A Chinese consortium led by Sin-Tang Development has foreshadowed a fully underwritten capital raising for iron ore developer Sphere Minerals as an alternative to Xstrata's $514 million takeover offer, which was increased today.
This morning Xstrata increased its bid price by 20 per cent to $3 a share and declared the offer final.
The Swiss mining giant has so far amassed an 8.11 stake in Sphere, but looks likely to increase this after Acorn Capital indicated it was willing to offload its 11.59 per cent stake in Sphere.
But Xstrata will let the bid lapse by November 12 if it does not get to the required 50 per cent of acceptances to declare the offer unconditional.
Xstrata's wholly-owned bidding vehicle, Sidero, increased the offer on Wednesday from $2.50 in an attempt to close out the friendly takeover move.
If successful, a takeover of Sphere would be Xstrata's second foray into the booming iron ore sector and by far its biggest investment in the mineral.
But late today, Sin Tang said it was set to announce an alternative proposal to Sphere involving a fully underwritten capital raising in Sphere at a premium to Xstrata's takeover offer.
"The quantum of the raising will cover the equity required to develop Sphere's Askaf project, thereby eliminating the financing risk associated with the development of project," Sin Tang said in a statement.
Sin Tang is the largest shareholder in Sphere holding 12 per cent.
"We believe our cash offer ... is very attractive to Sphere shareholders and demonstrates our willingness to expedite the completion of our offer," Xstrata Coal chief executive Peter Freyberg said in a statement.
Shares in Sphere jumped 47 cents, or 18.95 per cent, after the announcement to close at $2.95.
Sphere has three large-scale iron ore projects in Mauritania in western Africa.
Stock Resources managing director Grant Craighead said iron ore was generally seen as a good long-term investment, particularly for a company such as Xstrata that had the capital to exploit the mineral.
"If you believe the China story, which most people do, it has decades to run rather than years to run," Mr Craighead said.
"In order to attract sufficient supplies (of iron ore) to the market you are going to need high prices for an extended period," he said.
In 2009, Xstrata, a coal and metals miner, bought a stake in an early stage iron ore project in the Republic of Congo.
The Sphere board has unanimously recommended Xstrata's bid, in the absence of a superior offer.
