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Let the Good Times Roll for Mergers and Acquisitions

Seldom in the history of the mining industry has there been as much interest in mergers, acquisitions and takeovers as there is now.

Fuelled by the resources boom in the Asian mining industry, 2007 was a big year for mergers and acquisitions, and this activity shows no signs of slowing down.

The Asia Miner, the Asia Pacific region’s premier mining and resources industry magazine, examines a number of the mergers and acquisitions that took place in 2007 and are taking place in 2008.

Mergers and acquisitions were all the rage in 2007 and despite concerns about a recession in the US and accompanying share market jitters, they look set to continue this year.

The Asian resources boom has given many mining and exploration companies plenty of cash and oodles of confidence to seek expansion through mergers, acquisitions and takeovers.

The biggest talking point came late in the year when the world’s biggest miner BHP Billiton proposed an ambitious takeover of another giant Rio Tinto. This was revealed in early November following renewed media speculation and has continued boiling this year with a new offer from BHP Billiton.

Both giants have circled each other previously but the resources boom along with relatively new chief executives, Tom Albanese and Marius Kloppers, have made this bout the most interesting yet.

There was plenty of other activity including Lihir Gold's takeover of Ballarat Goldfields, which was approved in February. The five-for-54 scrip deal was not looked on favourably by analysts, who said it left Lihir short-changed and with an increased risk profile. However, it went ahead and the new entity now has a market capitalization of more than $7 billion.

Freeport McMoran's merger with Phelps Dodge was finalized in mid March to create the largest North American-based mining company. The deal was worth $33.7 billion.

Both these deals started in 2006 and the first new bid of 2007 came in February when Paladin Resources launched its $1.1 billion bid for Summit Resources. There were accusations of the offer being inadequate and opportunistic, a trip to the Takeovers Panel and an ongoing court case. Nearly two months after Paladin’s announcement, French group Areva came in with a $293 million strategic alliance deal, which was halted when Summit accepted Paladin's offer five days later. Areva then took a blocking 10.46% share in Summit, leaving Paladin to acquire 81.82% of the company.

A less complicated bid emerged the day after Paladin's announcement with copper miner Tamaya Resources and gold company Iberian announcing a friendly merger to create a new entity with a market capitalization of $270 million. On December 5 Iberian was delisted from the Australian's Securities Exchange.

Also in February LionOre Mining International announced plans to quit the ASX. This sparked a bidding war. A month later Xstrata placed a $5 billion bid on the table. However, BHP Billiton made a rival bid and then Russian giant Norilsk Nickel made a higher offer worth $5.8 billion. Xstrata raised its bid to $6.9 billion but was beaten two weeks later with Norilsk's winning $7.6 billion bid.

In August a friendly merger was announced between Toro Energy and Nova Energy to form a $400 million company. Another friendly bid in August saw new miner Sino Gold launch an $80.7 million all-scrip takeover of Golden China Resources. The deal has delivered Sino a third potential gold mine, Beyinhar in Mongolia.

Rio Tinto had some M&A success with its $44 billion bid for Alcan in July. Rio, BHP and Vale were touted as possible bidders for Alcan, which reportedly opened up its data room to majors in its quest to fend off rival Alcoa's hostile $31 billion bid.

Consolidated Minerals has been involved in a takeover saga that started in late February when Pallinghurst Resources attempted to take a 60% stake in the manganese miner. In ensuing months, Ukrainian investment group Palmary Enterprises and Territory Resources joined the drawn-out battle, which has seen the Takeovers Panel called in, a top-up payment structure made and surfacing of mystery investors before the market downturn threw a spanner in the works.

Xstrata made a $3.1 billion bid for Jubilee Mines in late October, which saw Jubilee’s share price soar to more than the $23 cash Xstrata was offering for each share. This boosted other nickel stocks potentially in the line of fire, with revelations that BHP Billiton, Norilsk Nickel and Oxiana all had access to Jubilee's data room prior to the Xstrata bid. Other companies tossed in the potential takeover target list included Sally Malay Mining, Western Areas, Independence Group and Allegiance Mining.

Fairstar Resources made a hostile bid for Golden West Resources in a five-for-one scrip deal worth a reported $216 million. Normal hostile takeover practices followed including misleading statements, questions over clarification of capital gains tax and the Takeovers Panel, but nothing could have prepared shareholders for Golden West’s annual general meeting when a resolution was put forward to issue a share placement to new investors to raise some much needed cash for exploration and development. The resolution narrowly passed but Fairstar remained undeterred, with the company raising its offer from five to seven of its shares for each Golden West share.

About the Author

Yolanda Torrisi - Managing Editor and Director of The ASIA Miner, the international online mining magazine and Mining News service and hosts of leading Mining Conferences in Asia.

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