Australian-based mining and metals company South32 (S32) has sealed a deal to acquire the remaining 83% stake of Arizona Mining for $1.3bn in cash.
South32, previously demerged from BHP Billiton (BLT), has offered C$6.20 per share for the remaining shares it doesn’t already own in Arizona.
The price represents a 50% premium to the Arizona Mining’s closing price on Friday, implying a total equity value of $1.6 bn.
Despite having a £10.8bn market cap, South32 is often overlooked by UK retail investors due to its standard listing, which prevents it from qualifying for the FTSE indices.
The miner wants to design and develop one of the most exciting base metal projects in the industry according to chief executive Graham Kerr.
The deal has been recommended to shareholders by directors at South32, which ended March 2018 with a $1.9bn net cash position.
Arizona Mining owns the Hermosa project, including the greenfield development project Taylor deposit, which boasts a reported resource of 101m short tons of ore at a grade of 10.4% zinc equivalent.
South32 has been a major shareholder in Arizona Mining since May 2017 and hopes the Hermosa project will deliver a high internal rate of return on investment after a preliminary economic assessment in January.
IS M&A BACK IN VOGUE?
Over the last five years, mining companies have been working to streamline their business since the non-oil commodities market hit a cyclical low point, prompting miners to avoid M&A says AJ Bell investment director Russ Mould.
He believes mining companies may have regained their appetite for acquisitions after making the mistake of chasing ‘growth at any price’ during the last commodities boom.
Mould is impressed with South32’s increased focus on cash generation and operational efficiency, but warns it will need to prove the Hermosa asset can create value over the long term as so many previous acquisitions in the mining space have failed to do so.
