By Dave Brown – Exclusive to Zinc Investing News
The world’s largest integrated zinc and lead producer, India-focused mining group Vedanta Resources (LON:VED) solidified its top position on May 10 announcing the purchase of Anglo American’s (OTC:AAUKY) zinc assets in Africa and Ireland. The $1.34 Billion deal will give Vedanta, 11 percent of the global zinc industry, increasing capacity by 37 percent and the company expects to make a positive return on its investment within 3 years.
For Anglo American, the disposition benchmarks an important transitional stage in the transformation of the company. Chief Executive Officer, Cynthia Carroll, indicated last October that the miner would sell its non-core assets, including the zinc business, after investors rejected a merger approach from Xstrata.
Many analysts consider the deal for these assets to be at or slightly above fair market value since a number of companies had expressed strong interest in the South African, Namibian and Irish mines. Michael Rawlinson of Liberum Capital elaborated, “While the price looks full for most third parties, we believe the assets make an outstanding strategic fit for Vedanta, which has a large cash pile sitting within Hindustan Zinc, already has the smelting capacity available for the new sulphide projects Gamsberg and Gergarub.”
The markets have responded positively to the agreement, with both companies’ shares rising by more than 10 percent on the news.
The primary demand for zinc is galvanizing, which accounts for 47 percent of its current industrial use. The non ferrous metal’s electropositive quality enables other metal alloys to be easily galvanized, providing added protection against corrosion to building structures, vehicles, machinery and household equipment.
The price of the metal on the London Metals Exchange has increased by more than a third since it was trading at an average of $1,595 per tonne last year. Some analysts believe that a weak euro makes metals costlier for European investors. This will be of significant interest to zinc investors going forward as Nick Moore from RBS contends, “Greece and the fear of contagion will likely overhang sentiment for months to come. Despite the price declines, I still expect more downside notably zinc and nickel (15-20 percent).”