Patience pays off for Flinders faithful

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You could almost hear long-term shareholders in Flinders Mines (ASX code: FMS) breathe a collective sigh of relief last week.

Russian steelmaker Magnitogorsk Iron & Steel Works (MMK) had announced a friendly 30c a share takeover bid for one of the last remaining independent iron ore explorers in the Pilbara with a meaningful deposit.

Following three years of consolidation in the iron ore sector, which has seen stocks such as Giralia (GIR), FerrAus (FRS) and United Minerals (UMC) disappear from our screens, Flinders finally received the takeover offer it was searching for.

Flinders has had an interesting history in itself, starting out as a South Australian-based diamond explorer under the guidance of Dr Kevin Wills.

In 2005 when diamonds were still seen as the future of the company, Flinders swapped the iron ore mining rights over about 300 square kilometres of tenements in the Pilbara with the fledgling Fortescue Metals Group for the exclusive diamond rights for more than 1500 square kilometres of land.

By 2008, Flinders had realised its mistake, changed its name from Flinders Diamonds to Flinders Mines and went about pursuing iron ore exploration on their remaining tenements, which happened to be adjacent to FMG's Solomon hub.

The bidder in this situation - MMK - is no stranger to either Australia or controversy.

In March 2009, MMK had a 5.4 per cent stake in Flinders' next door neighbour, Fortescue Metals, which has since been diluted to less than 5 per cent.

This stake is not enough to have any sway with the board of FMG but is enough to spark the interest of conspiracy theorists as to potential deals down the track between MMK and FMG regarding the Flinders iron ore deposits.

But the story doesn't stop there. According to a court order released by Flinders, on the November 25 the Federal Court of Australia froze $857 million worth of MMK's Australian assets (presumably this includes the stake in FMG) as part of a case brought by the marketing division of ENRC, a diversified miner listed on the London Stock Exchange.

If reports are to be believed, ENRC and MMK are in dispute over a shortfall in the steelmaker's buying of ENRC's iron concentrates and pellets, although the court papers do not suggest a link between the asset freeze and that dispute.

The 30c/share cash offer for FMS values the company at $554 million and represents an 82 per cent premium on the price FMS was trading at on November 22, pre-announcement.

The offer is an all-time high for the stock, which had previously reached 25.5c a share in June 2008 during its initial drilling campaign.

For those patient investors who have followed the Flinders story the whole way through, it seems like a fitting note to end on.


If you would like to subscribe to Cameron Bartram's weekly market update, contact him at Sentinel Stockbroking on 9225 0028 or email <a rel="nofollow"> </a>

Information contained in this article does not consider your personal circumstances. You should consult a stockbroking professional before making any investment decisions. Sentinel may hold positions in stocks discussed from time to time.

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