Copper producer Sandfire Resources (ASX: SFR) has made a more successful second attempt to get its hands on MOD Resources (ASX: MOD), striking a $167 million deal to acquire the Botswana-focused explorer.
In an announcement today, Sandfire said it has executed a binding deed for the implementation of a scheme of arrangement, which will see the company acquire 100% of the issued share capital of MOD.
This follows Sandfire’s rejected first takeover proposal in January that valued MOD at $94.5 million.
At the time, MOD said the offer significantly undervalued the company’s unique and extensive assets, which include its advanced-stage T3 copper project in Botswana.
By upping its proposal by more than $70 million, Sandfire has now managed to reel MOD in and still considers the deal to be value accretive, comparing its $167 million acquisition cost to T3’s net present value of $309 million.
Sandfire chief executive officer and managing director Karl Simich said the deal “ticks all of our boxes from an acquisition criteria perspective”.
“The acquisition of MOD adds the near-term T3 project in Botswana to our global development pipeline while also adding a significant landholding on the highly prospective and underexplored Kalahari copper belt,” he said.
MOD managing director Julian Hanna said the offer was a “compelling value proposition for MOD shareholders, who will benefit from Sandfire’s platform to deliver the T3 project into production”.
“We see this partnership as providing the opportunity to maximise value from T3, which can be funded from Sandfire’s balance sheet and cash flows,” he said.
“At the same time, it will provide MOD shareholders with exposure to Sandfire’s substantial high-grade copper production in Australia and the outstanding potential of MOD’s extensive licence holdings through an accelerated exploration program,” Mr Hanna added.
The T3 project is being proposed as an open pit copper development with an estimated 11-year mine life. The project is scheduled to commence construction next year with first production anticipated in 2021.
In an investor presentation, Sandfire said its vision was to optimise T3 as the first cornerstone regional asset, and to expand its capability and explore its underground potential.
Under the scheme, each MOD shareholder will elect to receive either: a scrip consideration of 0.0664 Sandfire shares for 1 MOD share; or cash of $0.45 per share up to a maximum of $41.6 million.
The implied scheme consideration represents a 45% premium to MOD’s closing share price on Monday, as well as its 20-day volume weighted average price, of $0.31 per share.
MOD’s board has unanimously recommended that MOD shareholders vote in favour of the scheme, in the absence of a superior offer and subject to an independent expert’s assessment of the proposal.
MOD directors, which hold about 7.02% of the company’s shares, have also confirmed their intentions to vote in favour of the scheme, as has 10.48% shareholder Metal Tiger.
Metal Tiger assets
In July 2018, MOD signed a sale and demerger with Metal Tiger giving it pre-existing rights to acquire the latter’s 30% stake in Metal Capital Exploration Ltd, which indirectly owns several exploration licences on the Kalahari copper belt in Botswana. Consideration for MOD to exercise its option comprised a cash sum and the grant of a 2% net smelter royalty over future production from the licence areas.
As a term of the scheme implementation deed, MOD has agreed to exercise this option with Metal Tiger agreeing to accept the net smelter royalty plus 22.32 million MOD shares in lieu of the cash component. These MOD shares will then be exchanged for Sandfire shares under the scheme on the same basis as all other MOD shares.
By afternoon trade, MOD shares were up 29.68% to $0.40 on today’s news. Meanwhile, Sandfire shares fell 9.83% to $6.38.