South32 Acquires Taste for Arizona Mining’s Zinc-Lead Projects

- June 18th, 2018

The Australian miner has offered C$1.8 billion to purchase the remaining 83 percent of the Canadian company it does not own.

Australia’s South32 (ASX:S32) is poised to snap up 83 percent of Canada-based, US-focused Arizona Mining (TSX:AZ), which owns and operates the Hermosa project in the eponymous US state.

In the friendly deal announced on Monday (June 18), the Australian miner will bring its ownership of the Canadian miner to 100 percent for the cool price of C$1.8 billion.

For that, South32 will gain control of the zinc-lead-silver Hermosa project in Southern Arizona, which includes the Taylor deposit and its significant high-grade drill results.

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According to Arizona, the deposit has a measured mineral resource of 15.2 million tonnes grading 4 percent zinc and 4 percent lead, as well as an indicated mineral resource of 85.8 million tonnes grading 4.2 percent zinc and 4.3 percent lead.

South32 is clearly willing to pay a healthy premium for the Canadian miner’s assets, with the 83 percent in shares being bought for C$6.20 each — a 50-percent premium on Friday’s (June 15) closing value.

The directors of Arizona, who own 34 percent of the shares, have agreed to the deal, and are encouraging shareholders to support the arrangement.

South32’s CEO, Graham Kerr, said his company was after more of Hermosa after purchasing a 17-percent stake in early 2017, after which it became an “active participant” in the project.

“Our all cash offer for Arizona Mining will allow us to optimise the design and development of one of the most exciting base metal projects in the industry,” said Kerr.

“Our deep understanding of this high grade resource and surrounding tenement package, and extensive experience at Cannington, makes us the natural owner of this project and ensures we are well positioned to bring it to development, delivering significant value to our shareholders,” he added.

Ariziona’s founder and executive chairman Richard Warke said in the release that the offer “represent[s] the best outcome for all shareholders,” and Hermosa will be in good hands with the Australian company.

“South32’s all cash offer of C$6.20 per share represents a premium reflective of the truly world-class nature of the Hermosa project and allows shareholders to realise immediate value,” he said.

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According to South32, if all goes well the deal will close in the September 2018 quarter.

In a note, analysts at Raymond James maintained their “outperform” rating for South32, and increased their target price to C$6.20 per share “to reflect South32’s cash offer price in the agreement to acquire the remaining 83 percent of Arizona’s shares.”

South32’s acquisition of US assets is new territory for the young company, which was formed in 2015 by being spun off from BHP Billiton (ASX:BHP,NYSE:BBL,LSE:BLT). It is made up of the mining giant’s non-core aluminium, manganese, nickel and zinc assets in Australia, Africa and South America.

Earlier this month, the company entered into an option agreement with Silver Bull Resources (TSX:SVB) to take a controlling stake in a 70/30 joint venture over the Sierra Mojada zinc-silver project in Coahuila state, Mexico.

On the Australian Securities Exchange, South32 was down 1.28 percent to AU$3.85 by market close on Monday — a price it climbed back up to over the day after initially falling to as low as AU$3.74.

Meanwhile, its future acquisition, Arizona, enjoyed a hefty boost of 48.67 percent on the Toronto Stock Exchange, reaching C$6.14.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.

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