Investors are wondering why Russian steel-maker Magnitogorsk Iron and Steel Works is buying Flinders Mines (ASX:FMS) for A$554 million.
Flinder’s main asset is the Pilbara iron ore project, a 917.3Mt JORC-compliant resource located in Western Australia.
MMK is Russia’s third largest steel company. Last year it had revenue of $7.7 billion and net income of $254 million.
According to Reuters, the deal has its critics. MMK is already over-leveraged, and it is leaping into a project that is far away from its current operations with no obvious synergies.
And cracks are starting to develop in the Chinese economy, which has been buoying Australia’s iron ore industry.
But for Flinders, the deal is a chance to lock value in value for their assets and see the Pilbara iron ore project through to fruition.
“The proposal from MMK offers Flinders’ shareholders a very significant premium and value certainty in an uncertain market,” said Flinders Chairman, Robert Kennedy in a statement.
“Flinders has evolved significantly since late in 2007 when it was worth ~A$0.01 per share to today where it has received a A$0.30 per share offer, which values the company at A$554 million. This is a truly fantastic achievement for Flinders and reflects the dedication of Flinders’ management team and Board of Directors. A transaction with MMK enables Flinders’ shareholders to avoid the significant development risks which would need to be overcome in order to bring the Pilbara Iron Ore Project into production.”
