South32 Takes Stake in Arizona Mining, Bets on Zinc By Robert...

South32 Takes Stake in Arizona Mining, Bets on Zinc


By
Robert Guy
May 1, 2017 9:30 p.m. ET


Australian mining group South32 (S32.AU) has put some of its $1.5 billion of cash to use by taking a stake in Canada-listed Arizona Mining (AZ.CA), which is aiming to develop a zinc project in Arizona.


South32 has taken part in a CAD110 million private placement for 45 million shares, giving the Perth-based miner a 15% stake. RBC Capital Markets has valued Arizona Mining's Taylor deposit at CAD1.4 billion.
Here's a take on the deal by RBC Capital Markets' Paul Hissey:

At first glance this is a sensible transaction, giving S32 a seat at a promising project within a commodity they already produce. From a valuation perspective, although paying a 30% premium to the last close, this 15% stake is at a discount to our valuation for the project (S32 pays C$110m for 15% of C$1.4b asset, plus a seat on the board). This incremental decision goes some of the way to address what appears to be the main concern for investors, given S32's lack of internal options to date. We don't see funding as an issue, given S32's substantial US$1.5b net cash position.
The deal comes after South32 announced earlier this month that it would not proceed with the acquisition of the Metropolitan coal mine and a stake in the Port Kembla Coal Terminal from U.S. coal group Peabody. Australia's competition regulator said the deal would substantially lessen competition in the supply of metallurgical coal to Australian steelmakers. South32 said proposed concessions undermined the merits of the deal.
South32's Australian shares are trading 0.9% higher in Sydney trading. The stock is up 70% over the past year.