Shares in zinc and lead miner Zinifex bounced nicely in yesterday’s big sell off after it and Oxiana revealed plans to marry.
ZFX shares rose nearly 10% or just over a $1 to close at $12.15 as investors greeted the long mooted link-up positively.
For Oxiana shareholders it was a different story as they bailed out of the stock. OXR shares eased 7c to $3.90 as investors realised the friendly nature of the deal: a $55 million break fee and the current volatile nature of markets, meant any over bidders would be few in number. More than 37 million OXR shares were traded and they would have been dominated by selling speculators.
The most likely rivals would be Vale of Brazil and Xstrata of Europe, but both are deep in possible merger talks: the big Anglo American group of South Africa is grappling with the impact of mining problems, power shortages and safety issues in its heartland operations, while a couple of other players from Canada and the US would be constrained by the credit crunch from raising the $6 billion cash plus for any bid.
Back home and BHP Billiton and Rio Tinto are both out of the game for competition reasons and of course the BHP 3.4 for one share offer is going nowhere fast.
The link up has been mooted for months and it has in its favour the fact that it is complementary. The group’s future growth will be from the new projects of Oxiana in Australia and Laos, a new mineral in the $845 million cash bid ZFX has made for Allegiance Nickel, and it’s an all share merger of equals.
The merge values Zinifex at $6.2 billion and it will create a company with a market cap of around $12 billion, making it our third biggest diversified miner behind the big two.
The doubling in size will mean the new company gets more attention from major global investors who buy shares on an international comparison, because it will move up the rankings in the various Australian and Asian and World Share indices, which should mean the merged group’s shares are chased harder by these big investors.
Oxiana is predominantly a copper and gold miner in Australia and Laos. Zinifex is a major world scale miner of zinc, with silver and lead and some heavy metals into the bargain. It has interests in Canada, a new mine emerging in Queensland near its Century mine, and last week won Allegiance Mining with a higher offer of $1.10 a share.
Oxiana is offering 3.1931 shares for every Zinifex share, valuing the zinc and lead miner at $6.2 billion.
Oxiana managing director Owen Hegarty, who will run the integration but cede power to Zinifex CEO, Andrew Michelmore (who used to run WMC Resources until it was taken over by BHP Billiton) said the combination would create a "base and precious metals powerhouse" with a "terrific financial position of great strength".
The combined entity, yet to be named, would be the world’s second largest zinc producer and have a significant position in copper, lead, gold and silver.
The group would have four operations in Australia and Asia, three near-term projects in development, and combined cash on hand of $2.47 billion as at December 31. The combined company will have an earnings before interest tax, depreciation and amortisation of around $1.9 billion, based on 2007 figures.
Some investors reckon Zinifex shareholders are being stiffed, but the market clearly saw it differently yesterday.
The two companies touted the combined size of the new company as a key reason justifying the link up and the price.
Zinifex’s Andrew Michelmore said the merged entity would have the size and financial clout to grow through "larger" acquisitions or accelerated project development.
"You cannot underestimate what putting the two companies together does," Mr Michelmore said on a conference call.
"We can actually now start looking at maybe some of the larger ones (acquisitions) offshore that before we weren’t able to look at because they would be too much of a bite and probably a stretch to our risk profile."
The merger will create a group with a combined enterprise value of about $12 billion and fill the gaps left by the takeovers of MIM Holdings and WMC Resources, in 2003 and 2005, respectively.
Oxiana operates the Sepon copper-gold mine in Laos, Golden Grove zinc-copper-gold mine in Western Australia and is developing the Prominent Hill copper-gold mine in South Australia where it is already working on plans for an expansion, even before the first operation is completed.
Zinifex operates the Century zinc mine in Queensland, the Rosebay zinc mine in Tasmania and is moving towards a decision on the Dual River mine in Queensland which would help extend the life of the company’s lead and zinc business.
Mr Michelmore only started in the top job at Zinifex on February 1. After he finishes the integration, Mr Hegarty will become a director of the combined group, which will be chaired by Oxiana chairman, Barry Cossack. Both Mr Hegarty and Mr Cossack are former senior Rio Tinto executives.
Board approval because between 40% to 50% of Zinifex’s issued capital is held by foreigners, mostly in portfolio holdings, although the likes of big world scale miners like Xstrata would be among those.
Mr Michelmore said the merger would have no effect on Zinifex’s $852 million takeover of nickel hopeful Allegiance Mining.
The merger will be done by a scheme of arrangement with meetings of Zinifex shareholders to be held later in the year. OXR shareholders will also meet
Under the deal, Zinifex shareholders will receive 3.1931 Oxiana shares for each Zinifex share.
The merged entity will be owned 50% by Oxiana but around last July, Oxiana would have had a smaller stake because world zinc prices were much higher and ZFX’s share price was above $20 which would have given its shareholders a much greater share of the
