Aquila's share surge points to higher offer

Takeover target Aquila Resources’ shares have jumped above China’s bid price for the resources company, fuelling speculation the bid will be lifted.

State-owned Baosteel, in partnership with Australia’s Aurizon, launched a $3.40-a-share offer for Aquila on Monday in a $1.4 billion bid to secure the 80 per cent of the company it does not already own.

The stock jumped on the news on Monday and has continued to track higher, reaching as high as $3.43 yesterday before closing at $3.41.

Some analysts have described the “opportunistic” bid as “low-ball” and say a higher offer is needed to get founder and executive chairman Tony Poli — who has about 30 per cent of the stock — across the line.

Credit Suisse analyst Paul McTaggart said the fact the bidders went directly to shareholders on Monday suggested there was a significant gap between Mr Poli’s price expectations and the offer price.

Baosteel has nominated Aquila’s West Pilbara iron ore project and its Eagle Downs coking coal mine in Queensland as assets it is keen to develop.

Fortescue Metals chief executive Nev Power said the Chinese steel giant’s takeover attempt was a vote of confidence that Chinese demand for Australian iron ore would remain strong for years to come.

“To think Baosteel’s most valuable investment that they can make is an investment back upstream into iron ore is very telling for where they see the demand for iron ore to be,” Mr Power said.

He said there had been concern for some time about the level of Chinese investment.

“A few projects haven’t worked out the way they intended them to,” he said.

“There has been a lack of investment over quite a period. This shows the change to this policy, and I think it is very positive.”

Mr Power said almost every commodity was highly geared towards the Chinese economy.