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Resource stocks
Mining takeover season - mining stocks on the radar
Jan McCallum - June 30, 2008
 Why explore when you can acquire? It’s a question that will be answered in coming months with another wave of mergers and acquisitions in the mining industry as companies which began projects at the start of the boom start to bring them to production.
The money poured into resources during the mining boom has not only created an environment for corporate dealing, it has given companies the opportunity to list, explore and develop mines. Some of them are at the point of moving from exploration to commissioning and production. And that will make them takeover targets.
Head of resources research at EL & C Baillieu Ray Chantry says the resources sector is looking for acquisitions because exploration is not turning up major new discoveries and the costs of developing prospects are soaring.
“There are very few new copper projects on the drawing board because we have not had any discoveries,” he says. Although there have been nickel finds, not many new mines are coming on stream, which suggests the following companies might be on the radar screen for a takeover or merger.
Albidon Ltd listed in March 2004 and has begun commissioning its Munali nickel project, 60 km from Lusaka in Zambia. The mine is forecast to produce 8,600 tonnes of nickel and 1,400 tonnes of copper a year. The company, listed on the Australian Stock Exchange and the AIM, focuses on nickel and platinum in Africa and has exploration joint ventures with BHP-Billiton in Tanzania and with Zinifex in Tunisia.
Equinox Minerals Ltd, listed in Australia and Toronto, is in the process of commissioning its Lumwana copper mine in Zambia, which will rank the company among the world’s top 20 copper producers next year. The mine is forecast to produce 169,000 tonnes of copper in concentrates in its early years and Equinox plans to mine uranium at the site in 2010.
Brisbane-based PanAust Ltd began processing copper-gold ore in March from the Phu Kham mine in Laos. It owns 90 per cent of the project which in its first phase is expected to produce 60,000 tonnes of copper, 60,000 ounces of gold and 600,000 ounces of silver a year.
Perth-based Mirabela Nickel Ltd plans to start production from its Santa Rita nickel mine in Brazil in the middle of next year. Santa Rita, the largest new source of nickel suphide concentrate under development, is expected to produce 18,500 tonnes of nickel a year by the middle of 2009.
Western Areas expects to produce 8,000 tonnes of nickel in concentrate from its Forrestania nickel project in Western Australia this calendar year but is aiming to produce 35,000 tonnes from four mines in the project by 2011. The company has reported a number of encouraging results from its prospects in recent months.
OZ Minerals, the company to be created by the merger of Oxiana and Zinifex, has signaled that it is on the look-out for acquisitions of up to $3 billion but might become a target itself. OZ will be capitalized at around $9 billion, making it Australia’s fifth largest listed miner, and a target for large miners. OZ will be the world’s second-largest zinc producer and a major copper miner with producing mines and a good pipeline of prospects.
The leap in size was one of the reasons for the merger and Zinifex managing director Andrew Michelmore, who will run OZ, has said the company will be in the market for large scale prospects and will look beyond base metals into energy acquisitions. He has signaled OZ will move quickly once it officially comes into being in July.
Ray Chantry says the above list is not exhaustive and lack of discoveries is making existing projects worth more, particularly if they are ready to begin production. “If you have developed a medium-sized project to the point where you are ready to turn it on, that project is worth a lot more than it was two years ago,” he says. “These companies have projects where they have spent the money, are ready to start commissioning and have the workforce in place – they will be the ones to get taken over.”
Most of them will be too small to interest the BHP-Billitons and Rio Tintos, which see anything other than a “company defining” mining project as a waste of management time, but mid-cap companies that have done the hard work to get into production are ripe for merger with each other and could leapfrog competitors in size, creating a new tier of miners listed on the Australian Stock Exchange. Chantry says takeover activity will be at the top end of the sector as smaller companies are taking longer to prove up and develop their resources.
There is also likely to be foreign interest, he says, as demand for minerals remains strong, and it could come from new quarters. “We could see Chinese, Canadian and Russian companies coming in.”
More articles from this edition of CompareShares:
Share tips: Broker Recommendations 30 June – 6 to BUY, 6 to SELL, 6 to HOLD
Sell signals: Stock of the Week - Coeur d’ Alene Mines Corporation
Resource stocks: Mining takeover season - mining stocks on the radar
Adviser Lounge: Clever DIY super strategy –but is it legal with the ATO?
Commodities: Soft commodities – the next boom
Petrol Prices: High petrol prices hitting outer suburbs
Oil: Oil leaders get new chance to slow price
Market Report: Dow on the brink of a bear market
Companies: Arcelor raises stake in Macarthur coal
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