Mining M&A Quarterly Newsletter

Transcription

1 Mining M&A Quarterly Newsletter Third Quarter 05 kpmg.ca

2 Mining M&A Quarterly Newsletter Major deal dominates quarter In an otherwise stagnant quarter for global M&A activity, one large transaction lifted third-quarter deal value by 40 percent over last quarter. Deal volume remained identical at 7 transactions. Without this major deal, overall global deal value would have declined by $. billion quarter-overquarter. The $5.4 billion friendly offer was large enough to determine the quarter s top acquiring country by deal value (Russia at 49 percent), top target (UK at 54 percent) and leading commodity (gold at 56 percent). Canada, Brazil and Australia were also active countries, while copper, iron ore and coal were other active commodities. The business environment for mining deteriorated again this quarter as share prices plunged over 7 percent for the gold index and over 0 percent for the broader mining index. The price of copper also suffered a double-digit drop (0. percent). 50 Equity Indices vs. Gold & Copper % 0.% 7.6% 0.6% Jan-4 Feb-4 Mar-4 Apr-4 May-4 Jun-4 Jul-4 Aug-4 Sep-4 Oct-4 Nov-4 Dec-4 Jan-5 Feb-5 Mar-5 Apr-5 May-5 Jun-5 Jul-5 Aug-5 Sep-5 Gold Copper TSX/S&P Global Gold Index TSX/S&P Global Mining Index Source: Bloomberg All figures expressed in U.S. dollars unless otherwise noted 05 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member

3 Mining M&A Quarterly Newsletter Global M&A Deal Value and Volume,, Deal Value (US$ billions) Deal Volume (# of transactions) 0 Q 0 Q 0 Q4 0 Q 04 Q 04 Q 04 Q4 04 Q 05 Q 05 Q 05 Value Volume Source: Thomson, Capital IQ and KPMG Analysis Represents transactions above $50 million Only includes announced transactions; excludes capital raisings and share buy-backs Gold headlines the quarter Gold prices had a volatile Q, probing year-to-date lows near $000/oz in early August before struggling back to finish the quarter down only 4.6 percent from July through September. Gold only captured two of the top seven global deals, but one of them was the major deal of the quarter almost five times larger than the next-largest transaction. This $5.4 billion deal involving Russia and the UK has a distinct Russian connection. The Kerimov family, one of Russia s wealthiest, owns 40 percent of former Russian company Polyus Gold. In early September the family made an offer to buy all remaining shares of Polyus and take the company private. The objective is to bring head office back to Russia from the UK where it was moved in 0 to gain a stock market listing. The Kerimovs are making their offer through a unit of Cyprus-based Wandle Holdings that is controlled by a son of the family. The all-cash deal offers $.97 for each outstanding share, representing a premium of percent above the one-month average price. The second-largest gold transaction was the fourth-ranked deal announced in the quarter, as Australia-based OceanaGold made a bid to acquire all shares of Canada s Romarco Gold. Romarco s principal asset is the Haile open pit mine currently under construction in South Carolina, a project described by OceanaGold as one of the premier gold development assets globally. The combined company will produce an estimated 540,000 ounces of gold by 07 from four operating mines in three countries at an all-in sustaining cost of less than $600 per ounce. According to information released by the companies, this would make the new entity one of the lowest-cost gold producer in the world. Two Canadian deals round out gold transactions for the quarter. Egyptian billionaire Naguib Sawiris is spending $80 million through his company La Mancha Holding to acquire 0 percent of Vancouver-based Endeavour Mining. In return, Endeavour will receive a majority stake in Western Africa s Ity gold mine and up to $8 million in financial commitments. In the other all-canadian transaction, First Mining Finance launched an allshares bid for Gold Canyon Resources and PC Gold worth $4 million. First Mining Finance, which calls itself a mineral bank, is seeking to consolidate juniors with attractive assets and supportive shareholder bases. Copper comes back to life Copper producers have suffered through a difficult year, and a particularly difficult quarter. The base metal barely made an appearance in last quarter s M&A activity, but came back to life with three transactions in Q. 05 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member

4 4 Mining M&A Quarterly Newsletter Q 05 Global M&A Deal Value by Commodity,, Q 05 Canadian M&A Deal Value by Commodity,, Tungsten % Other Nickel 4% 4% Silver 5% Coal 0% Nickel 8% Iron Ore % Global Transactions Gold 56% Canadian Transactions Copper 44% Copper 5% Gold % Source: Thomson, KPMG Analysis Represents transactions above $50 million Only includes announced transactions; excludes capital raisings and share buy-backs Source: Thomson, Capital IQ and KPMG Analysis Represents transactions above $0 million Only includes announced transactions; excludes capital raisings and share buy-backs The largest copper transaction was one of only three deals to top $ billion in the quarter. Barrick Gold agreed to sell a 50 percent interest in its Zaldivar mine, located in Chile, to Chileanbased, but UK-listed Antofagasta for $.0 billion in cash. The deal makes Barrick and Antofagasta equal partners in the operation of Zaldivar. Barrick will contribute knowledge of the mine and its potential, while Antofagasta will leverage its deep operating experience in Chile, including procurement and contractor relationships. Zaldivar produced million pounds of copper in 04 at cash costs of $.79 per pound. Anglo American has made arrangements to sell its Mantoverde and Mantos Blancos mines in Chile to an investor consortium led by Audley Capital Advisors and Orion Mine Finance. The price of the transaction was $500 million, which included an upfront payment of $00 million and a contingent payment of $00 million. Mantos Blancos has a reserve life of ten years, and Mantoverde has a reserve life of five years, and both offer life extension opportunities. Anglo American continues to operate other assets in Chile and Peru. Goldcorp has spent $90 million to purchase a 0 percent interest in the Chilean El Morro copper-gold project from New Gold, an investment that will give Goldcorp 00 percent ownership of the project. In addition, Goldcorp will pay New Gold a four percent stream on future gold production from the mine. Goldcorp also announced a 50/50 joint venture partnership with Teck Resources that covers their respective interests in the El Morro and Relincho projects in Chile. Both companies are seeking development and operating synergies from the arrangement. 05 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member

5 Mining M&A Quarterly Newsletter 5 Deal Value (US$ billions) Canadian M&A Deal Value and Volume,, Q 0 Q 0 Q4 0 Q 04 Q 04 Q 04 Q4 04 Q 05 Q 05 Q 05 Value Volume Source: Thomson, Capital IQ and KPMG Analysis Represents transactions above $0 million Only includes announced transactions; excludes capital raisings and share buy backs Deal Volume (# of transactions) Iron ore, coal post single deals Iron ore had only one transaction in Q, but it was the second-largest global deal of the quarter. In an all-brazilian affair, Vale has agreed to sell a minority stake in Mineracoes Brasileiras Reunidas (MBR), representing 6.4 percent of share capital, to Fundo de Investimento em Participacoes Multisetorial Plus II for a purchase price of $. billion. MBR is a subsidiary of Vale that owns assets for production, transportation and port shipment of iron ore. These assets will now be leased to Vale until 07. In the thermal coal industry, Australia s New Hope Corporation will purchase a 40 percent interest in the Bengalla mine located in New South Wales for $604 million. The seller is a subsidiary of Australia s Rio Tinto. Bengalla is a largescale open pit mine that produces about 8.6 million tonnes of high quality thermal coal per year, which should soon rise to million tonnes. The mine has a 5-year permitted life at current production levels. 05 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member

6 6 Mining M&A Quarterly Newsletter Announced Date Target/Issuer Buyers/Investors Q Transactions Global above $400 million Consideration (US$mm) Commodity Country (Target) Sep % Polyus Gold Wandle Holdings $5,8 Gold United Kingdom Russia Jul 0 6.4% MBR (Vale) FIP Multisetorial Plus II $,85 Iron ore Brazil Brazil Country (Buyer) Jul 0 50% Zaldivar Project (Barrick) Antofagasta $,005 Copper Canada United Kingdom Jul 0 Romarco Minerals OceanaGold $660 Gold Canada Australia Sep 0 40% Bengalla JV (Rio Tinto) New Hope $606 Coal Australia Australia Aug 4 Mantos Blancos/Mantoverde Mines Audley Capital/Orion Mine Finance $500 Copper United Kingdom United Kingdom Sep 0 5% of Ambatovy Mine (SNC Lavallin) Sumitomo $450 Nickel Canada Japan Source: Thomson, Capital IQ, KPMG Analysis Announced Date Target/Issuer Buyers/Investors Q Transactions Canada above $5 Million Consideration (US$mm) Commodity Country (Target) Country (Buyer) Jul 0 50% Zaldivar Project (Barrick) Antofagasta $,005 Copper Canada United Kingdom Jul 0 Romarco Minerals OceanaGold $660 Gold Canada Australia Sep 0 5% of Ambatovy Mine (SNC Lavallin) Sumitomo $450 Nickel Canada Japan Jul 7 SilverCrest Mines First Majestic Silver $8 Silver Canada Canada Aug 7 0% El Morro Project (New Gold) Goldcorp $90 Copper Chile Canada Sep 0% Endeavour Mining Sawiris Family $80 Gold Canada Egypt Sep 0 Gold Canyon Resources First Mining Finance $4 Gold Canada Canada Jul 07 Woulfe Mining Almonty Industries $0 Tungsten Canada Canada Source: Thomson, Capital IQ, KPMG Analysis 05 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member

7 Mining M&A Quarterly Newsletter 7 Nickel, silver and tungsten make a showing The Ambatovy nickel joint venture project consists of a laterite nickel mine operation and a hydrometallurgical processing plant in Madagascar. Canada s SNC-Lavalin has exercised its option to divest its five percent ownership interest to existing partner Sumitomo Corp. for approximately $450 million in cash. SNC-Lavalin obtained the ownership stake when the engineering firm was awarded an EPCM contract in 007. Two smaller, all-canadian transactions round out M&A activity in Q. In the silver space, First Majestic Silver has agreed to acquire all of the issued and outstanding common shares of SilverCrest Mines for shares and cash. In a deal worth $8 million, First Majestic paid a share premium of 5 percent over SilverCrest s previous closing price. The acquisition enhances First Majestic s leading position in Mexico. Tungsten miner Almonty completed its acquisition of Woulfe Mining in an all-share deal worth $0 million. Almonty will bring Woulfe s flagship Sangdong project into its existing portfolio of producing assets, furthering the company s goal of becoming the leading producer of tungsten concentrate outside of China. 05 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: Jamie Samograd Partner, Deal Advisory Transaction Services T: E: Zakir Patel Vice President, Deal Advisory Corporate Finance T: E: 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. 05 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. 098 The KPMG name and logo are registered trademarks or trademarks of KPMG International.