The completion of a deal to acquire Australian miner Flinders Mines by Russia’s Magnitogorsk Iron and Steel Works, or MMK, is not expected to take place as previously scheduled in April, after being delayed following a lawsuit by a minority shareholder of MMK. Analysts believe that the transaction will be postponed for several months or may even fail due to the unexpected delay.

“The proceedings will most likely delay a completion of the deal by several months. However, an amicable agreement is expected. The results will be probably seen sometime closer to the middle of the year,” Metropol analyst Sergei Filchenkov said.

At the same time, Dmitry Smolin, an analyst at UralSib, did not rule out that the deal may collapse as a result of the delay. “MMK won’t be able to close the deal until the end of the proceedings, which could take several months. As a result, the deal may completely collapse as a result. If MMK decides to cancel the deal, Flinders would be responsible or paying 2.75 million Australian dollars to MMK. If Flinders initiates a withdrawal, the company would be responsible for paying a penalty amounting to 5.5 million Australian dollars to MMK,” he said.

Pavel Yemelyantsev, an analyst at independent analyst agency Investcafe, believes the possibility that the deal will fully collapse is very low.

“MMK may hold a shareholders meeting at any time to discuss the purposefulness of the acquisition, as board chairman Viktor Rashnikov controls 87% in MMK. In this case, the shares of all minority shareholders, who oppose the deal, may be purchased,” he said.

One of the sources, familiar with the situation, told PRIME that the minority shareholder could act in favor of Kazakhstan’s Eurasian Natural Resources Corporation (ENRC, the major supplier of iron ore to MMK), which openly opposed MMK last year. Some Chinese companies may also be against the deal, because MMK did not act in good after the Chinese companies stated their intention to acquire Flinders Mines.

MMK and ENRC signed a 10-year agreement on iron ore supplies in 2007. In the second half of 2011 iron ore prices slumped, making it cheaper for MMK to buy raw materials from other suppliers, including Russian metals holding Metalloinvest and steelmaker NLMK.

MMK had offered ENRC to revise the contract in order to reflect the new market conditions, but ENRC declined and proceeded to file a lawsuit. ENRC later withdrew its case, saying the companies had reached an amicable agreement. ENRC has agreed to supply iron ore to MMK at a 15% discount from February. In 2012, ENRC is expected to supply at least 8 million tonnes of iron ore to MMK.

In early April, a regional arbitration court in the Chelyabinsk Region ­­- site of MMK’s headquarters - prohibited the acquisition of Flinders Mines following a suit from a minority shareholder.

The shareholder, Yelena Yegorova, argued the deal discriminates against her interests as a shareholder since it would allegedly lead to financial and operational risks for MMK, and thus affect the plaintiff’s investments in MMK shares.

MMK said that it had notified Flinders Mines of the court order, and that the companies are in the process of assessing the potential consequences

The company also said that it had acted in accordance with the law regarding the acquisition of Flinders Mines, adding that the plaintiff’s actions were unjustified.

In the week ending April 13, MMK filed an appeal to the Arbitration Court of the Chelyabinsk Region for the second time, after the court had denied the company’s motion seeking to lift an injunction that bans MMK from closing the deal.

Following the deal’s suspension, MMK also opted to postpone taking out a loan worth about U.S. $600 million from Gazprombank to finance the acquisition.

Preliminary hearings of the minority holder’s lawsuit against MMK are scheduled for April 25.

MMK offered Flinders Mines’ shareholders to fully acquire 100% of the company at 0.30 Australian dollars per share, or 554 million Australian dollars in November 2011.

Shareholders of Flinders Mines approved the acquisition on March 30.

Flinders Mines focuses on iron ore mining, with the company’s flagship asset being the Pilbara iron ore project in Western Australia.

http://www.1prime.biz/news/_FOCUS_Russias_MMK_deal_to_acquire_Flinders_Mines_may_fail_on_minor_suit/0/%7B6C1BADB0-546A-4747-B753-83A07C8A7A3C%7D.uif