Date: Jun 19, 2018

The chief executive of South32 has defended the 50 per cent takeover premium it has offered for a junior mining company developing a big underground zinc, lead and silver deposit in the US.

Graham Kerr said that South32’s $1.3bn cash offer for the 83 per of Arizona Mining it does not already own would be justified by further drilling at the Hermosa project.

“Arizona put out a preliminary economic assessment (PEA) earlier this year that showed a valuation of $2bn . . . we think they have only scratched the surface [of the deposit],” said Mr Kerr.

“There is lots of upside in terms of the resource . . . and outside of that there’s an incredibly large land position that is absolutely in the sweet spot of some of the base metals people are looking for.”

South32 is offering C$6.20 a share for the stake in the Toronto-listed company, a 50 per cent premium to its closing price on Friday. The bid is being backed by management, which owns 34 per cent of the company.

 

Miners have emerged from a brutal commodity price downturn and are seeking to replenish their project pipelines. However, they remain wary of making large acquisitions after blowing billions of dollars on overpriced deals during the China-driven commodity boom.

South32, spun out of BHP Billiton, the world’s biggest mining company, in 2015, has taken stakes in several smaller companies and recently bought a 50 per cent interest in an Australian coking coal project.

It has owned a 17 per cent stake in Arizona since May 2017, which had helped it develop a better understanding of resources at Hermosa, said Mr Kerr.

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