Mid-tier Australian mining and exploration company, Sandfire Resources NL [ASX:SFR] is experiencing a drop in their share price this week following the announcement of their acquisition of MOD Resources Ltd [ASX:MOD] — an Australian-listed copper exploration company.
With the aim of becoming a global player, Sandfire is acquiring the explorer through a Scheme of Agreement, paying $167 million for the company through cash and scrip.
The company experienced over a 10% drop in their share price upon opening on Tuesday, most likely in an unfavourable reaction to the news on Tuesday. MOD shares, however, shot up by 30% with the news, to $40.50 each.
Sandfire’s share price has improved today by 6.37%, trading at $6.68 at time of writing.
More on the acquisition
The execution of the Scheme of Arrangement was announced yesterday morning, detailing a 100% obtainment of the issued and to-be issued share capital of MOD Resources.
This deal offered existing MOD shareholders the option to receive either 0.0664 Sandfire shares in exchange for one MOD share, or cash of up to 45 cents per share capped at $41.6 million, representing 25% of the whole consideration.
It’s an attractive move for Sandfire, as MOD owns a landholding on the under-explored and ‘highly prospective’ Kalahari copper belt in Botswana. This project includes the T3 Project, which is expected to commence construction next year and begin producing material by 2021.
Sandfire Managing Director and CEO, Karl Simich, is excited about the deal.
‘The acquisition ticks all of our boxes from an acquisition criteria perspective and is value-accretive based on the T3 asset alone which, importantly can be funded out of cash flow.’
Following the news, it appeared investors strongly disagreed. Though, with the share price coming back up today, some savvy investors still have faith.
According to The Australian Financial Review, the bidding for MOD was a competitive one, with a handful of other rivals bidding for the company. It comes as a sweet victory, following their initial offer in January this year where they bid a great deal higher than MOD’s market cap of $55 million.
MOD knew their holding value all too well, knocking back their offer in the case of undervaluation.
Sandfire has faith, and now so do investors…
Seeing the value this site could deliver to Sandfire, it appears investors are jumping back onto the bandwagon to acquire this cheapened stock. Should the exploration and production pay off in the way Sandfire hopes, the company could become a major player on the international copper stage.
However, with the complications of the trade war, which will possibly be brought to a point with the meeting of the G20 summit, the price of copper has decreased to 20%. This is not to say the resource will not bounce back, much like the price of Sandfire, but it does indicate profits could be at the mercy of Trump and Xi Jinping.
Regardless, as nothing is for certain, we’re interested to see where Sandfire will go from here.
Ryan Clarkson-Ledward, For Money Morning
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