.1 Billion Offer for Metorex Too Low, Say Holders Fidelity, Metam

Vale SA (VALE3), the second-largest copper miner, should boost its bid for Metorex Ltd. (MTX) by about 35 percent because its $1.1 billion offer undervalues the company, Fidelity International Ltd. and Metropolitan Asset Managers said.

The 7.35-rand-a-share ($1.10) bid by Brazil’s Vale is too low, considering the “limited number” of available copper producers, as well as Minmetals Resources Ltd.’s $6.3 billion offer for Equinox Minerals Ltd. earlier this month, said Peter Yandle, a spokesman for London-based Fidelity, which manages about $246 billion of assets and owns 2.4 percent of Metorex.

An offer closer to 10 rand a share would be “appropriate,” Stephen Roelofse, a fund manager at Cape Town- based Metropolitan, said yesterday. Metropolitan, also known as Metam, manages about $8.4 billion and holds 0.7 percent of Johannesburg-based Metorex. “Ten rand is in the right ballpark,” Yandle said by phone today.

Vale’s April 8 offer for Metorex, which has copper and cobalt mines in the Democratic Republic of Congo, represents a 21 percent premium to the 20-day average price to April 7. That compares with a 32 percent premium proposed by Minmetals for Perth, Australia-based Equinox, and a 16.6 percent average premium among global copper-industry deals announced over the past 12 months, according to data compiled by Bloomberg.

Chairman Accepts
Shareholders owning more than 25 percent of Metorex, including Chairman Rob Still and Director Alberto Barrenechea, have agreed to accept the offer.

Metorex traded at 7.15 rand in Johannesburg, up 0.9 percent, as of 2:55 p.m. local time. It closed at 7.10 rand the day before Vale announced its bid, and has gained 30 percent over the past month, valuing the company at 7.17 billion rand.

Metorex is developing the Lubembe and Dilala copper sites in Congo, both of which it calls “growth” projects.

“On a five-year view, once the Lubembe and Dilala expansions have taken place and excluding a political risk discount for the DRC, we estimate the offer to be on the low side,” Cape Town-based stockbroker BoE Private Clients said today in an e-mailed comment. Investors should hold out for a better offer, Johannesburg-based broker Imara SP Reid said in a note, adding that it values the company at 7.81 rand a share.

A rival offer is possible, Metam’s Roelofse said yesterday. Metorex would be an “especially attractive” target for a mid- cap mining company, he said.

Metorex has an estimated 4.74 million metric tons of copper resources, including 1.8 million tons at the Lubembe project, the company said earlier this month. Copper for delivery in three months traded at $9,733.50 a ton as of 1:54 p.m. in London, having gained 23 percent over the past year.

“Copper is a relatively scarce commodity and is one that makes this company an attractive target,” Yandle said today.

Chile’s Codelco is the world’s largest copper producer.