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Posts Tagged ‘Saudi Arabia’

Copper wars: Barrick outbids Minmetals for Equinox

April 26, 2011 Comments off

“Barrick Gold Corporation announced today that it has entered into a support agreement with Equinox Minerals Limited for Barrick to acquire, through an all-cash offer, all of the issued and outstanding common shares of Equinox (including the shares represented by Equinox’s CHESS Depositary Interests) by way of a friendly take-over offer. The Offer is for C$8.15 per Equinox share in cash, or a total of approximately C$7.3 billion. The Offer represents a 30% premium based on Equinox’s closing share price on the Toronto Stock Exchange on February 25, 2011 (the last trading day before Equinox announced its intention to make a take-over bid for the common shares of Lundin Mining Corporation). The Offer also represents a 16% premium over the per share price under the offer for Equinox proposed by Minmetals Resources Ltd. on April 3, 2011 (which offer has not yet commenced).”

Source: Barrick Press Release, April 26 2011

Observations:

  • Barrick’s appearance as a white knight is a surprising turn in the copper wars, which started in January when Inmet and Lundin announced plans to merge into Symterra
  • Minmetals dropped its bid for Equinox the day after Barrick’s offer, saying that entering into a bidding war would destruct value for its shareholders.

Implications:

The bid by Barrick has two interesting implications: a continued uncertainty about consolidation in the copper industry; and changing dynamics in the relationship between gold and copper miners.

  • Consolidation in the copper industry: although Minmetals appears not to enter into a bidding war, other offers for Equinox might follow. The incentive to keep Barrick out of the copper industry might trigger players like Freeport-McMoran and Xstrata/Glencore to make an offer. Furthermore the players that started the copper wars, Inmet and Lundin, are available as takeover or merger targets again.
  • Copper vs. Gold dynamics: Barrick’s entrance into the copper arena is a significant change of strategy for the gold miner. Its Chilean copper operations did not account for more than 10% of revenue until now, but the copper output will be doubled by adding Equinox’ capacity. Operational synergies with Equinox’ assets in Zambia and Saudi Arabia will not be achieved, thus the acquisition is purely a move for increased diversification. Other gold miners, sitting on piles of cash, might follow Barrick’s strategy.

©2011 | Wilfred Visser | thebusinessofmining.com

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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