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Xstrata Makes Long-Awaited Bid for MIM.

After months of waiting, Switzerland-based Xstrata has made an offer to purchase Australia's M.I.M. Holdings for A$1.72/share. MIM's board of directors agreed to the offer, which values the company at A$4.9 billion and includes $894 million in assumed debt. However, to complicate matters, MIM's Managing Director Vince Gauci has spoken out against the proposal, saying it undervalues the company.

MIM shareholders, who will vote on the deal in early June, are reviewing an information memorandum that includes an independent expert's evaluation of the company and Gauci's reasons for opposing the transaction. For the acquisition to proceed, it must be approved by a majority of the MIM shareholders who vote at the meeting and at least 75% of the total number of shares voted. The transaction also requires approval of Queensland's Supreme Court, where MIM has its core operations.

MIM's board cited several factors in support of the Xstrata offer. First, Grant Samuel, the independent expert commissioned by the board, concluded that the cash offer of A$1.72/share was fair and within the expert's valuation range of A$1.70 to A$2.24/share. Second, the offer represented a 38% premium to MIM's closing share price on Nov. 20, 2002, the day before MIM's announcement that it had been approached by Xstrata, and a 46% premium to the 30-day, volume-weighted average share price up to Nov. 20. Third, given current stock market conditions, MIM shares would trade at prices significantly below the offer. Fourth, no alternative offer appeared to be forthcoming.

Gauci's decision to oppose the deal, which so far has received some support, centered on the fact that, while the bid is at the low end of the valuation, it does not ascribe any significant value to MIM's growth prospects and projects. This includes the Rolleston coal project, the proposed Mount Isa open pit, and an expansion of the McArthur River complex. Gauci contends that the report underestimates MIM's future coal production and productivity, as well as underestimates future production and overstates costs for the company's Ernest Henry and Ravenswood operations. Gauci called the bid inadequate and opportunistic, providing more benefit to Xstrata than to MIM shareholders. If the company must be sold, Gauci suggested, shareholders would be better served by sale of the assets on a property-by-property basis.

With operations around the world, MIM is a significant integrated producer. Sales for the year ending June 2002 totaled 393,000 metric tons (mt) of copper, 406,000 mt of zinc, 274,000 mt of lead, 16.5 million ounces of silver, 567,000 ounces of gold, and 16.1 million mt of coal.

Acquiring MIM would give Xstrata, which is 40%-owned by Glencore International, entry into two major global commodity markets (copper and metallurgical coal), while significantly adding to its existing global positions in thermal coal and zinc.

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Title Annotation:M.I.M. Holdings
Publication:E&MJ - Engineering & Mining Journal
Geographic Code:8AUST
Date:May 1, 2003
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