takeovers, page-12

UPDATE 2-Australia's Zinifex on lookout for acquisitions

Monday November 26, 2007, 3:11 pm


(Recasts, adds chairman's comment and analyst reaction)

By Victoria Thieberger

MELBOURNE, Nov 26 (Reuters) - Australian zinc miner Zinifex Ltd (ASX: ZFX.ax) said on Monday it is prepared to go hostile in an aggressive search for acquisitions as it aims to diversify outside of zinc and expand its copper mining interests.

Zinifex has a war chest of about A$1.7 billion ($1.5 billion) from the spin-off of its zinc smelting interests into a joint venture with Belgium's Umicore UMI.BR earlier this year to create Nyrstar NYR.BR, the world's biggest zinc producer.

"We would like not to be a zinc-only company, and copper would be the first prize," Chairman Peter Mansell told reporters after the annual shareholders meeting. The company earlier said rising costs would send its operating profit below last year's level.

Merger and acquisition activity in the mining sector has been spurred on by BHP Billiton's (ASX: BHP.ax) BLT.L proposed offer for rival Rio Tinto (ASX: RIO.ax) , worth around $140 billion when it was announced.

Mansell declined to put a number on how many deals were under serious consideration, but said the spin-off of Nyrstar had freed up a lot of people to examine growth opportunities.

"The trend is towards diversification and Zinifex is no different from anybody else," said a Sydney-based mining analyst who asked not to be named.

"They are taking the same road as Oxiana, spreading their profit base outside of just one or two commodities," he said, referring to fellow Australian miner Oxiana Resources Ltd. (ASX: OXR.ax) .

Asked whether Zinifex was prepared to mount a hostile bid if a friendly merger could not be agreed, Mansell said: "For the right assets, absolutely."

Zinifex sees itself in an attractive niche as one of the few remaining mid-scale mining houses left in Australia.

It says most of the world's zinc and copper production comes from deposits that are too small to attract the attention of major mining companies.

It plans to spend about A$100 million ($88 million) this year on exploration and development, a threefold increase, as part of its plans to discover and develop copper alongside its mainstay zinc production.

POTENTIAL TARGET

Zinifex's incoming Chief Executive Andrew Michelmore acknowledged the company's cash pile made it an attractive target itself, but declined to comment on recent speculation that Oxiana was considering a bid.

"I didn't take the job to be on the defence. But if someone does have a go at us, that doesn't worry me at all, we know how to tackle that and what the issues are," said Michelmore, a former top executive at Western Mining Corp. He will take up his new job on Feb. 1.

Zinifex shares have tumbled 30 percent from a high in July as the zinc price has fallen, but added as much as 2.8 percent on Monday as miners rose across the board on stronger metals prices. Earlier, in a presentation to the shareholders' meeting, the company said lower zinc prices, a stronger currency and higher costs will push its operating profit this year below last year's level.

Mansell said operating costs are expected to rise about 10 percent, pressured by high commodity prices and a shortage of skilled mining workers.

"In this environment it would not be reasonable to expect a repeat of last year's record operating profit," he said.

But Mansell added Zinifex's net profit this year will exceed that of last year once earnings from the sale of its shares in spin-off Nyrstar are included, provided prices and the currency continue at current levels. The company does not hedge for metal prices or exchange rates. ($1=A$1.13) (Additional reporting by James Regan, editing by Richard Pullin & Louise Heavens)