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Posts Tagged ‘premium’

BHP to Acquire Petrohawk Energy in $12 Billion Deal

July 20, 2011 Comments off

“BHP Billiton Ltd. said Thursday it plans to acquire Petrohawk Energy Corp. for more than $12 billion in cash, giving the Anglo-Australian mining company access to large shale assets in Texas and Louisiana in one of the largest deals of the year. BHP will pay $38.75 per share, a 65% premium to Petrohawk’s closing price on Thursday of $23.49 a share.

The deal marks an important strategic step for BHP, which last year was rebuffed in a highly politicized $38.6 billion bid for Canada’s Potash Corp. of Saskatchewan Inc. One of the largest global mining companies, BHP has been eager to spend its war chest to diversify from minerals and mining into oil and gas. The Petrohawk deal will double BHP’s resource base in oil and gas, allowing the company to increase its production by about 10% for the rest of the decade, the company said.”

Source: Wall Street Journal, July 15 2011

Observations:

  • Key synergies targeted in the deal are in financing new projects: Petrohawk has the reserves, and BHP brings the funds to develop them. The premium of 65% reflects this increased investment, as it values the company on 7.5x PE rather than 4-5x PE.
  • Last February BHP bought a set of shale gas assets from Chesapeake Energy for close to $5bln.
  • In a poll on this blog in February 57% of respondents thought BHP should expand further in the oil & gas arena.

Implications:

  • The $12bln tender offer is all-cash, largely solving BHP’s ‘problem’ of a huge cash pile that some people rather had seen returned to shareholders. With current high iron ore prices the company is generating cash much faster than it is able to invest in organic growth.
  • The acquisition increases the weight of the petroleum business in BHP’s portfolio and makes BHP enter in the top 10 of largest petroleum companies in the USA. This development follows the entry of various large petroleum companies in the mining area through oil sand projects. Still it is unclear if more miners will position themselves as ‘large scale commodity producers’ active in both mining and petroleum businesses.

©2011 | Wilfred Visser | thebusinessofmining.com

Equinox Bids for Citadel Shares

October 26, 2010 Comments off

“Zambia-focused copper producer Equinox Minerals Ltd. plans to leap into the top 20 of global copper producers with a 1.25 billion Australian dollars (US$1.24 billion) bid for explorer Citadel Resource Group Ltd.

On Monday Equinox, whose Lumwana mine produced nearly 44,000 metric tons of copper in the three months to Sep. 30, launched a recommended cash-and-share bid for Citadel, which is focused on the Jabal Sayid copper-gold project in Saudi Arabia. Equinox aims to produce 260,000 tons a year by 2014, of which 60,000 tons would come from Jabal Sayid.”

Source: Wall Street Journal, October 25 2010

Observations:

  • Global annual copper output in 2009 was 16Mt, growing at a modest annual rate of 3-5%. The 260,000 tons per year by 2014 would therefore correspond with approx. 1.3% of global copper production.
  • The share price of both companies increased after the cash & stock offer, signaling investors expect the merger to create value.

Implications:

  • The acquisition offer is part of a renewed interest in acquisitions in the mining industry, as companies that have survived the crisis with cash reserves are trying to grow by mergers.
  • The exact source of synergies for the merger is unclear. The bid holds a premium of approx. 20%, which appears to be much more than what management and trading synergies could achieve.
  • Many recent acquisition attempts in the mining industry appear to be more driven by management politics than by financial rationale. Highest synergies in the mining industry are typically achieved in the logistical area (as attempted by the Australian BHP-Rio Joint Venture). The Equinox-Citadel combination, operating in Zambia and Saudi Arabia, is not expected to realize any savings in this area.

©2010 | Wilfred Visser | thebusinessofmining.com