-- adds IMIC chairman comment--
AIM-listed IMIC, which is much smaller than Afferro, first expressed an interest in making a bid late last year when the possibility of a takeover of the Cameroon-based iron ore group was first revealed.
Haresh Kanabar, IMIC's chairman, said it had carried out a substantial amount of due diligence on Afferro before launching its bid.
"Afferro has got a very good asset and very good resources, but it is stranded, so if we can bring in an infrastructure solution it would unlock significant value for our shareholders and the shareholders of Afferro who take IMIC paper," he told Proactive Investors.
"The real key in unlocking value in iron ore, which is not called a bulk commodity for nothing, is infrastructure."
He adds that the Chinese firms it has brought in to partner it on its plans for Afferro are looking at unlocking the potential of the whole of west and central Africa, and because they are Chinese firms they will get funding from China's development banks.
IMIC confirmed it had signed a new deal with China Railway Materials (NYSE:CRM) to organise the off-take of iron ore from Nkout.
A new deal has also been agreed with China Railways Eryuan Engineering, which will build the infrastructure from Nkout to port.
Afferro gave a guarded response to the indicated bid, saying the board could not make a recommendation until it gets a formal offer and receives confirmation that IMIC has the necessary finance in place.
The Afferro directors added they were also still seeing strong industry interest in the company and would continue to investigate other options as they arise.
Other parties suggested as potential suitors have included Korean steel group Posco, which signed a development deal memorandum with Afferro in February. Talks with India's Jindal Steel & Power, however, were terminated earlier this year.
Another point of interest is Affero's strong financial position with US$89mln of cash, worth 80p per share, on its balance sheet at the end of 2012.
Raising the finance is one of the pre-conditions for the IMIC offer and it has promised to provide a written undertaking within 15 business days to the effect that a minimum of US$100mln cash is available.
Afferro shareholders will have three options under IMIC's proposal: 80p in cash plus a convertible loan note of 20p, making a total of 100p for each Afferro share; or 50p in cash plus a convertible loan note of 70p, making a total of 120p for each Afferro share; or shares in IMIC equivalent to a valuation of 140p for each Afferro share.
The cash portion of the offer will not rise above US$100mln in total. At 140p, the offer values Afferro at £147mln and it is worth £105mln at 100p.
Luis da Silva, Afferro's chief executive, said the approach was an endorsement of the progress it has made at its portfolio of iron ore projects in Cameroon, especially the Nkout flagship.
"Metallurgical test work at Nkout has shown that a premium quality concentrate can be produced at a lower cost of production than initially anticipated.
"The update on the IMIC discussions is a development that should be viewed positively especially in respect of the Chinese consortium that IMIC has assembled to address the iron ore infrastructure requirements of the Nkout project," he said.
Afferro's portfolio includes the 100% owned Nkout, Ntem and Akonolinga iron ore projects. It also holds a 70% interest in the Ngoa project, an exploration target bordering Nkout.
Kanabah said it was the long term potential at Afferro that encouraged it to keep the price in the 100-140p range originally suggested in December, even though metal markets have been in turmoil since then.
"It's a fair and reasonable offer," he said, again emphasising the infrastructure angle. "We have a slightly different perspective from other junior miners".
Share in Afferro rose by 18% to 75p.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.