BASE METALS AND GOLD ACQUISITIONS ACTIVITY.
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.