A short while ago, I wrote an article on Iron Ore Holdings (OTC:IRNHF) stating I thought the company to be undervalued at the share price of $0.78. Apparently, the management team of BC Iron (OTC:BIRNF) was thinking the same as it announced an offer to buy all shares of Iron Ore Holdings for 0.44 shares of BC Iron and $0.092 in cash. This was a 79% premium to the 60 day VWAP price of both companies, but as BCI took a nosedive after the release was disseminated, the current value of the offer is $1.31 per share.
This is not entirely unexpected as Iron Ore Holdings has several promising development projects (which would be viable at the current iron ore price) and I argued this could attract potential partners which could provide Iron Ore Holdings with a decent way to monetize the projects. As such, I'm not surprised IOH is being bought out.
This buyout offer obviously does change my original investment thesis, and as I estimated the fair value of IOH to be $1.14 based on the current iron ore price, I think BC Iron's offer with a current value of $1.31/share is reasonable, fair and should be accepted. I do believe the combination of both companies will result in a stronger entity (with cash flow from two projects and several more iron ore properties in the development pipeline). At this moment, IOH is trading at a discount of 5.5% to the offered price, and as this deal is destined to go ahead (the 53% shareholder has pledged its support), buying Iron Ore Holdings is a good way to buy BC Iron at a 5% discount right now.
Disclosure: The author is long IRNHF, BIRNF. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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