Mining services buoyed by Ammtec bid

CAMPBELL Brothers’ $123 million takeover bid for Perth-based metallurgical testing specialist Ammtec has underlined signs that the mining services sector is gearing up to cash in on the resurgence of Australia’s resources industry.

The four-month-old bid turned decidedly more hostile this week, when the Brisbane-based testing giant queried Ammtec’s decision to lift its final dividend by 10 per cent to 11 cents a share, given earnings per share actually declined 25 per cent in 2009-10 due to dilution related to capital raisings last year.

But Ammtec said that view ignored the fact it had posted a record headline net profit of $7.2 million for the year, and that it expected profits to rise at least 54 per cent this year as the minerals sector once more hits full speed.

Cambell Bros’ response was therefore of “very little surprise ... especially given the lack of momentum for the takeover offer”.

To date, Campbell Bros has received acceptances for 10 per cent, while Ammtec shareholders holding 20.7 per cent have signed statements they do not intend to accept the bid in its current form.

Campbell Bros is offering $3.35 cash per Ammtec share, or 2 of its shares for every 17 in Ammtec. At prices this week, the scrip bid valued Ammtec at $3.66 per share, compared to Ammtec’s trading range around $3.50. The offer was this week extended by a month to September 22.

Campbell Bros announced its bid for Ammtec in May, roughly 18 months after walking away from takeover talks as the global downturn took hold and the outlook for mineral services companies nosedived.

The aborted 2008 talks between Ammtec and Campbell Bros heralded the end of a heady period of consolidation in the sector during which a swag of privately owned assaying groups changed hands at premium prices.

Private companies like Ultra-Trace, Genalysis and Kalassay were all sold with multi-million dollar price tags to international buyers during the boom.

But the intervening period marked a hiatus in such activity and there was a string of profit downgrades from remaining players in the sector, including Ammtec, as mining clients deferred projects and desperately sought to cut their costs.

But according to acting Ammtec chief executive Ron Grogan, the company’s stellar rebound in the past six months is clear evidence that the tide has turned and that Campbell Bros’ bid is grossly inadequate.

“We’ve got terrific growth forecasts in the pipeline, and they’re just trying to be opportunistic and get us on the cheap,” Mr Grogan said.

“The market had that little bit of a breather because of the GFC, but we’re seeing the sentiment from our clients in the mining services industry being very strong.

“During the GFC everyone stopped spending … (but) they are now showing tremendous growth, and we expect to see that full growth in 2011 and 2012.”

He said Cambell Bros wanted Ammtec because it would provide optimum exposure to improvement in the resources sector.

“We’re a company that tends to be the first into an upturn and normally the last to leave it,” Mr Grogan said.

Despite Ammtec’s bullish outlook, Campbell Bros managing director Greg Kilmister argued it had consistently failed to match his company’s shareholder returns over the last decade.

Ammtec investors would also benefit from holding shares in a much larger, more diversified business with greater share liquidity.

He also noted Ammtec’s string of profit downgrades last year and failure to outperform its peers during the last boom.

Campbell Bros would “need a bit of convincing” that Ammtec was worth more than the current bid, he said.

The Ammtec bid is not the only example of corporate activity in the sector, with listed Perth sampling technology group XRF Scientific last month paying $7 million for unlisted fusion flux manufacturer Sigma Group.