UPDATE: Exxaro Offers Up To A$338 Million For Australia's African Iron

South African diversified mining company Exxaro Resources Ltd. (EXX.JO) said Wednesday it would pay up to A$338 million (US$348 million) in cash for African Iron Ltd. (AKI.AU), an Australian-listed company developing an iron-ore mine in the Republic of Congo.

Exxaro said it would offer 51 Australian cents for each African Iron share--increasing to 57 cents if it secures a holding of at least 75%. The bid values African Iron at A$302 million at the lower price and A$338 million at the higher end.

The Pretoria-based company has plans to develop a significant iron-ore asset in west Africa, which is emerging as a potential challenger to key export regions for the steelmaking commodity in Australia and Brazil. Last year, Exxaro failed in a bid to acquire Australian iron-ore concern Territory when it was out-bid by Hong Kong-based Noble Group.

The companies said in a joint statement that the offer has support from Perth-based African Iron's board and its largest shareholder, Cape Lambert Resources Ltd. (CFE.AU), which has agreed to sell an almost 20% stake. Exxaro has already secured approval for the deal from regulators in Australia and South Africa, they said.

"We have invested a significant amount of time and resources in due diligence on this acquisition, including several site visits and meetings with senior members of the Republic of Congo government," said Sipho Nkosi, chief executive of Exxaro.

Nkosi said the company would leverage its bulk commodity and iron-ore experience to develop the Mayoko project, which African Iron has previously said will begin production next year with annual output of five million metric tons over at least the next decade.

Exxaro is one of the world's largest producers of mineral sands and operates a number of coal mines in South Africa that supply state power company Eskom Holdings Ltd. It also retained a 20% stake in South Africa's massive Sishen iron-ore operation when it was created in 2006 with the break up of Kumba Resources into Exxaro and Anglo American PLC-controlled (AAL.LN) Kumba Iron Ore Ltd. (KIO.AU).

"The price offered by Exxaro for the African Iron shares represents a significant premium to the current trading levels of African Iron and, as such, is an opportunity for Cape Lambert and its shareholders to generate a considerable return," said Tony Sage, chairman of Cape Lambert, which had built up a 25.25% stake in the company.

Cape Lambert a year ago sold the business that controlled the Mayoko project to Sterling Minerals, later renamed African Iron, for 120 million shares, A$47 million in cash and a royalty of A$1-a-ton on future ore shipped from the project.

Exxaro's offer, which is subject to a minimum 50% acceptance, will be funded from cash reserves and existing debt facilities, it said. The offer is set to close Feb. 14.

Exxaro is being advised by Investec Bank and Gilbert & Tobin, and African Iron's legal adviser is Freehills.

-By Robb M. Stewart, Dow Jones Newswires; [phone]; [e-mail]