South32 Agrees $1.3 Billion Deal to Acquire Arizona Mining
(Bloomberg) -- Global diversified miner South32 Ltd. agreed to acquire Arizona Mining Inc. for $1.3 billion to add a flagship silver-lead-zinc project in the U.S. and said it will remain on the M&A hunt as deal-making returns to the sector.
Perth-based South32 -- spun out of BHP Billiton Ltd. in 2015 -- will pay C$6.20 ($4.70) a share for the 83 percent of the company that it doesn’t already own, according to a filling Monday. Arizona directors unanimously recommended the deal that’s priced at a 50 percent premium to Friday’s close.
“We are still very much active,” in searching for deals, South32 Chief Executive Officer Graham Kerr said in a phone interview. “People want us to put their cash to work.” The producer, a losing bidder in some recent mines sales, sees more value in undeveloped projects as prices paid for many existing copper and coking coal operations have been too high, he said.
Miners are seeking to strike deals and bolster growth pipelines as they continue to generate strong cash flow amid firm commodity prices. The value of proposed, pending and completed M&A in the sector rose for a second successive year to about $59 billion in 2017, according to data compiled by Bloomberg.
South32 also has stakes in other smaller companies including Trilogy Metals Inc., a developer of copper projects in Arizona, and AusQuest Ltd., which is exploring in areas including Peru. There’s no immediate need to add to these positions as the producer has a clear pathway to acquire control of those developers, Kerr said in the interview.
South32 fell 1.3 percent in Sydney trading Monday, as Australia’s benchmark S&P/ASX 200 index rose 0.2 percent. The premium paid to gain control is significant, though probably necessary to secure the target, Melbourne-based RBC Capital Markets analyst Paul Hissey said in a Monday note.
Arizona’s Hermosa asset, about 80 kilometers (50 miles) southeast of Tuscon, includes the Taylor deposit, a high grade zinc-lead-silver resource with a forecast mine life of at least 29 years, as well as the silver and manganese-rich Central deposit, according to filings. It’s a “project that is shovel ready and well-advanced,” Kerr said on a conference call.
Taylor’s “lack of comparable high-quality development projects in the Americas and strong potential for further exploration success made Arizona Mining an attractive acquisition target,” National Bank Financial Inc. analysts, including Shane Nagle, said in a note after the acquisition was announced.
Adding Arizona will address concern over South32’s growth pipeline, according to RBC’s Hissey, who visited the Hermosa site last year. “The timing of the transaction fits our view that now is the time for M&A, and that companies should move sooner rather than later,” he said.
South32’s deal follows a smaller pact agreed last month to add a 50 percent interest in the Eagle Downs coking coal project in Australia’s Queensland state.
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