South32 In All-Cash Bid For Arizona Miner

Investor attitudes to mining companies spending money in big new investments of expensive (apparently) takeovers seems to have changed dramatically.

In the past couple of years news that a mining company planed a new mine (as Fortescue and BHP have announced for their WA iron ore mines) or a big takeover – as South 32 revealed yesterday with a $A1.75 billion deal, would have normally seen the company’s shares sold down and all sorts of moaning from analysts and big shareholders.

But news that South32 was spending that amount (around $US1.3 billion) on an all cash offer for Canadian listed miner, Arizona Mining (which controls one of the world’s most attractive news zinc mines in the US), saw the shares treated mildly – they only fell 1.2% to $3.85 by the close on the ASX yesterday.

The move gives South32 a major presence in North America thanks to Arizona’s most attractive asset the Hermosa zinc, lead and silver deposit located in Arizona.

The mine has a resource of 101 million tonnes at 10.4% zinc, plus silver and lead, making it an extremely rich zinc deposit.

The all-cash offer of C$6.20 per share from South32 values the Toronto-listed Arizona at a 50% premium to its closing price on Friday of C$4.13 (a level of generosity that would normally upset investors and analysts.

A commitment to maintain the existing $US1 billion share buyback as well as the acquisition seems to have swayed investor sentiment.

South32”s offer to acquire the remaining 83% of shares in Arizona Mining implies total equity value of C$2.1 billion, or $US1.6 billion based on an exchange rate of $0.7574 for the Canadian dollar, according to the statement.

South32 first bought 17% of Arizona Mining’s shares in April of 2017 and has slowly educated itself as to the company and its prime assets.

Graham Kerr, the CEO of South32, said the offer “will allow us to optimise the design and development of one of the most exciting base metal projects in the industry”. (https://www.south32.net/docs/default-source/exchange-releases/south32-to-acquire-arizona-mining-in-agreed-all-cash-offer-presentation.pdf?sfvrsn=e4a3f99b_2).

“Our deep understanding of this high grade resource and surrounding tenement package, and extensive experience at Cannington (the company’s silver lead zinc mine in northern Queensland), makes us the natural owner of this project and ensures we are well positioned to bring it to development, delivering significant value to our shareholders,” Mr Kerr said in the statement.

South 2 also said the directors of Arizona Mining had unanimously recommended shareholders vote in favour of the transaction. The deal is expected to close in the September 2018 quarter subject to approval from more than two-thirds of shareholders.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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