African Aura considers split

Friday July, 23, 2010

There are plans to split Aim- and TSX- listed African Mining’s African iron-ore and gold assets into two separate companies, CEO Luis da Silva has indicated.

Speaking at a Toronto investment seminar hosted by Proactive Investors, he said the company would do “whatever is in the interests of shareholders”.

According to him, there has been suggestion that pure-play iron-ore or gold companies would be valued better by the market than the combined firm as it stands.

African Aura mining came to being after a merger of Mano River Resources and African Aura Resources late last year. The firm owns 38,5% of the Putu iron-ore project in Liberia, which is moving through prefeasibility level, and is currently funded and managed by partner Severstal.

It also has a 100%-owned iron-ore project, Nkout, in Cameroon, for which it may seek a partner after the first resource estimate is completed later this year.

On the gold side, the company has a number of projects in western Liberia, including the New Liberty greenstone deposit, which is currently being advanced through a bankable feasibility study. It also has the Batouri gold project, in Cameroon, as well as a handful of exploration projects in both countries.

Da Silva believes the most efficient way to achieve the restructuring would likely be through a 'butterfly' split, in which existing shareholders would receive the same, proportional interest in the two new firms.

London-based Ocean Equities mining analyst Simon Gardner-Bond said in an interview that a spilt along commodity lines would “probably be a good idea”.

Especially taking the fact that most of the value seems to be ascribed to the iron-ore assets now, with the company’s gold properties getting little or no recognition, he said.

Adding that though the argument could be made that the combination of safe-haven gold and an industrial commodity like iron-ore provides a hedge for investors, he don't actually believe that to be a valid argument.

“I don't believe a junior development company should be offering a hedge against the macroeconomic state of the world.” He said.

Shares in African Aura, which also owns 30% of Aim-listed Stellar Diamonds, were up 0,6% on Thursday, at 83p by 15:01 in London.

The company has a market capitalisation of £58-million.