takeover, page-40

From Mining News:

Consolidation logical, but is it likely?
--------------------------------------------------------------------------------
Monday, November 05, 2007
Kate Haycock

AFTER Xstrata's takeover of Jubilee, analysts' attention has turned to further merger and acquisition opportunities on the Australian bourse, including Western Areas and the long talked-about marriage between Zinifex and Oxiana.

Analysts at investment bank UBS have flagged emerging nickel miner Western Areas as a potential takeover target in the medium-term, calling the company a "Jubilee look-a-like".

"Western Areas has the potential to produce as much nickel, at just as high quality as Jubilee, but has a market cap of $0.99 billion compared to the Xstrata offer valued at $3.1 billion," analysts at the bank said.

The key difference between Western Areas and Jubilee is production record, as Western Areas is just beginning to produce the metal, but UBS said it expected Western Areas to re-rate once it has a "track record" of production.

Standing in the way of any takeover deals for the miner is the 20% stake owned by Western Areas management who "appear unwilling to sell until further value is created," the bank added, reducing the immediate chance of any activity.

"Given the ongoing consolidation within the sector over the past two years, we believe anyone looking for high-quality nickel exposure would be interested in Western Areas," the bank said.

UBS continues to rate Western Areas as a buy and with a target share price $6.55. With a similar production profile to Jubilee, however, UBS said the company would be worth at least 410 per share.

Meanwhile, tipsters at Credit Suisse have done the sums on an Oxiana and Zinifex base metals merger.

"Size matters; growth by acquisition is still attractive and lower risk than long lead time exploration and development, Australian assets are scarce but remain in favour, and … global corporates are investing on the assumptions of years remaining to the cycle," the bank said.

The brokerage also said that given Oxiana's recent capital blow-out at Prominent Hill and its revision of aspects of its Sepon project, further development projects could be a risk, whereas the acquisition of Zinifec would be a "logical incremental step towards achieving Oxiana's growth vision".

Zinifex's uncommitted cash and succession uncertainty could also suggest the company is inviting potential suitors.

The marriage between the two could go ahead via a scrip-based merger which would see Oxiana acquire Zinifex via an all-shares deal, but Credit Suisse did not rule out a Zinifex acquisition of Oxiana based on a market capitalisation perspective – Oxiana's market cap is around $6.5 billion while Zinifex is sitting at $8.1 billion, and Zinifex has some $1.5 billion in cash.

Additionally, the bank said a merger between the two via a scrip option was not a big risk proposition and would boost both companies' growth outlook.

Credit Suisse rates Oxiana as a neutral with a $4.20 share price target.

Western Areas was last trading at $5.94, up 1c this morning, Oxiana was last at $4.10, also up 1c, while Zinifex was at $15.79, down 37c.