Oxiana and Zinifex Merger: Mining M&A Mania
Oxifex or Zinifox - We expect the proposed 50/50 OXR and ZFX merger to pass shareholder approval and create a company with greater scale and diversity to reduce risk of the project pipeline and be a more meaningful player in ongoing sector consolidation. Both stocks are Hold rated (2H) with target prices of A$3.60 for Oxiana and A$11 for Zinifex, driven by our commodity price forecasts.
Merger Terms - ZFX shareholders will receive 3.1931 OXR shares (14% premium and A$12.45 at close) assuming scheme of arrangement approved by shareholders - 50% of those voting and 75% of shares voted. ZFX CEO Andrew Michelmore will assume merged company role with OXR CEO Owen Hegarty staying as Director.
EPS Dilution - EPS dilution of ~14% driven by ZFX cash balance and our commodity price forecasts. There is significant upside risk to our Zinifex estimates from spot commodity prices. ZFX NPV of A$9.80/share would increase to A$12.60/share at consensus long-term zinc of US76¢ (Citi US60¢) and lead of US53¢ (Citi US30¢).
Playing with the big boys - Combined market cap of A$12b would allow for hunting of bigger prey in white hot sector M&A, but also enhance appeal as the hunted. Scale reduces delivery risk of bulging project pipeline and beefs up personnel in a skill shortage starved sector. Head office cost reductions would be only a minor benefit.
Competing Bid - Likelihood of a competing bid viewed as quite low, given the agreed nature of the deal and other deals active in the sector. Any potential acquirer would have no doubt run the ruler over both stocks, and successful merger completion should not deter any of the larger base metal consolidators.
Production Profile - Production profile shows a combined CAGR of 9% through 2015, driven by Avebury, Prominent Hill, Martabe, Sepon, Golden Grove, Dugald River, Izok Lake and High Lake.
ZFX
zinifex limited
