Cambrian's Bid To Unite Small Mines

The Age

Tuesday July 25, 2006

By BARRY FitzGERALD, RESOURCES EDITOR

JOHN Byrne's London-listed Cambrian Mining - soon to list in Australia - has emerged as the king-maker in the consolidation and rationalisation of Western Australia's junior iron ore companies.

Cambrian has thrown its weight behind Mount Gibson's scrip-only takeover bid for a reluctant Aztec Resources, which if successful will create a $600 million iron ore force producing more than 9 million tonnes a year of the key steel-making raw material.

The market speculated yesterday that success by Mount Gibson could be quickly followed with a scrip offer by the merged group for another iron ore junior, Gindalbie.

Mount Gibson will offer one of its shares for every three Aztec shares. Based on Mount Gibson's closing price before the bid was announced, the offer valued Aztec at 26.3? a share. But on yesterday's closing price for Mount Gibson of 75?, the offer was worth 25? an Aztec share compared with its closing price of 24?, up 2.5? on the day.

Aztec owns the Koolan Island project, which is being developed, with a target production capacity of 4 million tonnes a year of iron ore. The group intends fighting the offer, saying its timing was opportunistic.

Cambrian owns about 35 per cent of Aztec. Melbourne-based managing director Mr Byrne said from London that the group fully supported the Mount Gibson move. Mount Gibson has secured an option on 19.9 per cent of Aztec held by Cambrian.

Assuming a rival bidder does not emerge, Mount Gibson would be able to count on Cambrian accepting for the remainder of its holding. "As a 35 per cent shareholder, we fully endorse it," Mr Byrne said. "We think it is a great strategy. We are committed to seeing this work."

Cambrian would be the main shareholder in the merged group, with a 15 per cent shareholding. Mr Byrne indicated that the stake would not be a stopping point. "We aren't in these things to be a minority shareholder," he said.

"We will go to a higher position or we will exit. That is going to depend, to a large extent, on our shareholders. This is a solid foundation for growing a serious iron ore group."

The merged group would have substantial production capacity potential and minimal debt position. Mr Byrne said the scarcity of skilled workers could not be underestimated as a force behind the need for mergers.

"The hardest thing in the iron ore business today, without a doubt, is people," Mr Byrne said. "Consolidation amongst the small players is required because there just isn't the people. I think when you spread the mining risk across a number of deposits, all of which have got similar good margins, you are spreading the investor risk."

KEY POINTS ? Cambrian has bid for WA iron ore producer Aztec Resources.

? Takeover bid may spark further consolidation of junior miners.

? Cambrian chief John Byrne says more mergers are needed.

© 2006 The Age

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