Zinifex Exposes Itself With Asset Split

Sydney, Dec 13, 2006 (ABN Newswire) - Is Zinifex opening itself up for takeover by spinning off its zinc smelting and alloying assets in Australia, Europe and the US into a joint venture, and new company with Umicore of Belgium?

The two companies surprised the market yesterday with the news that they had signed a memorandum of understanding (MOU) to combine their respective zinc smelting and alloying businesses.

It will be the world's biggest zinc smelting and alloying business, combining numbers four and five respectively into the market leader.

Zinifex shares bounced more than 70 cents to well over $18 yesterday.

That was after a near 70c rise Monday on the back of production problems at its huge Century Mine in Queensland that will cut production and sales but end up boosting world zinc prices which are already at near record levels.

The new venture is expected to be formed in the third quarter of calendar 2007, after which both companies intend to undertake an initial public offering (IPO) of shares in the new enterprise at an appropriate time.

The IPO could happen at once, meaning no JV. If delayed, the JV will be formed and ZFX will be paid a top up amount to reflect its greater contribution of assets (around 60 per cent) to the new business if there's a delay.

No value of the deal was forthcoming from the two companies so it is hard to put a value on it: but tentative figuring estimate up to $4 billion, possibly $5 billion in value.

The shares in the new company will be listed in Europe and not in Australia after they are issued.

Belgium-based Umicore and Melbourne-based Zinifex said the new company would operate as an independent entity with its own board of directors and executive committee.

Combined, the new businesses produce some 1.2 million tonnes of zinc and zinc alloys per year and employ 4,500 people. That could have revenue at present prices of four to five billion US dollars a year.

Zinifex is the world's Number Two miner and Umicore is the world's largest precious metals recycler.

By selling its processing assets, Zinifex will be left with two mines: Century and Rosebery, lots and lots of cash and shares in the new business. That will make it an easy target for any of the world's major miners.
Xstrata is one which is already a major player in zinc, as is Teck Cominco of Canada. BHP Billiton could be interested, as could Rio. Both the majors have huge uncommitted cash flows and Zinifex currently has a market cap of around $8.6 billion.

Zinc is one metal in which Rio and BHP are not major world scale players. BHP Billiton has the Cannington silver mine in the same general area as Century in far North Queensland while Xstrata owns the Mount Isa Mines and Ernest Henry operations, also nearby.

A bid at $22 a share would cost close to $10 billion and net those two mines, the cash, several very good prospects, including Dugald River in Queensland, and the shares in the new processing business.

ZFX shares have risen more than 150 per cent so far in 2006 and look like adding a few more per cent between now and the end of the year.

The joint statement said "The combined business would possess a portfolio of quality assets and would benefit from a presence in both established and emerging markets.

"It would also possess significant expertise in the development and marketing of zinc die-casting and galvanizing alloys.

"By combining our metals businesses we will be able to create an enterprise that would be a global market leader with greater potential than if they remain separately within our respective businesses.

"For Zinifex this gives our refining and smelting business the opportunity to flourish as part of a stronger more diversified global enterprise while at the same time enabling us to focus more clearly on our ambitions to vigorously grow our mining business," Zinifex chief executive officer Greg Gailey said in the statement.

The Zinifex assets to be contributed are the Hobart (Australia), Port Pirie (Australia), Clarksville (USA) and Budel (Netherlands) smelting and alloying operations as well as its shareholdings in Australian Refined Alloys (Australia) and Genesis Alloys (China).

The Umicore assets to be contributed are the Balen (Belgium), Overpelt (Belgium), Auby (France) and GM Metal (France) smelting and alloying operations as well as its shareholdings in Padaeng Industry (Thailand), Galva 45 (France), and Umicore Yunnan Zinc Alloys (China).

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