3rd UPDATE:Xstrata Says Sphere Value At Risk If Shareholders Turn Down Offer

The value of shares in Mauritania-focused iron ore developer Sphere Minerals Ltd. (SPH.AU) will be at risk if shareholders turn down Xstrata Plc's (XTA.LN) A$513.6 million offer for the miner, Xstrata Coal Chief Executive Peter Freyberg said Tuesday.

The revised A$3-a-share offer would be at risk if "complacency" from shareholders failed to take Xstrata above its 50.1% minimum acceptance level before the offer closes on Friday, he told Dow Jones Newswires.

"At the end of the day this is a full and final bid, it's a 94% premium to the pre-offer price, we take on the development risks and it becomes a risk-free cash event for shareholders," he said.

The takeover, Xstrata's first major foray into iron ore, had initially lackluster take-up since it was announced Aug. 24, with Chinese steelmakers led by Singapore-based commodities trader Sin-Tang Development making an alternative proposal for a capital raising and project finance for Sphere's Askaf magnetite project.

However, Freyberg said Xstrata now had around 30% of Sphere's shares under its control or in an institutional acceptance facility, which will be released conditional on Xstrata breaching 50.1% by Friday.

A person close to the deal said Sphere shareholders representing 37.5% of the company's outstanding share capital had accepted Xstrata's offer by the close of the Australian market on Tuesday, up from 19% at the opening of the Australian market earlier in the day.

The fight over the company has exemplified the struggle between the world's major diversified miners and Chinese steelmakers for control of the world's few remaining unencumbered iron ore assets. Iron ore is a crucial ingredient for steelmaking, a major driver of China's heavy-industry focused economy.

Sin-Tang last week offered a rival proposal to Sphere's shareholders which would see the trader's backers, including steel makers Hebei Xinquan Coking Co. Ltd., Tangshan Ganglu Iron & Steel Co. Ltd. and Tianjin Metallurgy Group Co. Ltd., provide debt financing and A$111 million in equity funding through an underwritten rights issue to develop the Askaf project.

That offer was rejected by Sphere's board, which has recommended Xstrata's offer since it was first proposed Aug. 24 at A$2.50 a share.

Freyberg said that Xstrata would settle for majority control of the company, rather than the full takeover initially proposed. "At 50% we will have control and we can get on and develop this in a responsible manner," he said.

But he warned shareholders against holding out for any further increase. "The offer is full and final and in terms of truth in takeovers it's the best deal on the table. What's been proposed by Sin-Tang is highly conditional."

In a statement later Tuesday, Sin-Tang said Sphere's assets are worth "substantially more" than A$3 a share and that Sphere has been independently valued at A$4.51 a share.

"Sin-Tang's proposed equity raising is not uncertain and in its view, the conditions of underwriting are no less favorable than conditions attached to Xstrata's offer," it said.

Sin-Tang said it remains committed to its proposal and that Sphere shareholders should reject Xstrata's offer.

-By David Fickling, Dow Jones Newswires; [phone]; [e-mail] (Alex MacDonald in London contributed to this story.)