Lonmin bids for AfriOre

Platinum producer Lonmin (LMNIF-O, LMI-L) has reached an agreement to acquire AfriOre (AFO-T, AFOFF-O) in an all-cash deal.

The transaction will combine Lonmin’s extensive operational experience in platinum mining, smelting and refining with AfriOre’s 74% interest in the Akanani platinum group metal (PGM) project in South Africa. The remaining 26% of Akanani is owned by a number of Black Economic Empowerment investors.

AfriOre shareholders will receive $8.75 per share — a 14.3% premium based on the company’s 30-day volume-weighted average trading price.

AfriOre’s directors are recommending that shareholders accept the deal, which values the company at $500 million.

“We believe that this represents the optimum route to maximize value for AfriOre shareholders and other stakeholders,” said AfriOre president and CEO Warren Newfield in a release.

The deal is conditional on at least 1.5 million of AfriOre’s shares being tendered to the bid, satisfactory technical and legal due diligence on Lonmin’s part and the receipt of all regulatory approvals.

If the deal doesn’t go through, AfriOre will pay Lonmin a $15-million break fee. The transaction is expected to be complete by the end of January 2007.

Lonmin’s preliminary evaluation suggests the current resource at Akanani could support initial production of roughly 500,000 oz. of platinum group metals (PGMs) a year, including about 250,000 oz. platinum.

Akanani has reported total inferred resources of about 249 million tonnes containing 33.7 million oz. of PGMs grading 4.2 grams per tonne.

Lonmin estimates it will spend nearly $800 million on development of the mine, infrastructure and concentrator.

“We are excited by the potential of the Akanani deposit, which our preliminary evaluation suggests can be developed into a low-cost, fully mechanized mine,” said Lonmin CEO Brad Mills in a release.

Lonmin will fund the takeover at an estimated yearly cost of about $28.5 million before interest for the first two years of ownership.