The Rising Influence of Rising Affluence

[DewDiligence]

VALE Acquires African Copper Miner for $1.1B

[The buyout price is less than 3x Metorex’s 2010 sales, which seems like a bargain, IMO. Metorex, which trades on the Johannesburg exchange, has copper and cobalt assets in Zambia and the Democratic Republic of Congo.]

http://online.wsj.com/article/SB10001424052748704415104576250611432986834.html

›APRIL 8, 2011, 7:08 P.M. ET
By DIANA KINCH

SAO PAULO—Brazilian iron-ore giant Vale SA said Friday it will acquire control of South Africa-based copper and cobalt miner Metorex Ltd. for nearly $1.13 billion.

The deal will help Vale inch closer to its aim of becoming one of the world's biggest copper producers, with a long-term production target of one million metric tons a year of the metal.

Vale, which will pay for the acquisition in cash, said the operation still must be approved by Metorex's shareholders and regulatory bodies in South Africa, Zambia and the Democratic Republic of Congo.

As well as being listed on the Johannesburg Stock Exchange, Metorex has a secondary listing on the Frankfurt Stock Exchange and American depositary receipts traded over-the-counter in the U.S. Following the planned acquisition of the entirety of Metorex's share capital, the company will be delisted, Vale said.

Vale's departing chief executive officer, Roger Agnelli, identified copper as one of Vale's new strategy areas of expansion, along with coal, in 2005.

Since then, Vale has progressed from being a minor copper producer, operating one Brazilian mine, Sossego, to a midsize global producer of the metal following its acquisition of Canada's Inco, which has substantial copper assets.

New projects expected to come on line near term include the Amazonian Salobo mine. Meanwhile, a small copper mine was recently brought into production in Chile, and the company is forging ahead with a copper mine project in Zambia after striking a joint venture with African Rainbow Minerals two years ago.

Vale said in October, when it launched its 2011 investment program, that it had firm plans to be producing 691,000 a year of copper in 2015, up from a projected 332,000 tons in 2011. Mr. Agnelli said in late February that the eventual target is to produce a million tons of copper, for which global demand is growing robustly in construction and electricity-line projects, particularly in China.

Metorex's operating mines in Zambia and DRC are close to Vale's existing assets in the African copper belt. In 2010, Metorex produced 51,569 metric tons of copper and 3,622 metric tons of cobalt, and its existing mines have estimated copper reserves of over 25 million tons of copper. The company, which also has three further projects in DRC, posted gross revenue of $432 million and ended last year with a net debt of $63 million.

Analysts looked favorably on the acquisition, as while Metorex represents just 0.6% of Vale's market capital, it fits in with Vale's plan to boost its global presence in copper.

"This is really interesting for Vale. The volumes are good and the assets strong," said Pedro Galdi of SLW Corretora.

"They need to follow the M&A path to meet their copper target, even if the [Brazilian] government may not like this, because it's an investment outside Brazil," Mr. Galdi said.

Since 2008 the Brazilian government has criticized Vale several times for investing abroad when it could be investing more in Brazil. This is understood to have been a factor in recent friction between President Dilma Rousseff and Mr. Agnelli, resulting in the announcement that Mr. Agnelli will leave his post in May, to be replaced by Murilo Ferreira, a former Vale executive.

"However, the final frontier for all mining companies is now Africa," Mr. Galdi noted. "If they want to expand, they need to look for assets there."

He added that there are now few high-quality available mineral resources in other locations not already snapped up by the mining majors.

Vale plans to spend at least $4.16 billion in developing existing coal, copper and iron ore projects in Africa this year, more than a quarter of its total 2011 planned project spend of $15.32 billion, the company said late last year. This is substantially more than Vale is investing in any other region outside Brazil.‹