Oxiana and Zinifex – Mining Merger Mania

Submitted by Craig Strzelecki on 9 July, 2007 - 08:13

Australian stockmarket analyst Citi Investment Research (CIR) have provided some guidance to the mining companies Oxiana and Zinifex. Both Oxiana have the potential to fill the void left by the disappearance of MIM and WMR. However, combining the two fills the void in one step. The combined enterprise value of the companies is ~$11bn and with a potential EBITDA of $2bn in FY09e, the current EV equates to an EV/EBITDA multiple of ~5.5x. Merging the two companies would result in production of ~750kt Zn, ~200kt Cu, 375koz Au, 80kt Pb and 10Moz of Silver by FY10e. This would make the company comparable to the old WMR and only a coal business away from being a Teck Cominco. EBITDA would be ~$2bn in FY09e with NPAT of ~$1.3bn. However, once CIR’s long-term prices kick in, prospective NPAT drops to ~$500m. Post the smelter spin-out, the cash position of a merged entity would be ~$4.4bn by the end of FY08e, with minimal debt. With ZFX still to appoint a new CEO, this could be the opportunity for OXR to show their wares. A beauty parade potentially awaits. Interestingly, Xstrata doubled in size with the $4.9bn takeover of MIM in 2003. Merging ZFX/OXR would essentially result in a similar size company, with enough cash to keep on growing through further deals. However, mine life still missing, the key risk would be the same risk currently experienced by both companies - the shortage of long mine-life assets. However, a cash balance of $4.4bn could go a long way to solving that problem. Given the temptations of a highly leveraged business and bank full of cash, OXR will not be the only company interested in ZFX post smelter spin out.

Oxiana Limited is listed on the Australian Stock Exchange (ASX) under stock code OXR. You can view their investor website here. OXR was listed on 1 January, 1970. Oxiana produces gold and copper from two mines in Laos and studies are also underway to expand both these operations. The Golden Grove zinc/copper mine in West Australia was purchased in mid 2005 while the Prominent Hill copper/gold project in South Australia is targeting a 2008 start-up. An aggressive exploration program is underway at all the above as well as in China and Thailand. Barry Cusack is the Chairman for Oxiana and the managing director is Owen Hegarty. Zinifex Limited is listed on the Australian Stock Exchange (ASX) under stock code ZFX. You can view their investor website here. ZFX was listed on the ASX on 5 April, 2004。 Peter Mansell is the Chairman for Zinifex and Peter Mansell the CEO. Zinifex is one of the world’s largest integrated zinc and lead companies. They have their headquarters in Melbourne, Australia and own and operate two mines and four smelters. The mines and two of the smelters are located in Australia and supply the growing industrial markets of the Asian-Pacific region, including China. They also have a zinc smelter in the Netherlands and the United States. They sell a range of zinc metal, lead metal and associated alloys in 20 countries. Zinifex owns and operates two mines in Australia and four smelters: two in Australia, one in the United States and the other in the Netherlands. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade ZFX. Check your charts and good luck with your share trading!