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BASE METALS AND GOLD ACQUISITIONS ACTIVITY.

According to the Metals Economics Group, in 1999, both base metals and gold acquisition activity increased in dollar terms after two years of declines, reflecting an increasing optimism in the mining sector as the year progressed. The almost $8B spent on acquisitions each valued at $25M or more was the third-largest total of the decade, much less than the $12.4B spent in 1996 and slightly less than the $8.7B spent in 1997. For the 10-yr period covered by this review, the quantifiable nonferrous acquisitions totaled $56.IB-$28.3B for 146 gold projects and companies and $27.8B for 135 base metals projects and companies. During this period, the average base metals acquisition was slightly larger than the average gold acquisition, at $206.1M compared with $193.9M. Of the 135 base metals deals, 72 (53%) were primary copper, 37 (28%) zinc, 25 (19%) primary nickel, and one primary lead. Of the 1999 total, 11 base-metals projects or companies changed hands at a cost of $3.9B, and 17 gold acquisitions were valued at $ 4B.

Three of the 1999 acquisitions--two base metals companies and one gold company--were valued at more than $1B each. The largest 1999 acquisition was Phelps Dodge's $1.8B cash and share merger agreement with Cyprus Amax announced in September. Phelps Dodge offered $7.61 in cash and 0.2203 Phelps Dodge shares for each share of Cyprus (a value of $19.80/share). The deal was completed on December 2. Cyprus had planned a friendly merger with Asarco that was announced in July, but in mid-August Phelps announced its hostile bids for both companies. Cyprus was a major copper producer and the world's largest producer of molybdenum as a result of its 1993 acquisition of Amax. Its significant assets included the Bagdad, Sierrita, and Miami open-pit copper mines in Arizona; the Henderson and Climax underground molybdenum mines in Colorado; a 51% stake in the El Abra copper mine in Chile; and a 82% interest in the Cerro Verde SX/EW copper operation in Peru. In 1998, Cyprus Amax produced about 439K-mt Cu and 28K-mt Mo.

The largest gold deal of 1999 was announced in June, when Franco-Nevada acquired Euro-Nevada through a board-approved amalgamation of the two companies. The share exchange ratio was 0.77 Franco-Nevada shares ($C23.25/share at the time) for every Euro-Nevada share (101.1M outstanding), valuing the acquisition at $1.28B ($C1.83B). Before the acquisition, the companies were equal partners in the Ken Snyder gold-silver mine on the Midas property in Nevada, Ken Snyder began commercial production in January 1999 at capex of $84M, and is expected to produce about 250K-oz/yr Au-equivalent at cash costs of about $80/oz from proven and probable reserves of 2.5M mt grading 38.4 glint-Au and 439.54-g/mt Ag.

Euro-Nevada had a 4% NSR and a 5% NPI in the north block of Barrick's Goldstrike complex, including the Meikle gold mine (which produced about 850K-oz Au in 1998), and the Griffin/Rodeo deposit. Barrick reported total proven/probable reserves of 6M mt grading 24.44-g/mt Au at Meikle, and proven and probable reserves of 2.9M mt grading 7.06-g/mt Au at the Griffin/Rodeo deposit. Euro-Nevada's other significant assets included a 2% NSR in Placer Dome's Getchell mine in Nevada and 12 other producing gold mine royalties. About 86% of the cash flow from the new company will come from precious metals, and the remainder from interests and royalties in oil/gas, base metals, and diamond assets (all of which were held by Franco-Nevada). The amalgamation became effective on September 20.

The third billion-dollar deal of 1999 was another selection from the North American copper consolidation raffle, with Grupo Mexico winning Asarco for $1.2B in late October. Asarco was originally planning to merge with Cyprus Amax, but the plan collapsed after Phelps announced hostile bids for both companies. Subsequently, Grupo Mexico, which held a 9.7% stake in Asarco, entered the fray. In mid-September, Grupo made an all-cash bid for Asarco, motivated by its desire to control Asarco's Peruvian assets. In the end, the Asarco board recommended Grupo Mexico's cash offer.

Asarco produced 465K-mt Cu in 1998 from operations in the United States and Peru. Its Peruvian assets were held through its 54.3%-owned subsidiary, Southern Peru Copper Corp. (SPCC), and included the Toquepala and Cuajone open-pit copper-mines and a refinery and smelter complex at the port of Ilo. In the United States, Asarco's significant assets included wholly owned Mission and Ray open pit mines in Arizona; a 49.9% interest in the Continental copper-moly mine in Colorado; and a 75% interest in the Silver Bell copper mine in Arizona. In Canada, Asarco controlled an 86.7% interest in the reserves/development-stage Minto copper-gold-silver project in the Yukon. Copper production accounted for about 70% of Asarco's 1998 revenue, but other interests included businesses in specialty chemicals and aggregates, which analysts expect Grupo Mexico to sell.
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Publication:E&MJ - Engineering & Mining Journal
Date:Jul 1, 2000
Words:830
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