Zinc miner and producer, Zinifex, is getting to be an interesting situation.
So much so that broker chat is focusing in on the company’s “cheapness” for want of a better word.
The focus comes as some metal traders and analysts debate whether the world zinc market will be in big surplus, smaller surplus break-even, or even slight deficit over the rest of 2007.
That debate and especially worries about supply levels seems to have kept ZFX shares around present levels of $15 to $16. The shares closed at $15.45 yesterday, up 9c.
The focus will intensify after the news yesterday that the joint venture to merge all its zinc processing assets around the world with those of Umicore of Belgium, has now progressed to the firm agreement stage with break fee attached.
And the more interesting news is that CEO Greig Gailey will be departing the company.
He has been credited with much of the success at Zinifex, which rose from the ashes of collapsed miner Pasminco to post a $1.1 billion net profit in the 2006 financial year, helped by record zinc prices.
Most brokers regard the merger of the processing facilities, the world’s largest, as merely the precursor to a float probably in the first or second quarters of 2008.
That is where the ZFX share price will probably get really examined if estimates of a multi-billion dollar IPO on major world markets happens.
Brokers already point out that ZFX has $800 million in cash, has made an interesting acquisition in Canada, a dividend yield of 10 per cent based on estimates of 2008 earnings (with a zinc metal surplus depressing the share price) and the proceeds of its share from the float to come.
Estimates vary on the value to Zinfex of its half share and equalising payment but some Australian brokers suggest privately it could be $2 billion. It is all very back of the envelope estimates but the merger is a big deal and an interesting way of shuffling and worries about lead and zinc contamination at Port Pirie in South Australia, off the ZFX balance sheet.
ZFX chairman, Peter Mansell, announced the departure of Gailey.
“With the decision to combine Zinifex’s smelting assets with those of Umicore to create Nyrstar Limited, the world’s largest zinc smelting company, Greig Gailey will step down as Chief Executive Officer of Zinifex at a date to be agreed later in 2007.
Mr. Mansell said “Greig has done an outstanding job in leading Zinifex and his perseverance and foresight played a key role in the creation of the company.
“Greig leaves Zinifex well placed for the next stage of its journey, with a strong balance sheet, an imminent infusion of cash from the planned Nyrstar IPO and a rapidly expanding pipeline of exploration and development opportunities on which to build. Greig should feel very proud of what he has achieved.”
Mr. Gailey was quoted as saying “It has been my pleasure and privilege to have worked with a supportive Board and a talented team who have made Zinifex the successful company that it is today. With the establishment of Nyrstar, Zinifex will reach another milestone in its evolution and is poised to commence the next phase in its transformation into a major global mining house”.
A separate statement revealed that ZFX and Umicore had moved to sign a “binding Business Combination and Shareholders’ Agreement (BCSA)” to merge the respective zinc smelting and alloying businesses.
“The combined business will be called Nyrstar and will be the world’s pre-eminent zinc metal producer with operations on four continents, producing some 1.2 million tonnes of zinc and zinc alloys per year and employing some 4,500 people.
“It is anticipated that Nyrstar would come into existence during September 2007, subject to Zinifex shareholder approval, which will be sought in July, and the satisfaction of certain other conditions precedent. It is the intention to undertake an initial public offering of shares in the new enterprise at an appropriate time thereafter.
“Zinifex and Umicore shares in Nyrstar will be approximately 60% and 40% respectively, reflecting the relative value of the contributed assets.
“Final shares will still be subject to adjustment at the formation of Nyrstar but it is not expected that there would be any significant difference from the percentages advised above.
“Until such time as the IPO occurs, however, the initial joint venture will be structured on an equal ownership basis with an appropriate equalisation payment being made to Zinifex from debt raised by the joint venture company.
“Due to Thai regulations with regard to foreign ownership, Umicore has elected to limit the contribution to Nyrstar of its stake in Padaeng Industry to 24.9%. The parties will seek to transfer Umicore’s remaining interest of 22% in Padaeng Industry to Nyrstar prior to its formation, in line with the regulatory processes in Thailand.
“It is the intention of Umicore and Zinifex that Nyrstar would operate as an independent entity from its inception with its own Board of Directors and Executive Committee. The jointly owned company would be incorporated in Belgium and have its head office in London.
“The chairman elect for Nyrstar is Julien De Wilde, former CEO of Bekaert. Also joining the Nyrstar board as directors elect are Peter Mansell (Chairman of Zinifex) and Karel Vinck (Chairman of Umicore). Further board members will be designated in due course.”
