Small Canadian miners just can't wait to get big
(In U.S. dollars unless noted)
By Rachelle Younglai
TORONTO, Dec 7 (Reuters) - Multibillion-dollar takeovers have left a gaping hole in Canada's once-proud base-metals mining sector, leaving in Canadian hands two giant players and a whole load of small companies that are just aching to get bigger.
The smaller firms are jockeying for position in an increasingly frenzied takeover market. The deals are minuscule compared with those that saw Canadian heavyweights Inco and Falconbridge gobbled up by rivals in Switzerland and Brazil, but they are still piquing investor interest.
"You have very large companies and a handful of companies in the market (capitalization) of $1 to $2 billion," said Lukas Lundin, who is the chairman of nine resource companies that his father founded. The bulk are listed in Canada.
"There is a lack of mid-sized base metal producers in the range of $6 to $8 billion."
Lundin is already steering his companies to buy or merge with others before prices become too expensive.
So far this year, the group's Lundin Mining Corp. , with a current market capitalization of around C$4 billion ($3.48 billion), merged with Eurozinc to create a mid-tier copper and zinc producer. It has also bought a 49 percent stake in the Ozernoe zinc and lead project in Russia and acquired a 10 percent stake in metal explorer Mantle Resources Inc.
"There is a hidden desire in all of us to be a bigger company, but not bigger for the sake of being bigger," said Colin Benner, Lundin Mining's chief executive.
Under Lundin's leadership, uranium producer Denison Mines Inc. was taken over by International Uranium Corp. The new company, renamed Denison Mines, now has a market capitalization of around C$1.9 billion.
No sooner had the deal closed this week than Denison proceeded to make a cash offer for Australian-based uranium explorer OmegaCorp.
"The Lundins feel that we are in a very, very strong commodity cycle, and this is an opportunity to grow through M&A activity," said Ron Hochstein, Denison Mines' president and chief operating officer.
The lack of large and mid-tier miners means many fund managers have not been able to reinvest money back into the Canadian resource sector because the market capitalization of the remaining companies is too small.
Canada is down to just two base-metal companies with large market capitalizations. The world's second-largest zinc producer, Teck Cominco Ltd. , is at about C$19 billion and aluminum producer Alcan Inc. is at about C$21 billion.
Moving down the scale, there is nothing until you reach the companies such as Lundin Mining and Aur Resources Inc. , with a market cap of about C$2.5 billion, and Inmet Mining Corp. at C$3 billion.
"Some of the companies already recognize, if you can create an $8 to $10 billion company through M&A, then you are literally going to be the only company in your space, and there will be lots of investor interest," said Kerry Smith, an analyst at Haywood Securities.
This year, two former stalwarts of Canadian base-metal investments have disappeared. Nickel giant Inco Ltd. is now controlled by Brazilian iron ore producer Companhia Vale do Rio Doce , and Falconbridge has been acquired by Swiss-based Xstrata Plc .
"I think there will be more consolidation, because there are synergies on a cost basis and on a marketing basis. And it's not just bigger is better, but mining companies always have to show growth," Benner said.
"We are looking at at other opportunities. Everyone in our business is looking at other opportunities. We are all peeking around the corner."
Not only are companies checking each other out, but so are investors looking to make money on the next merger play.
The Toronto Stock Exchange's materials index <.GSPTTMT>, which comprises base metals companies, is up 40 percent so far this year. More merger deals would spark another surge.
($1=$1.15 Canadian)
((Reporting by Rachelle Younglai, editing by Peter Galloway; rachelle.younglai@reuters.com; Reuters Messaging: rachelle.younglai.reuters.com@reuters.net; (416) 941-8101)) |
