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Sandfire Resources share price crashes lower after announcing MOD Resources acquisition

takeover offer

The Sandfire Resources NL (ASX: SFR) share price has come under significant pressure today after announcing an agreement to acquire MOD Resources Ltd (ASX: MOD).

At the time of writing the copper-focused miner’s shares are down 10.5% to $6.33, whereas the MOD share price has rocketed over 30% higher to 40.5 cents.

What was announced?

This morning Sandfire announced the execution of Scheme of Arrangement under which it will acquire 100% of the issued and to be issued share capital of MOD.

Under the Scheme, each MOD shareholder will elect to receive either 0.0664 Sandfire shares for 1 MOD share or cash of $0.45 per share up to a maximum of $41.6 million, which represents 25% of the overall consideration.

This values MOD at approximately $167 million and implies a 45% premium to the closing price of $0.31 for its shares on June 24 2019.

MOD board recommends the offer.

The board of MOD has unanimously recommended that MOD shareholders vote in favour of the Scheme, in the absence of a superior proposal and subject to an independent expert opining that the Scheme is in the best interests of shareholders.

Directors of MOD have confirmed their intention to vote in favour of the Scheme, as has major shareholder Metal Tiger.

Why is Sandfire acquiring MOD?

Management explained that MOD owns a dominant landholding on the under-explored Kalahari copper belt in Botswana which includes the advanced T3 Project scheduled to commence construction in 2020 with first production expected in 2021.

This makes it a good fit for MOD as it is currently expanding its operations globally with an extensive exploration and development pipeline.

Sandfire’s managing director and CEO, Karl Simich, explained: “The acquisition of MOD adds the near-term T3 Project in Botswana to our global development pipeline while also adding a significant landholding on the highly prospective and underexplored Kalahari copper belt. The acquisition ticks all of our boxes from an acquisition criteria perspective and is value-accretive based on the T3 asset alone which, importantly can be funded out of cash flow.”

Based on the sharp share price decline this afternoon, it appears that some shareholders don’t agree with this view.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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