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Roll out the hoses

Exxaro is fighting fires like that red-helmeted fireman besieged by pyromaniacs. Problem is the fire bugs are coming from different angles: a threatened strike due to start earlier last week and a competing offer for an Australian iron ore producer. At the time of writing there seemed no resolution to either of these issues, though Exxaro Resources [JSE:EXX] did manage to obtain a temporary interdict against the strike. That’s following a strike notice sent to members by the National Union of Mineworkers.

Behind the company and union rhetoric it comes down to one thing: the possible loss of around 250 jobs as Exxaro restructures to cut costs. Retrenchments are a sad fact of today’s economic climate, but the NUM is a heavyweight that won’t pull its punches.

The competing acquisition relates to Australian iron ore producer Territory Resources. Exxaro put in an offer for A$123m. While it was seeking legal advice to put out the strike fire the Noble Group, which already has a 30% interest in Territory Resources, bettered Exxaro’s offer by around 9%. So what is Exxaro doing? It’s told Territory Resources shareholders not to do anything while it reviews its position about the possible acquisition. It has until 21 July, when the Noble offer remains open. But that time scale could be extended.

Back at home, Exxaro is well placed in currently hot commodities such as coal, mineral sands, base metals and iron ore. Areas of operation span SA, Namibia, Australia and China. That also seems pretty impressive and quite cheap on a forward earnings multiple of around 6,7 times and dividend yield of 3,1%.

But back in the real investment world the share price seems to just have run too hard, up 39% over the past year. Much of that could be justified and no doubt pleases main shareholders Anglo American and the Public Investment Corporation. But we think it’s overdone. Directors have been buying shares throughout May, which is probably a good sign. One consensus forecast is the share is a buy. But we think it’s a sell until its price corrects.
 
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