Mining M&A Quarterly Newsletter

Transcription

1 Mining M&A Quarterly Newsletter Second Quarter 04 kpmg.ca

2 Mining M&A Quarterly Newsletter Canada golden in rising quarter Canada was all things gold in a quarter that saw global M&A activity rebound from disappointing lows in the first quarter of 04. Australia, China and Indonesia contributed M&A activity in other sectors such as iron ore, mineral sands and copper. On a global level, deal value more than tripled quarter-over-quarter from $.9 billion to $9.8 billion. There were five more transactions in Q 04 from the 8 transactions recorded in Q 04. Of the 3 transactions announced in Q 04, three exceeded the $ billion level. Mining equity indices rose significantly, and gold and copper prices were also climbing at quarter-end. Largely because of gold deals, Canada was the top acquirer and top target country in the quarter. Australia ranked second as a target country, and China was second as an acquirer. 80 Equity Indices vs. Gold & Copper % 6% 4% % Jan-3 Apr-3 Jun-3 Sep-3 Dec-3 Mar-4 Jun-4 Gold Copper TSX/S&P Global Gold Index TSX/S&P Global Mining Index Source: Bloomberg All figures expressed in US dollars unless otherwise indicated

3 Mining M&A Quarterly Newsletter 3 A dramatic quarter for gold So complete was Canada s domination of gold activity in Q 04 that every leading global gold transaction above $00 million in the quarter was Canadian. A total of Canadian gold transactions accounting for $4.6 billion in deal value were announced in Q 04, rising substantially from eight gold transactions for $0.5 billion in deal value in Q 04. This activity was anchored by one blockbuster deal. Global M&A Deal Value and Volume,, Deal Value (US$ billions) Deal Volume (# of transactions) Q 0 Q3 0 Q4 0 Q 03 Q 03 Q3 03 Q4 03 Q 04 Q 04 0 Deal Value Deal Volume Source: Thomson, Capital IQ and KPMG Analysis Represents transactions above $50 million 3 Only includes announced transactions; excludes capital raisings and share buy-backs Canadian M&A Deal Value and Volume,, Deal Value (US$ billions) Deal Volume (# of transactions) 5 0 Q 0 Q3 0 Q4 0 Q 03 Q 03 Q3 03 Q4 03 Q 04 Q 04 0 Deal Value Deal Volume Source: Thomson, Capital IQ and KPMG Analysis Represents transactions above $0 million 3 Only includes announced transactions; excludes capital raisings and share buy-backs

4 4 Mining M&A Quarterly Newsletter The largest mining M&A transaction during the second quarter was the $3.6 billion friendly joint offer for Quebec-based Osisko Mining Corporation by Yamana Gold Inc. and Agnico Eagle Mines Limited. The twists and turns of this deal were well publicized in mining circles. In early Q 04, Goldcorp Inc. made an unsolicited C$5.95 per share bid for Osisko. Immediately, Osisko embarked on a strategic process to find a white knight, which resulted in Yamana Gold purchasing 50 percent of Osisko s flagship Canadian Malartic mine. That transaction effectively valued Osisko at C$7.60 per share. Goldcorp subsequently topped Yamana s offer by five cents a share (C$7.65), after which Yamana partnered with Agnico-Eagle to acquire 00 percent of Osisko s issued and outstanding shares at C$8.5 per share. This offer successfully closed on June 6, 04. The Canadian Malartic gold mine in Malartic, Quebec produced 465,000 ounces of gold in 03 and currently has reserves of approximately 9.4 million ounces. Osisko also has ongoing exploration projects in Ontario and Mexico. The next-largest gold transaction was the friendly $543 million offer for Australia s Papillon Resources Ltd by Vancouver-based mid-tier BGold Corp. The Papillon acquisition is expected to increase BGold s annual production from 400,000 ounces to 900,000 ounces by 07. Papillon s flagship asset is the feasibility-stage Fekola gold project in Mali, which will reportedly produce 306Koz of gold per year over a nine-year mine life. Initial capital costs to bring Fekola into production are forecast at $9 million. BGold already has producing mines in Nicaragua and the Philippines, and is developing the Otjikoto project in Namibia. In another friendly gold deal, Peru-based Canadian gold miner Rio Alto Mining Ltd. made an offer to acquire Sulliden Gold Corp. Ltd. for $96 million. Rio Alto currently produces approximately 0,000 ounces of gold per year from its La Arena gold mine in Peru. Sulliden s flagship asset is the Shahuindo gold project located next to La Arena. A heap leach project with potential to produce in excess of 00,000 ounces of gold per year, Shahuindo s initial capital cost is estimated at $3 million with production beginning in late 05. Cash costs will average about $550 per ounce over the mine s 0-year life. Rounding out gold transactions, TSX-listed Mandalay Resources Corporation made a friendly offer to acquire fellow Canadian Elgin Mining Inc. for $58 million. Elgin s flagship asset is the producing underground Bjorkdal mine in Sweden that produces 50,000 ounces of gold per year at cash costs of about $900 per ounce. Mandalay expects Bjorkdal to provide geographical diversification, increase production and maintain the company s low cost advantage. The company currently produces gold and antimony from its Cerro Bayo silver/gold mine in Chile, and its Costerfield gold/antimony mine in Australia.

5 Mining M&A Quarterly Newsletter 5 Q 04 Global M&A Deal Value by Commodity,,3 Diamond 5% Other 8% Nickel 5% Q 04 Canadian M&A Deal Value by Commodity,,3 Uranium <% Copper 5% Coal 0% Global Transactions Canadian Transactions Copper 4% Gold 58% Gold 85% Source: Thomson, KPMG Analysis Represents transactions above $50 million Source: Thomson, Capital IQ and KPMG Analysis Represents transactions above $0 million 3 Only includes announced transactions; excludes capital raisings and share buy-backs 3 Only includes announced transactions; excludes capital raisings and share buy-backs Uniting the streams Canada s Sandstorm Gold has acquired its sister company Sandstorm Metals & Mining for $5 million. Sandstorm Gold is a gold streaming company, while Sandstorm Metals & Mining is a diversified streamer. Strategically, the transaction will enable Sandstorm to focus on gold, while offering shareholders the benefit of additional revenue from non-gold royalties. Copper holds down second spot Copper transactions carried their modest strength into Q 04 at $.5 billion. Deal volume was relatively sparse, with only two copper transitions announced during the quarter. The largest copper transaction during the quarter involved an unsolicited bid by China s state-owned Guandong Rising Assets Management for Australia s PanAust Ltd. Guandong Rising, which already owns 3 percent of PanAust, is willing to pay A$.30 per share or A$. billion to acquire the remaining 77 percent. This offer represents a 46 percent premium to the last closing price of PanAust shares on the ASX. PanAust immediately rejected the bid as too low, but allowed Guandong access to complete its due diligence. With operations

6 6 Mining M&A Quarterly Newsletter focused in Laos, PanAust is expected to produce 65,000 tonnes of copper and 65,000 ounces of gold from its Phu Kham and Ban Houayxai mines. The company also has plans to develop copper and gold projects in Chile and Thailand. The world s next-largest copper deal in Q 04 was the purchase of Vancouver-based Lumina Copper Corp. by Canada s First Quantum Minerals Ltd. for $395 million. Lumina s flagship asset is the Taca Taca copper project in northwest Argentina, considered to be one the most promising undeveloped copper projects in the world. Based on a 03 preliminary economic assessment, Taca Taca is expected to produce 44,000 tonnes of copper, 0,000 ounces of gold and 4,00 tonnes of moly per year at cash costs of $.0 per lb. after gold and moly credits. Initial capital costs to develop Taca Taca are expected to be $3.0 billion. Announced Date Target/Issuer Buyers/Investors Source: Thomson, Capital IQ, KPMG Analysis Q Transactions Global above $00 million Consideration (US$mm) Commodity Country (Target) Country (Buyer) Apr 0 Osisko Mining Agnico Eagle/Yamana Gold $3,59 Gold Canada Canada May 05 80% Aquila Resources Baosteel/Aurizon Holdings $,6 Iron ore Australia China May 3 77% PanAust Guangdong Rising Asset Mgmt $,055 Copper Australia China Jun 6 Kenmare Resources Iluka Resources $ 780 Mineral Sands Ireland Australia Jun 03 Papillon Resources BGold $ 543 Gold Australia Canada Jun 3 East Kalimantan Coal Company Harum Energy $ 450 Coal Indonesia Indonesia Jun 7 Lumina Copper First Quantum Minerals $ 395 Copper Canada Canada May Sulliden Gold Corp Rio Alto Mining $ 96 Gold Canada Canada Apr 08 Hi-Crush Augusta Hi-Crush Partners $ 4 Mineral Sands United States United States Q Transactions Canada above $5 million Announced Date Target/Issuer Buyers/Investors Consideration (US$mm) Commodity Country (Target) Country (Buyer) Apr 0 Osisko Mining Agnico Eagle Mines/Yamana Gold $3,59 Gold Canada Canada Jun 03 Papillon Resources BGold $ 543 Gold Australia Canada Jun 7 Lumina Copper First Quantum Minerals $ 395 Copper Canada Canada May Sulliden Gold Corp Rio Alto Mining $ 96 Gold Canada Canada May 09 Revenue Silver Mine Fortune Minerals $ 73 Gold Canada Canada Jun 04 Elgin Mining Mandalay Resources $ 58 Gold Canada Canada Apr Sandstorm Metals & Energy Sandstorm Gold $ 5 Diversified Canada Canada Apr 0 Canada Fluorspar Inc. Golden Gate Capital $ 40 Fertilizers Canada United States Source: Thomson, Capital IQ, KPMG Analysis

7 Mining M&A Quarterly Newsletter 7 Iron ore makes a modest comeback After nearly disappearing from view in Q 04, iron ore transactions staged a comeback in Q 04 with three transactions announced during the second quarter. These deals accounted for $.3 billion in deal value compared to only $0. billion in the first quarter, when only one transaction was announced. In another bid by a Chinese state-owned company for Australian resources, steel producer Baosteel partnered with Australian rail company Aurizon Holdings Ltd. to acquire 80 percent of ASX-listed iron ore develop Aquila Resources. Baosteel was already Aquila s largest shareholder with 0 percent ownership prior to this bid. If the transaction closes successfully, Baosteel will retain 85 percent of Aquila while Aurizon will own the remaining 5 percent. Aquila s flagship asset is a 50 percent interest in Australia s West Pilbara Iron Ore project. This project, which contains two billion tonnes of reserves, is expected to produce 30 million tonnes of iron ore per year. Baosteel and Aurizon expect production to begin in 07 or 08. Minerals sands make a rare appearance After several quarters without any significant M&A activity, the mineral sands sector generated two transactions in the second quarter that accounted for $.0 billion in deal value. One of these deals was large enough to create an impact. In Q 04, Australia-based Iluka Resources announced that it had made a $780 million offer to Kenmare Resources, based in Ireland. Kenmare s flagship asset is the Moma titanium mine in east Mozambique. Moma has a mine life in excess of 00 years and is currently producing mineral sands at an annualized rate of 0.9 million tonnes, yielding mostly ilmenite with some zircon. Medium term outlook The general trend in mining M&A activity, and some other industry indicators, is leaving some room for optimism. Compared to this time last year, global M&A activity is beginning to reawaken as companies start looking to future opportunities. Mining equity indices and commodity prices have also been showing some stability. China and other emerging countries are gradually regaining their potential as major markets and industry players. We will see if this trend can be sustained over the longer term. 04 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

8 Contact us For more information about M&A trends in the worldwide mining industry, please contact: Lee Hodgkinson National Industry Leader, Mining T: E: lhodgkinson@kpmg.ca Jamie Samograd Partner, Transaction Services T: E: jwsamograd@kpmg.ca Norm Mayr Partner, Mining T: E: nmayr@kpmg.ca Zakir Patel Manager, Mining T: E: zvpatel@kpmg.ca kpmg.ca The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.