[Update]Analysts question Iberian’s move

Iberian Minerals (izn-v) has agreed to allow Trafigura Beheer, its largest shareholder, to acquire all of its shares that it doesn’t already own for $1.10 apiece in cash, causing some analysts to question the bid.

The offer represents a 39% premium to Iberian’s Nov. 16 close. The company’s board says along with its financial adviser, Cormark Securities it views the bid to be “fair” from a financial standpoint, urging shareholders to accept the offer.

The company notes that the all-cash bid will provide shareholders a “definite liquidity of their holdings in Iberian and certainty of return.”

To show that they unanimously supports the offer, Iberian’s directors and key officers and significant shareholders, Hedgehog Capital and Drakanea Management, each entered lock-up agreements, representing 17% of all Iberian shares.

That number increases to 59%, when added to Trafigura’s current 42% stake in Iberian on a fully diluted basis.

Analyst Orest Wowkodaw of Canaccord Genuity wrote in a Nov.18 note that he views the offer by Trafigura as “opportunistic and insufficient compensation to minority shareholders.”

“Based on publicly disclosed information, we struggle to see how management, the Board, and the company’s independent financial advisor determined that an offer of $1.10 per share represents fair value for the company.”

He added while the 39% premium is noteworthy, the actual offer undervalues Iberian on both net present value and near-term enterprise value to EBITDA (earnings before interest, taxes, depreciation, and amortization) metrics. But given the lock-up agreements, Wowkodaw says the possibility of another bidder is slim. 

Wowkodaw recommends minority shareholders to shake off the offer and ask for a better price, or to retain their shares for a re-rating based on the roll-off of the low-priced hedge book at year end.  He also notes that Cormark didn’t incorporate the company’s Sotiel copper-zinc mine in its fairness valuation. Iberian aims to rehabilitate the old mine in Spain, which closed due to low metal prices in 2002.

The offer by the large international commodities trader will commence and the take-over bid circular will be mailed before Dec. 30, 2011.

For the offer to go through, it’ll need the approval of two-thirds of non-Trafigura shareholders. The current lock-ups already represent 29% of non-Trafigura shareholders on a fully diluted basis.

As part of the pre-acquisition agreement Iberian can’t solicit any other offers, but could consider a third-party’s takeover proposal. If Iberian calls off the agreement it will need to pay Trafigura $10 million. And if Trafigura walks away it’ll pay a reverse break fee of $3 million.

On Nov.17, along with announcing the bid, the company updated shareholders on its 2012 production and capex guidance for its Condestable copper mine in Peru and Aguas Tenidas copper-zinc-lead mine in Spain.

It expects total contained copper, zinc and lead production of 109.5 million lbs., 78 million lbs. and 11 million lbs., and contained gold and silver production of 14,200 oz. and 1.1 million oz.

Capex for next year is forecast at US$75 million, with the lion’s share going to Aguas Tenidas.

At Aguas Tenidas, the company approved a US$53-million capital expenditure to further develop the mine, and to cover costs of mine equipment, a water treatment facility, and exploration.

At Condestable, Iberian approved a US$9-million capital expenditure mostly to replace the mine and plant equipment and for exploration. It says further mine development costs will equal US$13 million.

It anticipates consolidated cash costs of US$1.40 per lb. copper in 2012.  

On Nov. 17, the day of the acquisition bid, Iberian’s shares gained 38% to $1.09 on 56.8 million shares traded. Wowkodaw has lowered his buy rating on the stock to hold and cut the target price to $1.10 per share from $1.40.