Mining Deals of $3 b in Australia

123jump.com Staff
24 Sep, 2007
New York City

Gindalbie and Sundance Resources of Australia have agreed to merger and create A$2.4 billion of iron ore giant with operations in Australia and Africa. The firm iron ore prices and rising demand from China is sparking a consolidation wave. In another deal, Orica of Australia agreed to purchase U.S. based Excel Systems for $670 million and create the largest industrial explosives and mining roof maker. Aussie dollar gained against the U.S. dollar.

[R]7:00AM New York, 8:00PM Sydney - Australian stocks shots to a record as U.S. dollar continues to weaken. Gindalbie and Sundance agree to merge. Orica purchases Excel Systems based in the U.S.[/R]

In Sydney trading ASX 200 Index gained 1.5% or 93.6 to 6,451.50 on a trading volume of over 1.7 billion shares traded. The Aussie stocks set a new record riding on a weakening U.S. dollar that is reeling from interest rate cuts by the U.S. Federal Reserve to counter recession threats. The Aussie dollar was trading at $0.8672, down from $0.8682 at the close of trade last Friday.

Gindalbie Metals and Sundance Resources have agreed to merge and form A$2.4 billion iron ore giant. According to the proposed merger terms Gindalbie will offer for every two shares of Sundance one stock of Gindalbie. Based on the closing price of Gindalbie on Friday of A$1.70 the offer values the Sundance at A$1.6 billion and represents 14.9% to the closing price of Sundance on Friday of 74 cents. The newly formed entity will have a market cap of A$2.4 billion. After the merger Sundance shareholders will hold 65% of company.

Iron ore prices have remained at historic highs after CVRD of Brazil and BHP Billiton of Australia raised prices of more than 100% in the last two years. The price of the ore is likely to advance in the coming years but at a slower pace. The rising prices have not hurt hedemand for iron ore from China and economies in the West.

The combined Gindalbie/Sundance group will have a market capitalization estimated at A$2.4 billion, a strong balance sheet with cash reserves of approximately $126 million (net of transaction costs), no debt, and a substantial asset base comprising a magnetite Resource of 1.43 billion tons at 36.3% iron, a magnetite Reserve of 497 million tons at 36.3% iron, and a hematite Resource of 27.1 million tons at 61.7% iron. The Mbalam Project in Cameroon is expected to provide a better quality of iron ore grade.

George Jones, the chairman of both companies and Sundance largest shareholder Talbot Group Holdings have accepted the merger agreement. Sundance stock rose 14% on the news and traders expect higher deal from other bidders.

In another deal Orica has agreed to purchase Excel Mining Systems.

Orica, the world's largest industrial explosives maker, gained 5% after it agreed to buy Excel Mining Systems LLC for about U.S. $670 million. The industrial explosives maker is riding the boom in mining activities led by a steady rise in demand from China. The company has been on an acquisition spree and recently bought for $A900 million Minova, maker of roof bolts and specialty chemical in mining infrastructure projects. Orica gained 5% to close at A$29.32.

Excel, the largest manufacturer of specialty bolts and accessories for strata support in underground mining in the USA. Excel’s annual sales are in excess of US$240 million (A$277 million) and it has approximately 325 employees.

According to company press release, Cost, revenue and other benefits are expected to reach approximately US$50 million (A$58 million) per annum by year three. These include plant optimization, elimination of duplicate administration, improved supply chain, tax benefits and leveraging the respective customer bases of Minova and Excel. Excel provides the technology and expertise to introduce metal based strata products into existing geographic regions currently serviced by Minova. Orica estimates total implementation costs to achieve these synergy benefits of US$55 million (A$64 million) including US$25m (A$29 million) of capital expenditure. Excel manufactures and distributes of specialty bolts and accessories for strata support in underground mining in the U.S. and holds more than 45 percent of the market share.

The Aussie dollar traded better in the morning before a diversion of attention to other currencies saw it tumbling. Trade in the Aussie dollar was restricted to between a high of $0.8689 and a low of $0.8658. The Australian economy on the back sharp rise in metals and energy price and steady exports to China is enjoying a decade long expansion. Expectations were for the Australian dollar to remain within the $0.8650 and $0.8700.

Elsewhere materials and resources stocks rallied 3.7% over the day's trading. BHP which rose 5.22%, while Rio Tinto added 3.4% as a result of a rise in copper prices that shot to an eight-week high.

The rise in copper prices was influenced by the doubling of imports of refined copper by the World's biggest importer of copper, China within the first eight months of the year. Imports of the metal rose to 1.1 million tons representing a 99 percent jump from last year.

BHP traded higher on rumors that it discovered the world's biggest gold resource at Olympic Dam mine in South Australia.

Of the ASX 200 index shares, Aquarius Platinum came tops rising 9.85% after platinum hit a new high since the early May followed by Lynas Corporation at 9.35% higher, Tower Australia rose 8.13% with Fortescue Metals and Transpacific Industries up 7.89% and 7.45% respectively. Of the ASX 200 index stocks, Hills Industries fell 2.83% followed by Australia Worldwide down 2.92%, Cochlear Limited sank 3.10 % followed by Emeco Holdings down 3.13% and Gunns Limited lost 3.73%.