Hunan Nonferrous has agreed to buy Abra Mining Ltd. in a deal valued at $111 Million. Hunan Nonferrous already owns a stake in Abra Mining, but will be stepping up its investment to grow its zinc and tungsten metal reserves. In addition, Abra anticipates accessing to new markets. Hunan currently holds a 17.8 percent stake in Abra Mining.
A very nice premium over previous close
Hunan has offered 83 cents per share for 70% of the shares that it doesn’t yet own. This represents a 17% premium to recent closing prices. Hunan sees Abra as a way to get metals deposits for cheap. Abra produces many different metals from lead to zinc, copper, silver and gold.
Acquisitions are cheaper than exploration
This marks a very critical time for the mining industry. High mineral and metal prices have created significant new consolidation in the industry. The metal mining industry was never very competitive, but high prices are making buyouts more lucrative. Rather than explore for new possible mines, companies find it more cost effective to buy up their smaller counterparts and use their assets to find new product.
Mining stocks are undervalued
The best investments in the market just might be in mining. Assets behind publicly traded mining companies appear to be severely undervalued by the average investor. A new wave in mining mergers is confirming that belief that the markets put little emphasis on the holdings and future profits of the companies, and in the end, severely undervalue their assets, including mines.
Searching for minerals is a difficult task, certainly something Hunan knew before it offered a takeover of Abra Mining. The acquisition also allows Hunan to explore in Australia through Abra and find more mineral deposits to sell domestically or bring back to China for sale. The proposal was apparently met with much praise by Abra shareholders and the board, who pledged to sell their shares for Hunan’s offered price. If accepted, the deal will have to work its way through Australian regulators and then Chinese regulators. Chances are, with a deal this small, the acquisition will go through without skipping a beat.