CFE 0.00% 0.4¢ cape lambert resources limited

chairman values bid at 90c a share

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    Chinese bid big money to hold Pilbara

    Andrew Trounson | February 27, 2008

    CHINA is ramping up its effort to secure Australian mining assets with state-backed conglomerate China Metallurgical Group set to buy all of mining junior Cape Lambert Iron Ore's namesake project in Western Australia's Pilbara for $400 million.

    The price, if fully realised, would be a boon for Cape Lambert, which on a fully diluted basis is valued on market at $210 million.

    But the iron ore-hungry Chinese have offered to pay a substantial premium for the low-grade project to avoid sparking a possible takeover fight that could potentially complicate foreign investment approval.

    The proposed investment will provide an immediate test of the federal Government's new guidelines on approving foreign investment which require state-owned investors to demonstrate that they operate at arm's length from their government.

    But the news failed to ignite Cape Lambert shares as investors remained wary of the deal, which remains subject to due diligence and investment approvals in both China and Australia.

    Cape Lambert shares gained 1.5c to 49.5c, despite chairman Ian Burston estimating that the deal valued the company at around 90c a share.

    But Cape Lambert shareholders have been disappointed before. The company has long been seeking a partner for the $1 billion project, and last October it was left at the altar when Chinese businessman Ding Liguo couldn't deliver on a $US192.5 million deal to take a 70 per cent stake in the project. That disappointment caused the share price to slump from almost to 70c to just 25c in January.

    But since then, Cape Lambert has released test work showing that contaminating silica in the beneficiated magnetite iron ore can be reduced sufficiently to produce a saleable product.

    It has also increased the current resource to 1.56 billion tonnes trading 31.2 per cent iron as it closes in on its target for a 2 billion tonne resource.

    Cape Lambert is seeking to develop a 15 million tonne a year operation with a 20-year life. Production would be piped out to an offshore platform and barged to ships. However, China Metallurgical might seek access to its Cape Preston iron ore port development 80km away -- part of its partner Citic Pacific's Sino Iron Ore development.

    Mr Burston believes the market scepticism will dissipate once the first cash payment from China Metallurgical comes in, although that is unlikely to be before June.

    "Once the first money goes into the bank account, then there will be a rerating of the company and I would think that (valuation) gap would close and even disappear," Mr Burston told The Australian.

    A shareholder vote on the deal is expected in May after necessary approvals, and if China Metallurgical commits it will pay $240 million on settlement and a further $80 million within 60 days. A final $80 million payment is contingent on it being granted a mining lease, and that could be a year off.
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