AZR - Aztec Resources

From: The Sydney Morning Herald
Aztec sees more takeover offers coming
August 8, 2006 - 4:59PM

http://www.smh.com.au/news/Business/Aztec-sees-more-takeover-offers-coming/2006/08/08/1154802879719.html

Takeover target Aztec Resources Ltd believes there could be other companies planning counter bids to top an offer by predator Mount Gibson Iron Ltd.

Aztec chairman Ian Burston said consolidation amongst the junior developers was inevitable and he had been expecting a bid for the company since day one.

"We are not against or violently opposed to an offer, one could have almost expected it from day one had we got to this stage," Mr Burston told reporters at the annual Diggers and Dealers mining forum.

"If great pots of money was pushed across the table I wouldn't have to advise the shareholders - they'd all be gone."

Mount Gibson launched a takeover bid for Aztec in late July and Aztec directors are still considering the offer.

Mount Gibson is expected to release its bidder's statement next week, after which Mr Burston said the board would make a recommendation to shareholders.

Another iron ore developer, Gindalbie Metals Ltd, recently picked up less then five per cent of Aztec's issued share capital.

Gindalbie was originally involved in a plan for a three-way consolidation with Aztec and Mount Gibson, but later withdrew.

But buying the stake was a sure sign Gindalbie was still interested in Aztec, Mr Burston said.

"For whatever reason, and I don't know that reason, Gindalbie withdrew from the activity taking place at the moment and from a logical point of view, that was a wise thing to do," he said.

"I can also assume if the thought has been there it will be there again ... I don't think they've gone away."

Mount Gibson's all scrip offer of one of its shares for three Aztec shares values the target at around $280 million.

Aztec is developing the $125 million Koolan Island iron ore project off the coast of the Kimberley region of Western Australia, with the first shipment expected to leave the island early next year.

The company is in advanced discussions with three potential buyers and expects to sign off on at least two off-take contracts soon for the anticipated four million tonnes of annual production.

Aztec shares closed at 24 cents, up half a cent. Mount Gibson was half a cent higher at 74.5 cents while Gindalbie was three cents lower at 53 cents.

Read through the bidders statement today from MGX. Business Case for AZR shareholders is less than compelling

• exposure to more lump - DOH. Revenues assumptions already cater for that in the respective AZR and MGX shareprices

• diversification of risk - buy both companies separately then. sum of the parts = the whole

• bigger company gets better market rating - highly theoretical

• admission that there are very few synergies

Its a clever opportunistic bid, making a nice arbitrage return on the actual risk of a well executed AZR project as opposed to the perceived risk factored into the AZR share price.

At the current bid price I'll be hanging onto my AZR shares and hoping that 9.97% of my fellow shareholders do the same

haemitite said:

Read through the bidders statement today from MGX. Business Case for AZR shareholders is less than compelling

• exposure to more lump - DOH. Revenues assumptions already cater for that in the respective AZR and MGX shareprices

• diversification of risk - buy both companies separately then. sum of the parts = the whole

• bigger company gets better market rating - highly theoretical

• admission that there are very few synergies

Its a clever opportunistic bid, making a nice arbitrage return on the actual risk of a well executed AZR project as opposed to the perceived risk factored into the AZR share price.

At the current bid price I'll be hanging onto my AZR shares and hoping that 9.97% of my fellow shareholders do the same

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I agree what you said after reading the bidder statement and I will be hanging onto my AZR shares as well. Aztec has a very experienced team and I am sure we are in the good hands.

haemitite said:

Read through the bidders statement today from MGX. Business Case for AZR shareholders is less than compelling

At the current bid price I'll be hanging onto my AZR shares and hoping that 9.97% of my fellow shareholders do the same

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Thanks Heamitite

I'll be hanging onto mine as well. I was told by my broker AZR should double by the end of the year, what do you think?

chansw said:

I agree what you said after reading the bidder statement and I will be hanging onto my AZR shares as well. Aztec has a very experienced team and I am sure we are in the good hands.

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I agree too. Not only holding but got a few more.

new girl said:

Thanks Heamitite

I'll be hanging onto mine as well. I was told by my broker AZR should double by the end of the year, what do you think?

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I've been a little lazy, I will pull together a quick valuation model using the cost data from their bankable feas study.

Iron ore prices for the next japanese financial year are already looking up. After last years 71% rise, the early talk was a 20% cut for 1 apr 06. People then were talking a rollover, then it ended up 20% higher. Iron Ore supply is still constrained, BHP and Rio are both catching up with big expansions so I think pricing may hold at these levels for a couple more years before the inevitable drop off. Hopefully FMG don't get up, they have a low quality resource so they will be price takers if market demand cools - not good for the other producers.

It would have been nice if AZR could have gotten up 12 months earlier. As to what this means for pricing, I don't yet know. I need to plug it into the valuation model.

Ended up with a valuation of 25c for a 40Mt reserve, value increased to 35c for 60Mt reserve

• discount rate 7% real
• 3 year ramp up to 4Mtpa
• Opex of $30/t (from BFS)
• Updates capex of 125M
• 30% Lump
• 7.5% lump royalty, 5.62% fines
• price equivalent to 61 USc per dmtu flat real
• 1.04 B shares

The opex looks high given the big boys manage it for $10-13/t, guessing that I may have doublecounted royalties. If so the core valuation increases to 0.29c

Tornado chart showing sensitivities to follow once I work out how to post it

Sensitivity plot uploaded



(image is not appearing on my pc, try http://tinyurl.com/etjaj for linked graphic)

Add 4c if the royalty has been included in the opex figures

Aztec signs sales contract with Marubeni
7-September-06 by Edited announcement

http://www.wabusinessnews.com.au/en-story.php?/1/43031/Aztec-signs-sales-contract-with-Marubeni

South Perth-based Aztec Resources Limited has signed a long term contract for iron ore sales from its Koolan Island project with Japan's Marubeni Corporation.

The contract, for an annual sale of one million tonnes, comes less than a month after the company signed an 15 year supply contract with China-based shareholder CITIC Australia Commodity Trading Ltd for 1.5 million tonnes per annum.

Marubeni had previously agreed to provide Aztec with up to $20 million in project development funds earlier this year.


Broad terms of the sales contract include:


- Annual sale of one million tonnes based on a full production rate of four million tonnes per annum for up to 15 years or the life of the mine, whichever is less. At a production rate of less than four million tonnes per annum, sales will be pro-rated.
- Prices are based on the annual benchmark price negotiated by the major Pilbara producers for equivalent iron ore products.
- Signing of the sales contract between Aztec and Marubeni follows the Memorandum of Understanding between the two companies in December 2004 and the Letter of Intent agreed in December 2005.

Aztec now has two sales contracts in place with CITIC Group and Marubeni covering nominal annual sales of 2.5 million tonnes. The Company advises that additional sales contracts are currently under negotiation to cover the balance of the planned annual production of four million tonnes.

The following is from today's announcement.

You can read the whole document at

http://www.aztecresources.com.au/documents/411.pdf


Koolan Island Iron Ore Project – Update

• Iron Ore Reserves increased to 24.8 million tonnes at 65% Fe
• Construction and mining activities on track for first production in December 2006 with initial shipments still expected in early 2007
• Negotiations with banking syndicate progressing well
• Minor revision of Project development costs
• Encouraging drill results achieved at Mangrove Prospect
• Aztec Board formally REJECTS Mount Gibson’s inadequate Takeover Offer

Things are getting better and better. Please hang onto your Aztec shares as it is definitely worth more than what Mount Gibson offers and more importantly without the risks that Mount Gibson offers to us.

The following is the announcement of rejecting Mount Gibson's offer.

http://www.aztecresources.com.au/documents/410.pdf

AZTEC BOARD FORMALLY RECOMMENDS SHAREHOLDERS
REJECT MOUNT GIBSON’S INADEQUATE OFFER

Aztec Resources Limited (ASX/AIM:AZR) (“Aztec”) notes Mount Gibson Iron Limited (“Mount Gibson”) recently dispatched its Bidder’s Statement to Aztec’s shareholders relating to its unsolicited and conditional Takeover Offer (“Offer”) for Aztec.

As outlined in Aztec’s letter to shareholders on 29 August 2006, Aztec’s Directors consider that the Bidder’s Statement lacks the necessary disclosures Aztec Shareholders require to fully assess Mount Gibson and its Offer.

On 6 September 2006, in response to actions by your Aztec Directors, Mount Gibson released a Supplementary Bidder’s Statement providing Aztec’s Shareholders with additional and necessary information that Aztec considers should have been provided in the original Bidder’s Statement.

Aztec Directors continue to seek further information and disclosures from Mount Gibson.

After a detailed assessment of the Offer, Aztec’s Directors unanimously recommend that shareholders REJECT the inadequate offer from Mount Gibson.

The reasons for this recommendation are as follows:

• The loyalty of Aztec shareholders is set to be rewarded as Aztec’s Koolan Island Project commences production of iron ore. The Aztec management team has made significant progress in developing the Project over the past year and remain on track for first production in December 2006 and first shipments of iron ore in early 2007.
• The Offer is inadequate. It does not reflect the strategic importance of the Koolan Island Project to Mount Gibson.
• The Offer is opportunistically timed to take advantage of Aztec in the period prior to the commencement of production at Koolan Island.
• The Aztec Board holds serious concerns about the risks associated with the Mount Gibson shares being offered to Aztec shareholders as consideration under the Offer. In particular:
- Mount Gibson’s ability to sustain production and shipping of three million tonnes per annum from its Tallering Peak operation is unproven.
- The significant risks associated with the development of Mount Gibson’s Extension Hill Hematite Project. At this time only a desk top study has been completed.
- Mount Gibson’s management team have continued to underperform their own operational and financial projections for the company.

Since the Mount Gibson Offer was announced, Aztec has been approached by a number of other parties interested in pursuing opportunities with Aztec. Aztec will continue to explore these opportunities and will keep you informed should any developments arise.

The Aztec Board urges shareholders to continue to support Aztec’s management as it works to bring the Koolan Island Project into production for the benefit of all Aztec shareholders.

Shareholders are advised to disregard all documents sent to them by Mount Gibson until they receive Aztec’s Target's Statement which contains Aztec’s detailed response to the Mount Gibson Offer.

I was disappointed in the AZR response to the MGX takeover

The response largely focused on the downside to owning MGX script. The only valuation issue of substance was the point made earlier in this thread that the offer was opportunistic as the project had laregly been de-risked.

There is no independent valuation report, no indication of what the AZR directors think the company is worth etc. If MGX came back tomorrow with a cash rather then script offer then the AZR response would be 90% negated.

The has to be movement in the takeover stakes soon

MGX continue to claim that their offer is at a premium of approx 40% to the earlier AZR share price - which completely ignores that AZR never traded at the 26.3c mark, and are now around 22c due to weakness in MGX script

But with only 1.5 weeks left and 0.4% acceptances outside of Cambrian MGX will have to up their offer and/or put cash on the table if they hope to suceed

haemitite said:

I was disappointed in the AZR response to the MGX takeover

The response largely focused on the downside to owning MGX script. The only valuation issue of substance was the point made earlier in this thread that the offer was opportunistic as the project had laregly been de-risked.

There is no independent valuation report, no indication of what the AZR directors think the company is worth etc. If MGX came back tomorrow with a cash rather then script offer then the AZR response would be 90% negated.

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I go along with the AZR board. I hold AZR shares which I believed would double in price when the Company is in production, which is not too far off. I looked at MGX at the time I purchased AZR and chose AZR as the one with the best long term prospects. I am a very small holder with only 20000 shares so have little to lose either way, but I will hold out.

haemitite said:

The has to be movement in the takeover stakes soon

MGX continue to claim that their offer is at a premium of approx 40% to the earlier AZR share price - which completely ignores that AZR never traded at the 26.3c mark, and are now around 22c due to weakness in MGX script

But with only 1.5 weeks left and 0.4% acceptances outside of Cambrian MGX will have to up their offer and/or put cash on the table if they hope to suceed

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I don't think MGX have any hope to succeed if all they can offer is $0.26 (even if that is cash). Personally, I still stand by my earlier view that Aztec has a more experienced management team and board. Everything is on track and looking good. Just another a few months, the company will get into production. I have to say that you have to be silly enough to sell at this stage especially with that kind of offer. No wonder only 0.4% acceptances outside of Cambrian and other major shareholders still hold. Just be patience and we will get there.

nioka said:

I go along with the AZR board. I hold AZR shares which I believed would double in price when the Company is in production, which is not too far off. I looked at MGX at the time I purchased AZR and chose AZR as the one with the best long term prospects. I am a very small holder with only 20000 shares so have little to lose either way, but I will hold out.

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I don't think that the AZR board have played the game well (at least publicly), but MGX have played it far worse.

I think 30c would be achieved once AZR shows the Koolan Island op can run to schedule, possibly 35-40c in two yeas time at the full production rate with reserve upside

http://www.thewest.com.au/default.aspx?MenuID=33&ContentID=8455

Aztec gets more cash to stave off takeover
2nd October 2006, 9:45 WST

Takeover target Aztec Resources is gearing up to pull more rabbits out of its hat over the next few days in its battle to defeat Mount Gibson Iron’s hostile $280 million takeover bid.

Aztec took a big step on Friday towards locking in the outstanding funds it needs to complete development of its $133 million Koolan Island mine, securing a $65 million lease deal with Komatsu to provide the mobile mining fleet.

Having already raised more than $84 million in equity, and signed a formal offtake agreement with China’s CITIC Group and Japanese trader Marubeni, the company is now expected to finalise a $60 million debt funding package from a syndicate of banks within the next fortnight.

Furthermore, Aztec is also now believed to be targeting a production start at Koolan Island in the next few days, significantly earlier than the year-end date previously flagged.

The company will start mining at the Eastern and Mullet satellite pits, which will provide the bulk of production for the first two years while the big Main Pit resource is dewatered.

Ore from the two pits will be stockpiled in preparation for the first shipment to customers early next year.

It is also understood that at least two third parties have revisited Aztec’s data room for a second time in recent weeks, bolstering Aztec’s hopes of generating an alternative proposal to Mt Gibson’s one-for-three scrip offer, even though the Mid-West miner now speaks for at least 32 per cent of the target’s shares.

Still, Mt Gibson remains confident it will ultimately prevail and will this week implement an institutional acceptance facility to encourage institutional shareholders to sell into the offer.

Investors also seem resigned to the bid succeeding based on Mt Gibson’s Friday close of 69 ¢, which valued Aztec at 23 ¢, a premium to its close of 22.5 ¢.

While the Aztec takeover continues to take most of the spotlight, WA’s other iron ore juniors continue to make headway in their own quests to join the ranks of producers.

Atlas Iron, which will follow Aztec into production early in 2008, last week bolstered the prospects of its Pardoo project near Port Hedland when it reported two new “blind” hematite discoveries under shallow cover with the potential to further boost resources of direct shipping material.

Atlas said the small eight-hole exploration program returned best hits of 16m at 58.6 per cent iron at the Floyd prospect, and 14m at 58.2 per cent iron at the nearby Clare prospect. A detailed follow-up program would start soon ahead of a resource estimate by year’s end.

Resource drilling also identified extensions to the South Limb, Olivia, Hubert and Alice deposits, which host most of the 7.2 million tonnes of direct shipping grade ore identified to date.

Meanwhile, Pilbara neighbour Cape Lambert Iron confirmed resources at its namesake magnetite project near Karratha would surpass the 2.5 billion tonnes estimated by former owner Robe River Iron. Cape Lambert, which shares Aztec chairman Ian Burston, said drilling had intersected a 236m wide magnetite zone outside the resource envelope with the first nine holes returning intersections of between 56m to 129m grading around 34 per cent iron.

And Tony Poli’s emerging coal and iron ore miner, Aquila Resources, unveiled a string of wide high-grade results from its Hardey project near Paraburdoo.

John Phaceas

The recent take over bid by MT Gibson has pushed the AZR shares to a new high, however, the board of directors have rejected the offer.. not sure what this will do to the share price..???

But i definitely think AZR is a quality share and should invest in it...

Sumthinggg said:

Hi all,
Just was wondering if any of you's could shed some light on this company regarding the takeover bid by MGX (Mount Gibson), is this a good thing or not in your views? Do you think it will go ahead?
Thanks

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the offer is being rejected by the board of directors at AZR, but this shows that AZR is a quality company, that is why Mt Gibson want to take over right ? also the koolan island production is going to commence soon so i expect the share price to increase steadily over the coming years.

Trading halt till Monday?????????? Another bid maybe?

its decision day for mt gibson on aztec bid, they are set to declare its 1 for 3 scrip bid unconditional to force azr back to the negotiating table. dropping all conditions will crystallise mgx as azr's leading shareholder with at least 33% making any last minute counter offer from a white knight unlikely.

from the west australian.