Big Zinc Deal
Oxiana Agrees to Buy Zinifex for A$6.2 Billion (Update3)
By Rebecca Keenan
March 3 (Bloomberg) -- Oxiana Ltd. agreed to buy Zinifex Ltd. for A$6.2 billion ($5.8 billion) to form the world's second- largest producer of zinc, used to galvanize steel.
Oxiana offered 3.1931 of its shares for each Zinifex stock, the two Melbourne-based companies said in a statement today. That's a 14 percent premium to Zinifex's closing price on Feb. 29.
Buying Zinifex will more than double Oxiana's sales and give the copper and gold mining company zinc, lead and silver projects in Australia and Canada. Zinifex, whose Chief Executive Officer Andrew Michelmore, 55, who will helm the combination, has A$2.2 billion of cash to fund new projects and acquisitions.
``The diversification gives them a more robust outlook,'' Tim Schroeder, who helps manage A$1.9 billion at Pengana Capital, and holds both stocks, said by phone from Melbourne. ``It's quite opportunistic. A company trading at a premium that's quite expensive, taking out a company that isn't.''
Oxiana, which is trading at 19 times estimated earnings, fell 4 cents, or 1 percent, to A$3.93 on the Australian Stock Exchange at 11:46 a.m. Sydney time. Zinifex, which trades at 11 times earnings, rose A$1.15, or 10 percent, to A$12.28, below the A$12.68 Oxiana offer price.
Mining Takeovers
Commodities are in their seventh year of gains because of demand from China, driving acquisitions in the mining industry. Rio Tinto Group rejected a sweetened $149 billion takeover offer from BHP Billiton Ltd. on Feb. 6, saying the proposed acquisition, which would be the industry's biggest, ``significantly'' undervalues the company.
The combined company Oxiana and Zinifex, which is yet to be named, would have had A$2.8 billion in revenue and net profit of A$918 million in 2007, the companies said in a presentation to the exchange. The combined company will have A$2.5 billion in cash, with Zinifex contributing A$2.2 billion after selling its stake in smelting unit Nyrstar NV.
``They have a good cash flow and a strong balance sheet,'' Tim Barker, who helps manage and advise on more than $54 billion of assets, said by phone from Sydney. He said the transaction slightly favors Zinifex holders. ``That puts them in a good position that they can buy assets.''
Zinifex is spending A$852 million to buy Australian nickel mining company Allegiance Mining NL. Allegiance owns the Avebury nickel mine in Tasmania which has a $3.7 billion supply agreement with China's Jinchuan Group Ltd.
Laos, Australia
Oxiana owns the Sepon gold and copper mine in Laos, the Golden Grove zinc, copper and gold mine in Western Australia state and is spending A$1.1 billion developing its Prominent Hill copper and gold project in South Australia state.
``The two companies have largely complementary asset portfolios and development pipelines,'' Michelmore said in the joint statement. ``The merged entity will be very well positioned to benefit from the strength of demand for commodities we see stretching out for many years.''
Oxiana Chairman Barry Cusack will retain his position with the combined company, of which Oxiana and Zinifex shareholders will own 50 percent each. Oxiana's Chief Executive Officer Owen Hegarty, who made his company the fastest-growing of Australia's 10-largest mining companies, will become a director.
Zinc Prices
Adding Zinifex would give Oxiana control of two operating zinc mines, Century in Queensland and Rosebery in Tasmania. Zinifex is also studying development of its Dugald River zinc and lead project. The mine will boost the company's output of zinc concentrate by about a third from 2011, Zinifex said Nov. 13.
Zinc prices, which have tripled from five years ago, have dropped 21 percent in the past year. Zinc in London has risen 19 percent this year after power shortages in China reduced output in the world's largest producer.
Prices may have ``bottomed'' and there was ``considerable upside'' to futures' prices as delays were expected for the start- up of new mines, Michelmore said last week. Deutsche Bank AG last week cut its forecast 2008 market surplus for zinc by 85 percent on expected production losses in China.
Oxiana is being advised by Morgan Stanley and Gryphon Partners and Zinifex is being advised by UBS AG and Lazard Carnegie Wylie.
To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net |
