The following is an excerpt from Canaccord Genuity’s Morning Coffee report.
According to Bloomberg,
Teck Resources Ltd. (
TSX: T.TCK.A,
Stock Forum) (
TCK: T.TCK.B,
Stock Forum) has lost interest in purchasing Rio Tinto’s controlling 59% stake in
Iron Ore Co. of Canada (IOC), after failing to come to an agreement on pricing.
Citing people familiar with the situation, Bloomberg reports that both sides are way far apart on valuation and aren’t moving closer.
Analysts estimated that Teck could pay up to $3.7 billion for Rio’s stake in IOC and remain neutral on an NPV basis.
If these reports are true, this leaves only the Chinese as potential takers for IOC.
At the end of September, The Wall Street Journal reported that Chinese steel giant Wuhan Iron & Steel was amongst the final bidders for IOC.
Other Chinese interests (Hebei Iron & Steel and China Minmetals) had been rumoured to have been sniffing around earlier this year. Wuhan’s interest underscores China’s continued appetite for base metal assets.
Also last month, Tianjin Minerals and Equipment Group said it would pay $990 million for a 16.5% stake in a Sierra Leone iron-ore mine.
In August,
Blackstone Group LP (
NYSE: BX,
Stock Forum),
Apollo Global Management LLC (
NYSE: APO,
Stock Forum) and Glencore all had apparently dropped out of the running for IOC, leaving just Teck and the Chinese.
Reuters noted that, of the six suitors who had put in offers in the second round of bids in July, most or all has come in below RIO’s expected value of roughly $3.5-$4 billion for its stake – this value was based on
ArcelorMittal’s (
NYSE: MTCN,
Stock Forum) sale of its Canadian iron ore ops at the beginning of 2013.
Japan’s Mitsubishi Corp. owns 26.2% of IOC and Labrador Iron Ore Royalty Corp. owns the remaining 15.1%.
All three shareholders have a right of first refusal on any sell down of ownership interest by the others.