Zinifex and Oxiana to merge

Australian mid-tier miners Oxiana and Zinifex have confirmed long-running merger rumours,  revealing a definitive agreement to join their businesses and create a new major diversified base and precious metals mining company with global capability.

 The merged company will be re-named and will remain headquartered in Melbourne, Australia.

Transaction Highlights

  • Zinifex shareholders will receive 3.1931 Oxiana shares for each Zinifex share they own. The terms reflect a merger of equals with the merged entity to be owned 50% by Oxiana and Zinifex shareholders, respectively.

  • The board of Oxiana and the Board of Zinifex each believe that the new entity will be better positioned for growth than either company on a standalone basis.
  • The merger will combine two companies with highly complementary operational, development and exploration profiles and create a group with:

o A market capitalisation of approximately A$12 billion, making it the 3rd largest diversified mining company listed on ASX

o The world’s second largest producer of zinc and a substantial producer of copper, lead, gold and silver

o Five competitive mining operations in Australia and Asia and three new mining projects in evelopment

o A large portfolio of diversified development and exploration activities throughout Australia, Asia and North America

o A net cash balance of approximately A$1.9 billion (as at 31 December 2007)

combined EBITDA (in calendar year 2007) of approximately A$1.7 billion

o A strong platform to grow both organically and through acquisitions.

  • Upon completion of the merger, Barry Cusack, Chairman of Oxiana, will remain Chairman and  Andrew Michelmore, current Chief Executive Officer and Managing Director of Zinifex, will be CEO of the merged entity. All the current directors of both companies will form the board of the merged entity. Owen Hegarty, current Managing Director and CEO of Oxiana, will become a Director of the merged entity and Chairman of the Integration Committee of the Board. Importantly, Hegarty’s skills, experience and drive will continue to be available to the merged company. Peter Mansell, Chairman of Zinifex, will chair the Remuneration and Nomination Committee
  • The senior management team will be drawn from the two companies’ existing management teams and, given the scale of the combined group and its development pipeline, overlap of roles is expected to be minimal
  • Upon completion, the combined entity will be re-named, reflecting the new and expanded business that will be created through the merger
  • The entitlements of shareholders of both Oxiana and Zinifex to receive the dividends declared by both companies in February 2008 will not be affected by the proposed merger
  • The merger will be implemented by way of a Scheme of Arrangement between Zinifex and its shareholders
  • Zinifex will seek a Court order to convene a Zinifex shareholders’ meeting in May / June 2008, to approve the ccheme. Subject to receiving other necessary Court and other approvals, the merger is expected to be implemented in June / July 2008
  • Zinifex’s recommended takeover offer for Allegiance Mining will not be affected by the proposed merger
  • Directors of both companies are strongly supportive of the proposed merger and Zinifex’s Directors unanimously recommend that shareholders vote in favour of the proposed merger, in the absence of a superior offer. Each Director of Zinifex intends to vote all of the Zinifex shares they own in favour of the scheme.

“We are proposing a true merger of equals and the ratio of 3.1931 Oxiana shares for each Zinifex share reflects this,” said Cusack and Mansell, in a joint statement.

“The merger terms reflect our Boards’ mutual judgment that relative market valuations are the appropriate basis to ensure both groups of shareholders receive equivalent value in the proposed merger. We took into account the volume-weighted average prices of both companies over the period during which the boards of Oxiana and Zinifex have been actively considering the proposed merger, due diligence and the prospects of each company,” the Chairmen said.

“We believe the proposed merger will create value for both Oxiana and Zinifex shareholders. The combined company will have a major presence in both the zinc and copper markets, both of which are strongly leveraged into the rapidly expanding economies of Asia and elsewhere in the developing world. In addition, the combined group will have a very strong balance sheet and will be wellequipped to succeed in any market environment.”

Hegarty, who has led Oxiana since 1996, said, “Oxiana and its people have been single-minded in their commitment to building a major mining house and the proposed merger with Zinifex is a huge step towards the achievement of that objective.”

Michelmore said, “Similarly, since it listed in 2004, Zinifex has been a great success story, generating exceptional shareholder value through the contribution of a team of dedicated people. The opportunity to combine two of Australia’s best-performing mining companies is very exciting.”

“The combination makes strong strategic sense,” he continued, “The two companies have largely complementary asset portfolios and development pipelines and the merged entity will be very well positioned to benefit from the strength of demand for commodities we see stretching out for many years.”

“In addition to the physical assets, both companies have highly-skilled workforces and management teams, which in combination will make the merged entity a resources powerhouse,” Michelmore said.

“Andrew, who will become the CEO of the merged entity, is the right person to take the combined company forward,” noted Owen Hegarty. “Andrew has extensive experience in the mining industry, both in Australia and internationally and I am personally delighted that he has enthusiastically accepted the challenge of leading the merged entity through the next stages of its growth.”