Noble, POSCO drop $1.2 billion bid for Australia's Arrium

SYDNEY Wed Oct 31, 2012 3:48am EDT

A logo of POSCO is seen at the company's headquarters in Seoul October 21, 2011. REUTERS/Jo Yong-Hak

A logo of POSCO is seen at the company's headquarters in Seoul October 21, 2011.

Credit: Reuters/Jo Yong-Hak

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SYDNEY (Reuters) - Noble Group Ltd (NOBG.SI) and POSCO (005490.KS) dropped a A$1.2 billion ($1.24 billion) takeover bid for Australia's Arrium Ltd (ARI.AX) on Wednesday, balking at paying more after the company's board rejected a sweetened offer.

Shares in Arrium, which produces steel products, mines iron ore and sells mining consumables, had jumped nearly 6 percent after the company revealed the A$0.88 bid, but closed down 1.9 percent at A$0.785 cents on concerns the bid would not proceed.

Iron prices have recovered from three-year lows, easing the pressure on beaten-down miners that were becoming the target of Asian firms.

"The original bid was very opportunistic. It was at a time of maximum negativity in iron ore pricing," said a mining analyst in Sydney who asked not to be named

"Now, every week that goes on currently sees iron ore at $115 - $120 a tonne, and I expect the company could come out with some relatively positive news around its manufacturing operations at the AGM in November, so it is in Arrium's interest to stall and not really engage at this point," the analyst said.

The first approach at the start of the month came after a fall in iron ore prices below $90 a tonne had sent valuations of especially the smaller, debt-laden iron ore firms tumbling, in Arrium's case to a record low of A$0.50 in September.

The company has built up A$2.4 billion in long-term debt as it spends to develop iron ore mines in South Australia, more than double its market capitalisation, and a low iron ore price would have made it difficult to repay the loans.

Arrium, formerly known as OneSteel Ltd, plans to raise iron ore capacity to 11 million tonnes a year by mid-2013 from 6 million tonnes now.

"The revised proposal is opportunistic. It comes as iron ore prices are rising and after we have shipped the first ore from our new mine two weeks ago," chairman Peter Smedley said in a statement while rejecting the offer, which was up 17 percent from an earlier approach.

The bulk of Arrium's sales comes from steel and mining consumables, with iron ore mining contributing just 11 percent of revenue in 2011/12, according to Thomson Reuters data.

POSCO has been looking to boost its access to iron ore and coal used to make steel, including taking a 12.5 percent stake in the $10 billion Roy Hill iron ore project in Australia and a 24.5 percent stake in the West Pilbara Iron Ore joint venture.

It last week announced it was cutting its annual investment target after posting a 25 percent drop in quarterly profit, tightening its belt in response to concerns about its appetite for acquisitions.

Arrium has retained UBS UBSN.VX as its financial adviser and Allens Linklaters as its legal adviser. The bidding consortium, which includes National Pension Service of Korea, Korea Investment Corp and Korea Finance Corp, was advised by Bank of America Merrill Lynch (BAC.N), sources have said.

($1 = 0.9644 Australian dollars)

(Reporting by Narayanan Somasundaram, Lincoln Feast and James Regan; Editing by)

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