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IGC Signs Definitive Agreement to Acquire a Chinese Iron Ore Processing Company <IGC.A>
BETHESDA, MD, Oct 18 (MARKET WIRE) --
India Globalization Capital, Inc. (NYSE Amex: IGC) a company competing in
the rapidly growing materials and infrastructure industry in India,
announced it has entered a definitive agreement to acquire an iron ore
processing company, Linxi H&F Economic and Trade Co. ("PRC Ironman"),
located in Chifeng, China.
Ram Mukunda, CEO of IGC, said, "PRC Ironman has audited revenues of
approximately $13.5 million and approximately $5.9 million in net after
tax earnings for FYE March 31, 2011 and a good liquid balance sheet. In
addition to an immediate impact on earnings, this acquisition will
greatly enhance our position in the materials business by creating a
rapidly growing, profitable iron ore business for IGC. PRC Ironman
refines low-grade ore to high-grade ore, which commands a higher price
and margin in the market. Our strategy is to both mine and ship low-grade
ore to the refining facilities and through a beneficiation process
convert the ore to high-grade ore. Over the next 24 months, we expect to
expand this business rapidly through organic growth. Additionally, there
are great values in this space which may provide additional opportunities
for bolt-on acquisitions. This is the first step towards creating a value
added, vertically integrated iron ore business that extends from India
into China."
PRC Ironman operates a beneficiation plant located on 2.2 square
kilometers of iron ore deposits. There are more than 3 million metric
tons of ore deposits in the immediate area where the PRC Ironman plant is
located. At current prices, the reserves are worth over $350 million.
Currently, the refinement process involves moving sand mixed with ore
through a process that uses magnetic separators to separate the ore from
the sand, which is then fed into a separator that uses a wet process. The
output of the beneficiation process is 65-67% iron ore, which currently
sells in the range of $140 per ton. PRC Ironman has an agreement with the
local Chinese authorities to operate this facility into August 2018.
At closing, which is subject to customary closing conditions including
completion of due diligence and approval of the IGC shareholders, IGC
will issue 31.5 million shares of IGC common stock for the purchase of
95% of the equity in PRC Ironman. In addition, the stock purchase
agreement (the "Agreement") provides for a contingent payment by IGC to
PRC Ironman's majority shareholder of $1 million payable within 30 days
of closing and upon satisfaction of certain post closing covenants. The
Agreement further provides for certain contingent payments by IGC to PRC
Ironman shareholders, as follows (i) $1.5 million in cash or stock, which
is contingent on IGC achieving an earnings growth of at least 30% from
the previous year's closing audit (i.e., March 31, 2011); and (ii) $1.5
million in cash or stock, which is contingent on IGC achieving an
earnings growth of at least 30% from the previous year's closing audit
(i.e., March 31, 2012). The Agreement adds that if either annual target
is missed there would still be a payout provided the company achieves an
earnings growth of 69% between FYE 2011 and FYE 2013. The acquisition is
expected to close in the current fiscal quarter.
Mr. Mukunda added, "As previously disclosed, we have a strategic
relationship with them and while working with them we both quickly saw
the immediate and long-term benefits of a combination of our two
companies. They have an experienced management team that will be highly
incentivized to manage and create a strong China operating company which
can complement and enhance our existing India operations."
The terms of the acquisition agreement stipulate that the board and
management of IGC will continue to form a majority of all boards
including all subsidiaries and be in a position to control all aspects of
corporate governance. Mr. Mukunda added, "This acquisition is highly
beneficial to us in the short-term based on their current revenues and
net earnings. Strategically it also immediately enhances the integration
of our India-China trading platform that we believe will ultimately
create significant additional long-term shareholder value."
About IGC:
Based in Bethesda, Maryland, India Globalization Capital
(IGC) is a materials and construction company operating in India. We
supply iron ore to China and rock aggregate to the infrastructure
industry in India. For more information about IGC, please visit IGC's Web
site at www.indiaglobalcap.com.
About Linxi H&F Economic and Trade Co ("PRC Ironman")
Linxi H&F Economic
and Trade Co. is based in the People's Republic of China (PRC) and is a
95% owned subsidiary of Hong Kong based Wholly Owned Foreign Enterprise
(WOFE) H&F Ironman Limited ("HK Ironman"). PRC Ironman operates a
beneficiation plant, which extracts high-grade iron ore from low-grade
iron ore. For more information about PRC Ironman, please visit the
company's Web site at www.hfironman.net
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