Oz miner launches $5.6b offer for Zinifex

Australian miner Oxiana Ltd launched an agreed A$6 billion ($5.6 billion) takeover offer for Zinifex Ltd yesterday, as they look to diversify to benefit from booming global minerals demand.

A tie-up of the two miners would create a diversified miner with a market value of A$11.5 billion and operations in Australia and Asia. Together they would rank as the world's No 2 zinc miner and with sizeable production of copper, lead, gold and silver.

Shares in Zinifex, which is already the second biggest zinc producer, rose as much as 11.3 percent to A$12.39, but traded below the offer, suggesting that traders were not expecting a rival bidder or a higher offer.

"I would have thought that Oxiana would be more the one people looked at as a target. So in some ways, it's a bit of a protection for Oxiana from being taken over itself," said Steve Robinson, a fund manager with Alleron Investment Management.

"Zinifex has got good cash flows which Oxiana can potentially use to fund its own or its organic growth," he added.

Oxiana shares fell as much as 3.8 percent.

"Oxiana had pretty good growth profile going forward, but this kind of dilutes that because Zinifex doesn't have a lot of organic growth if you look at their production profile," Robinson said.

Oxiana's offer valued Zinifex at A$12.68 per share, a 14 percent premium to Zinifex's Friday's close. That is still a far cry from Zinifex's life high of A$21.60 reached in July 2007.

Bold bids

The move comes at a time when big global miners have been making bold takeover bids. BHP Billiton, the world's biggest miner, has made an all-stock $147 billion takeover offer for rival Rio Tinto, while Brazil's Vale has launched a $90 billion offer for Xstrata.

Consolidation in global miners is driven by expectations of continued strong demand for base metals from China and India as the two Asian economies grow rapidly.

The two companies told a joint news conference that integration was their top priority though they would continue to look for more acquisitions outside Australia.

"The companies have agreed that they won't be out there soliciting bids, that's not the intention," said Owen Hegarty, managing director of Oxiana.

Each company agreed to pay the other an A$55 million break fee if they sought alternative transactions.

The combined group would become Australia's third-biggest diversified company by market value behind BHP and Rio, the companies said in a presentation.

"The combination makes strong strategic sense," said Zinifex Chief Executive Andrew Michelmore, who will head up the combined company.

The combined group would earn about 63 percent of its revenue from zinc, 23 percent from copper and the rest from gold, lead and silver based on their December 2007 proforma output data.

The proposed deal has been rumored since July last year, when Oxiana chief executive Hegarty said in an interview that Zinifex had quality assets and a takeover would create cost savings.

Morgan Stanley was advising Oxiana while UBS was the financial adviser to Zinifex.

Oxiana would offer 3.2 of its shares for each Zinifex share, and the new entity would be equally held by shareholders of each negotiations conclude in April.

The new company, which would be renamed once the merger was completed around June or July, would have combined earnings before interest, tax, depreciation and amortization (EBITDA) of A$1.7 billion.

It would have a cash balance of A$1.9 billion, providing a strong platform for both organic growth and acquisitions.

Oxiana Chairman Barry Cusack will chair the new company, while Hegarty will become a director.

Zinifex reshaped itself as a pure miner last year with the spin-off of its smelting assets into Nyrstar NYR.BR, a venture with Belgium's Umicore.

Zinifex said its recommended A$852 million takeover offer for Australian nickel group Allegiance Mining Ltd will not be affected by the Oxiana proposal.

Shares in Zinifex stood 9.9 percent higher at A$12.23 at 0153 GMT, while Oxiana was down 2 percent at A$3.90, while the broader market was down 3.2 percent.

Agencies

(China Daily 03/04/2008 page16)