Joint ventures are an integral part of the mining business for obvious commercial reasons. During the recent Potash bid there was a lot of speculation about the prospect of a bid from two or more parties who could each benefit from a share in the ownership of Potash. As it turned out no such joint bid appeared and Potash lived to fight another day. But it can be done.
Moto Goldmines is a classic example of a large gold property with lots of upside potential in a jurisdiction which is close to the top of the political risk chart. After Golden Star made a good profit from buying and selling a block after deciding not to play in the DRC pond Randgold made what the Moto board considered an inadequate offer. Next up to the plate came Red Back Mining before it got swallowed with another all share offer which was accepted by Moto's board subject to the usual bells and whistles including an out in the event of receiving a superior proposal. Who should re-appear on the scene but Randgold but this time with a partner in the form of AngloGold Ashanti with whom they had previously done business at the Morila mine in Mali. Their proposal, valued at almost US$500 million, provided Moto shareholders with the option to take cash up to a maximum of half the total offer price – with AngloGold being the source of the cash as part of an agreement to be 50% partners with Randgold in a joint venture to explore and develop Moto's properties. After Moto's board decided the joint offer was clearly a superior proposal Red Back exited stage left and Randgold – AngloGold duly acquired Moto.
The joint offer which succeeded after Randgold's original offer and Red Back's both failed had a number of obvious advantages for the Moto shareholders and the bidder. Shareholders could take the money and run or stay in to share in the potential development of the Moto assets as well as Randgold's diversified portfolio of assets. The new owners, both of whom have significant experience in African gold exploration and development, will share equally the political, financial and other risks and rewards associated with the development of the Kibali project, construction of which is targeted for mid 2011, six months earlier than originally anticipated. What's good for gold can be good for uranium. Mantra Resources main asset is the Mkuju River Project to develop a uranium property in Tanzania using leach technology, which has reached substantial completion of a definitive feasibility study. This time the partners were Uranium One Inc. and JSC Atomredmetzoloto its major shareholder. Uranium One is a TSX –listed uranium producer with assets in Kazakhstan, the United States and Australia. ARMZ is a Moscow based company formed in 1994 as part of the rationalization of the Russian nuclear industry with responsibility for mining and supply of uranium as part of the Russian civil nuclear industry. It owns and operates Russian facilities and has interests in uranium properties elsewhere including joint ventures in Kazakhstan. ARMZ is a 51% shareholder of Uranium One having exchanged its Kazakhstan properties for its substantial shareholding in Uranium One.
Having decided that Mantra's Tanzanian property offered significant potential for both of them ARMZ negotiated an agreement to acquire 100% of Mantra and ARMZ and Uranium One entered into a put-call agreement whereby Uranium One became entitled to acquire Mantra and ARMZ became entitled to sell Mantra to Uranium One for Uranium One shares during the 12 month period following ARMZ's acquisition of Mantra. Why such a structure? Because:
- the parties had decided they wanted to Mantra acquisition to happen as quickly as possible;
- any required Uranium One shareholder approval can be sought prior to exercising the put-call;
- an all cash offer was judged to be preferable to paper or cash and paper and ARMZ had readily available cash for the purpose.
Net result, Uranium One has acquired for the benefit of all its shareholders what it believes to be one of the best uranium development properties in the world to complement its long term growth strategy.
These transactions typify what seems to be a growing departure from the traditional approach whereby A decides to acquire B and then finds itself in an auction with whoever else decides it would also like to acquire B. As such they are a natural outgrowth of the traditional joint venture which typically has worked better in the mining world that it has elsewhere. As the world grows smaller and there is ever increasing competition for available and potential mineral resources we can expect to see more of them.
Two rival bidders for Baffinland Iron Mines have united in a C$590 million ($595 million) joint takeover offer for the iron ore explorer, ending a four-month fight to control its huge deposit in the Canadian Arctic. ArcelorMittal, the world's largest steelmaker, and Nunavut Iron, backed by U.S. private equity, on Friday made a joint C$1.50 a share offer for 100 percent of Baffinland. Under the agreement, ArcelorMittal and Nunavut Iron will own 70 percent and and 30 percent of Baffinland respectively, Luxembourg-based ArcelorMittal said in a statement. "The respective parties were killing themselves without end-game in sight, and so both parties very much wanted the asset and this is a splitting of the spoils so to speak," said a source with direct knowledge of the offers.