By NIALL MCGEE
Tuesday, June 19, 2018
Australia's South32 Ltd. is offering $1.8-billion to buy the 83 per cent of Vancouver-based Arizona Mining Inc. it doesn't already own, the biggest takeover in the Canadian metals and mining sector this year.
Perth-based South32 is offering $6.20 a share, a 50-per-cent premium to Arizona Mining's Friday close on the Toronto Stock Exchange.
In a note to clients, Toronto-based analyst Sam Crittenden with RBC Dominion Securities wrote that the deal with South32 is a "good outcome" for Arizona Mining shareholders considering its premium sale valuation compared with other similar base metals acquisitions over the past decade.
"We attribute the higher multiple to the quality of the Taylor project and short development timeline," he added.
Taylor is the company's flagship asset in Arizona, containing 101 million tonnes of zinc equivalent at a grade of 10.4 per cent. In a pre-feasibility study, an early stage estimation of how much a mine would cost, Arizona Mining projected that building a mine would cost about $600-million, with a start date of late 2020, and a projected mine life of 29 years.
Arizona Mining's shares closed up 48.7 per cent on Monday, at $6.14 apiece.
South32, a senior mining company with a market capitalization of US$14.6-billion, bought its original 17-per-cent stake in Arizona Mining last year, in a "strategic investment," a popular early-stage investment strategy that senior mining companies use to get an early "in" on juniors with promising developmentstage assets.
Richard Warke, Arizona Mining's founder and executive chairman, said he considered not selling to South32 and instead going it alone. But after estimating where Arizona's share price would be in four years, mine construction costs, the likely direction of metals prices, as well as geopolitics, he concluded that getting out now at a fat premium made more sense for shareholders.
"It takes all the uncertainty away," he said.
This is the third mining company that Mr. Warke has started and sold over the past 11 years. In 2011, he sold Ventana Gold to AUX Canada Acquisition Inc. for about $1.4-billion and in 2014, he sold Augusta Resource Corp. to Hudbay Minerals Inc. for $555-million.
Last year, Mr. Warke started yet another venture, zinc development company Titan Mining Corp., which raised $50-million in an initial public offering (IPO) on the Toronto Stock Exchange.
Titan is putting the funds toward resurrecting a shuttered zinc mine in New York State.
The South32 proposal to buy Arizona Mining is a much needed shot in the arm for the sluggish Canadian mining sector. According to Thomson Reuters, US$5.6billion worth of mergers and acquisitions have been unveiled in 2018, roughly the same as this time last year. In 2011, the last big year for the industry, US$39-billion worth of deals were executed for the year as a whole.
"The timing of the [Arizona Mining] transaction fits our view that now is the time for M&A," wrote Paul Hissey, an Australianbased analyst with RBC Dominion Securities, in a note.
"Companies should move sooner rather than later. As the cycle rolls on, it's likely that the value of this project will increase as/when metal price fundamentals improve in the coming years."
Base metal prices, such as copper and zinc, have pulled back over the past few months as fears over a global trade war have escalated, threatening the global economy.
Arizona Mining turned to Scotia Capital Inc. for financial advice and tapped Maxit Capital as adviser to a special committee advising the board of directors.
Goldman Sachs and Canaccord Genuity advised South32.
The second-biggest Canadian mining M&A deal announced this year is the $1.5-billion unsolicited joint proposal from Euro Sun Mining Inc. and Lundin Mining Corp. for base-metals company Nevsun Resources Ltd.
ARIZONA MINING (AZ) CLOSE: $6.14, UP $2.01