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South32 to buy outstanding stake in Arizona Mining for $1.3bn
Australian mining and metals company South32, which was spun off from BHP Billiton, has agreed to buy the remaining 83% of Arizona Mining that it does not already own for $1.3bn in cash.
The price of the transaction, which will be funded from cash reserves, represents a 50% premium to the closing price of Arizona on Friday.
Arizona Mining owns the Hermosa Project, which is located about 80km southeast of Tucson and contains the high grade base metals Taylor deposit, the Central zinc, manganese and silver oxide resource and an extensive, highly prospective land package with potential for discovery of polymetallic and copper mineralisation.
Chief executive officer Graham Kerr said: "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. We have been a major shareholder in Arizona Mining since May 2017 and an active participant in the Hermosa Project with representation on the operations committee and a nominee on the board of directors.
"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."
The deal requires the approval at least 66.67% of the vote of Arizona Mining shareholders and usual customary conditions.
RBC Capital Markets analyst Paul Hissey said: "This deal makes sense to us, providing a 'familiar' opportunity for the company to develop, albeit in a new jurisdiction, at a price that looks comfortably affordable for S32."
He added: "We have previously noted that S32's flat-to-declining growth profile and lack of internal options have made it a candidate to look elsewhere for growth opportunities. To this end, the all-cash offer for Arizona Mining (providing exposure to the Taylor base-metals deposit) provides an important growth opportunity, and was always (in our view) more likely than a divestment of this stake (which management had stated as an option if the price was too high).
"The 50% premium to last trade is significant, though it appears that was the amount necessary to gain the support of the Arizona Mining board of directors - and was arguably inevitable given the large shareholding."