Letter to Noranda Shareholders, The Bidding War continues
Link to: Map of Billiton mining operations
For analyst comments on the proposed takeover of Rio Algom:
Bidding War Aug.,
Letters to Billiton,
Bidding War for Rio Algom"Canadian mining giant Noranda and the British/South African mining firm Billiton are locked in a bidding war for Rio Algom, Ltd., the Toronto-based owner of the Nicolet Minerals Company, which plans the Crandon mine in Wisconsin."
CRANDON MINE ALERT: E-mail Billiton
With the withdrawal
of Noranda, the London-based South African mining company BILLITON
is the only corporation left bidding for Rio Algom, Ltd., the owner
of the proposed Crandon mine in northeastern Wisconsin. The
deal is not final until the shareholders vote, but the deadline for
the deal is this Friday night (10/06/2000).
See our previous letters to Billiton corporate officers, and their replies, at http://treaty.indigneousnative.org/billiton_letters.html
See how various international mining industry journals have written of the "threat" of Wisconsin anti-mine groups and our Internet sites: http://treaty.indigneousnative.org/antimining.html
See the track record of Billiton in Southern Africa, South America, and Australia: http://treaty.indigneousnative.org/billiton.html
LETTER TO NORANDA and BILLITON SHAREHOLDERS
The takeover rumors surrounding Rio Algom have citizens of Wisconsin very surprised. The company's proposed Crandon zinc-copper sulfide mine has run into a firestorm of protest in our environmentally conscious state. The proposed mine is upstream from the pristine Wolf River and the wild rice beds of the Mole Lake Ojibwe. Opposition to the project has united Native American nations with sportfishing groups, environmentalists with unionists, and local rural residents with urban students.
The state has passed moratorium legislation and met company groundwater models with skepticism; a legislative bill is pendng to prohibit cyanide use. The township of Nashville has also rescinded a Local Agreement with the company, and local tribes Mole Lake and Potawatomi have strengthened their reservation environmental regulations using federal laws. Rio Algom's Crandon mine looks increasingly like a very risky investment. Wisconsin scores the lowest of any U.S. state on the Fraser Institute index that ranks openness to mining. Noranda and BHP dropped mining plans here in the 1990s; Exxon and Phelps-Dodge both chose to withdraw from the Crandon
We would suggest that any prospective buyer of Rio Algom not buy the firm's assurances that the Crandon project is a done deal, and do its own independent Web research. Company shareholders can likewise visit http://www.treatyland.com and http://www.nocrandonmine.com
BILLITON ACQUIRES RIO ALGOM
Street takes a bath on Rio Algom takeover arbitrage
October 5, 2000
To understand why children should not be allowed to engage in merger arbitrage without adult supervision, one need only look at the shellacking suffered this week by the pros who played the Rio Algom takeover.
From the outside, this deal looked like easy money.
In late August, Noranda put Rio Algom in play with a hostile $24.50-a-share bid. Shares in the copper miner promptly jumped to more than $25 as the pros piled in, anticipating a better bid.
This faith was justified three days later, when Billiton fired off a friendly $27-a-share offer for the copper mining company. Again, Rio Algom soared through the price of the takeover. And again, betting on a better bid seemed a winning move. Noranda made all sorts of noise about stepping up to $27.50 or more, if it got a look at Rio Algom's books.
There was every reason to think Noranda would come back with a killer bid. It did get access to Rio Algom's books. It had the backing of the Chilean state copper company, which was willing to foot half the takeover's cost. And Noranda and Rio Algom work a number of the same mining properties, which offers cost savings Billiton couldn't match.
So pro traders -- which would include hedge funds and the house money at a number of investment dealers -- kept loading up on Rio Algom and driving up the price. When we all went home Monday, Rio Algom was a $28.50 stock, and it touched $29 last week.
Early Tuesday, Noranda threw in the towel. As part of a Brascan conglomerate that worships 15-per-cent annual returns, Noranda said a higher bid for Rio Algom just didn't make economic sense. The move came as a complete surprise.
When trading opened, Rio Algom's stock was off more than $1.50, to $26.95, as it became painfully clear that Billiton's $27 offer would carry the day. Anyone who bought shares above this price lost money. As the pros bailed out, as one veteran trader observed, "I've never seen the market be so completely wrong about a takeover play."
On Tuesday, as the takeover speculators fled, the Toronto Stock Exchange saw 16 million Rio Algom shares change hands. Even with the takeover battle to pump up trading, this stock typically trades less than 800,000 shares a day.
National Bank Financial moved more than seven million Rio Algom shares, and more than a million shares were crossed by five other dealers -- HSBC Securities, BMO Nesbitt Burns, UBS Bunting Warburg and Newcrest Capital.
The losses behind these trades were painful, because most of the pros played the Rio Algom battle with borrowed money. For every dollar of stock it buys, an arb fund could easily borrow 75 cents. If this money is lost, the loan still has to be paid back, and that chews into one's capital.
In recent months, merger arbitrage has made a lot of people a lot of money on the Street. On the Rio Algom takeover, the pros gave back a few million bucks.
Billiton poised to win Rio Algom in $1.2 billion bid
week of Oct. 1, 2000
Billiton, the London-listed mining group, will delist Canadian copper producer Rio Algom and create a foundation for a 100 per cent-owned division that will also number the group's investment in Lanping, a potentially massive nickel prospect located in China, among its ranks.
However, Billiton must first have its $1.2 billion bid for Rio Algom approved by shareholders who are to decide on Billiton's offer at the end of the week. This follows the withdrawal of rival suitor Noranda Mining on Tuesday.
Billiton chairman Brian Gilbertson said his company would not make any adjustment to Rio Algom's aggressive expansion policy but there were plans to dispose of the company's gold and uranium assets which were deemed non-core. "We will sit down with management and ask them what the best way ahead is," he said.
Billiton made its offer for Rio Algom last month, equal to C$27 per share and beating Noranda's initial bid for Rio Algom by 10 per cent. Noranda then threatened to up the ante with its own 1.85 per cent a share increase on Billiton's bid, a move it described as "a minimum offer".
However, Noranda said that after discussions with its partner, Codelco, it will not be proceeding with its bid to acquire the outstanding shares of Rio Algom.
"The information gathered during due diligence, and our subsequent analysis, suggests an increased bid would not meet our investment threshold," said David Kerr, Noranda's president and chief operating officer. "We have a commitment to our shareholders to be disciplined in our investment decisions and accordingly we will not be proceeding with an offer," he added.
Rio Algom is currently ranked among the top three North American base metal companies in terms of shareholders equity with assets of C$2.7 billion. While it mines gold, uranium and coal, Rio Algom is better known for its copper extraction and expects to produce 200,000 pounds of the metal this year.
In the absence of a new offer, Noranda intends to tender its 5.4 million shares in Rio Algom to Billiton. On that basis, Noranda will receive proceeds of $146 million and recognize a pre-tax gain of approximately $48 million.
Billiton's success means that its debt will grow. However, chairman Brian Gilbertson has said that the group's balance sheet is far from stretched. Additional cash flow in the current financial year will partially offset an increase in the company's debt: equity ratio, estimated to rise to 68 per cent after buying Rio Algom.
Gilbertson says cash flow from fresh sources this year includes a contribution from Billiton's Mozal (Mozambique Aluminium) project which was recently inaugurated. Then there's a higher portion of cash flow from the Worsley alumina operation in Australia. Billiton is to spend $1.5 billion lifting its stake from a third to a controlling 86 per cent. (It could be diluted down slightly as pre-emptive rights are held by a number of Japanese ferroalloy companies).
As a result, Billiton's gearing is estimated by analysts to fall to 60 per cent this year, and 49 per cent there year after. It's also likely that Billiton's $393 million bid for Gove alumina, an Australian operation, will be pre-empted thus freeing up Billiton's balance sheet further.
Other cash flow contributors will be an expansion from Worsley which is complete next month; additional revenue from an expanded South American ferrometals plant Cerro Matoso; as well as income from Rio Algom itself, assuming Billiton is successful in its bid. One can't discount, either, the sale of part of Rio Algom which Billiton might not want, such as the metals distribution business. The sale of part of Rio Algom for a hypothetical $1 billion would reduce Billiton's debt:equity from 68 per cent to less than 50 per cent.
By: David McKay,
South African Editor,
- October 6, 2000
Rio Algom (TSE and NYSE: ROM) today announced that its board of directors has waived the application of its Shareholder Protection Rights Plan to Billiton Plc's offer of September 8, 2000 to purchase all of the outstanding common shares of Rio Algom Limited.
Rio Algom (www.rioalgom.com) is an international mining and metals distribution company based in Toronto, Canada. It produces copper, molybdenum, uranium, gold and coal from mines in Chile, Argentina, the United States and Canada. It is also active in mineral exploration worldwide. Rio Algom's wholly owned metals distribution group is one of the largest distributors of stainless steel and aluminium in North America.
Rio Algom Limited
Noranda scraps proposed takeover bid for Rio Algom after financial review
October 4, 2000
TORONTO (CP) - The price war for Rio Algom (ROM), a Canadian miner with lucrative assets in South America, ended Tuesday when metals giant Noranda Inc. (NOR) bowed out of a takeover battle with a rival British company, saying it would instead pursue less public and better-priced options.
But some industry watchers were taken aback that Noranda, in need of new mines to feed its global smelting network, would fold to London-based Billiton PLC. Billiton which has offered $27 a share - about $1.7 billion - to Rio Algom shareholders who must tender by Friday.
Raising the stakes to $27.50 wasn't something Noranda or its Chilean partner, Codelco, could justify after a thorough review of Rio's books, said Noranda president David Kerr.
"One of the shortcomings that we still have is
we'd like additional mining assets," Kerr said in an
interview Tuesday, insisting his Toronto-based company had attractive options it would pursue "in a
"We'll pursue them obviously through exploration and we will continue to look at acquisitions: Either individual property acquisitions or even possibly corporate acquisitions," said Kerr, referring to targets within Canada that he declined to reveal.
"We're absolutely not short of really interesting opportunities. The problem with a target like Rio Algom is that it's a large public bidding contest which gets far more publicity than the many other opportunities that we look at and negotiate every week of the year."
Rio Algom, originally founded as a uranium mining company and now the world's 11th-biggest copper company, was thrown into the spotlight after Noranda and Codelco offered $1.5 billion or $24.50 a share in a hostile takeover bid Aug. 22.
Shortly after, Billiton, which had already been in talks with Rio when the Noranda offer was tabled, announced a friendly $1.7 billion takeover deal, forcing Noranda to sweeten its earlier unsolicited bid. Noranda then announced it was prepared to increase its offer to at least $27.50 a share - just over $1.7 billion - on condition Rio Algom's confidential financial data supported that value.
Now that it's scrapped its bid, Noranda said it intends to tender its 5.4 million Rio Algom shares to Billiton, making $146 million and earning a pre-tax gain of about $48 million.
Manford Mallory, a mining analyst with Research Capital Corp. in Toronto said he was surprised by Noranda's announcement, saying it leaves the company in a tough spot.
"This was a critically important step strategically for Noranda," said Mallory. "It would have made a mining company out of them and now they're still left on the sidelines here in a very awkward and unprofitable strategic position."
Manford said Noranda's move was good for Rio as it allows shareholders to make a profit while likely preserving the company's workforce as an operating arm of Billiton. But he said Noranda has few, if any, alternatives.
"I don't see any obvious options. That's the problem. There are no other assets out there that are the size and quality of Rio Algom."
Rio produces copper, molybdenum, uranium and coal in Chile, Argentina, the U.S. and Canada. Its assets include two of the world's biggest copper projects - the Antamina mine in Peru, which when completed late next year will be the world's biggest copper and zinc operation, and the undeveloped Spence copper site in northern Chile.
It is also active in mineral exploration worldwide. Rio Algom's metals distribution group is one of the largest distributors of stainless steel and aluminum in North America.
By 2005, Rio Algom predicts copper production will triple to over a billion pounds, putting the company among the top five global copper producers.
"Noranda has a very large investment in the metals smelting business - copper, zinc, etc.," said Robert Jackson, a metal and mining analyst with Dundee Securities. "It's a very heavy investment for them and they need to be able to ensure that they have the raw materials to supply those smelters and refineries."
Jackson said Noranda's history of acquisitions has always been driven by the need to acquire mineral production and he was also surprised to hear there would be no higher offer.
"I thought they'd go to $30 to be honest. . . .," said Jackson, adding that the near future for metal demand is uncertain as higher oil and gas prices could bring on a recession.
"You know they must have looked at what they see happening in the global economy and said: 'We're not going to get caught buying high."'
Jackson believes Noranda's most obvious option is to increase its controlling stake in Falconbridge, a major global nickel and copper producer with mines in Canada and the Dominican Republic.
But Kerr said Noranda won't change its strategy regarding Falconbridge, which has been to buy the Toronto company's shares when they hit $15 or $16 on the TSE.
Kerr said some of the profit from tendering Noranda's shares in Rio Algom would be used to buy back Noranda shares in a bid to boost the company's stock price.
On the Toronto market Tuesday, Rio Algom's shares dropped $1.45 to close at $26.95. Noranda's stock rose 35 cents to $14.40 on trading of more than 1.4 million shares. Falconbridge shares rose 45 cents to $17.45.
Tuesday, Noranda gives up bid for Rio Algom
by Janet McFarland
Globe and Mail Update
October 03, 2000
Noranda Inc. has dropped out of the bidding for Rio Algom Ltd., clearing the way for Britain's Billiton PLC to take over the copper miner, but leaving a gaping hole in Noranda's acquisition plans.
Noranda said Tuesday that it has completed its review of Rio Algom's operations and has decided it could not financially justify topping Billiton's $1.7-billion bid. A richer deal did not meet the company's investment criteria, including a 15-per-cent return on investment.
"We would have liked to have found more value than we did," Noranda chief executive David Kerr said. "We made the initial bid because we'd like to own the company. But . . . we just couldn't put enough value together to make a meaningful bid over $27."
Analysts, however, said Noranda must find more mining assets to feed its smelters, and said there are few other attractive companies left to buy.
"This was the right fit for them and they seem to have passed on it, so I can't see any backup strategy," said analyst Manford Mallory of Research Capital Corp. in Toronto.
On Aug. 22, Noranda made a hostile bid for Rio Algom of $24.50 a share or $1.5-billion. Three days later, Billiton unveiled a $27-a-share offer worth $1.7-billion, which was endorsed by Rio Algom. Two weeks later, Noranda indicated it would increase its bid to $27.50 a share, but said the offer was contingent on getting a look at Rio Algom's books.
Mr. Kerr said Noranda and its Chilean partner Corporacion Nacional de Cobre, known as Codelco, agreed that the due diligence review did not justify a higher bid.
Noranda will tender its 5.4 million shares of Rio Algom to Billiton for a $48-million pretax gain. Mr. Kerr said Noranda anticipates using the proceeds to do a share buyback.
Rio Algom spokesman Corey Copeland said the Billiton offer can proceed unchanged. The deadline for investors to tender to the offer is midnight Friday, he said.
Rio Algom shares fell to the Billiton offering price Tuesday, losing $1.45 to close at $26.95 on the Toronto Stock Exchange. Noranda's shares rose 35 cents to $14.40. Both companies are based in Toronto.
Mr. Kerr said Noranda will continue to look for acquisitions. The company has no other imminent purchase in the works, he said, but it is a priority to find more mines to supply the company's smelters.
"We'll just be on to the next opportunity, and there are many still on our plate. They're not as glamorous as a bid for Rio Algom, though."
But Mr. Mallory at Research Capital said he thinks Noranda made a mistake by not increasing its bid, and added that he isn't optimistic the company can find another good purchase.
"I think this was affordable, and was an important deal to do strategically. This still leaves Noranda as an awful mess as a company."
He said the company is imbalanced, with too much smelting capacity and not enough mining assets to feed the smelters.
"And Rio's got the good mines. There's nowhere else they can go to find that kind of quality mines."
He added Noranda is getting "left on the sidelines" through the current metal cycle.
Analyst Raymond Goldie of First Associates Investments Inc. in Toronto said Noranda still needs to make an acquisition, and said there aren't obvious suspects.
Smaller Canadian mining companies, such as Teck Corp., Aur Rersources Inc. or Cominco Ltd., are attractive, but they have controlling shareholders, analysts said. There are few widely held companies available.
Mr. Goldie said South African mining companies have turned to Australia for acquisitions because the Australian dollar is cheap and the market for resource stocks is depressed.
But Mr. Kerr insisted there is not a shortage of opportunities for purchases.
"Assets do keep changing hands, and new discoveries do get made. The world keeps changing. We are not short of other opportunities to look at and invest our money if we can make a deal at the right price."
Mr. Goldie, meanwhile, said Noranda's shares rose Tuesday as investors applauded the decision to be prudent and walk away with the gain on the Rio Algom shares �worth 20 cents a Noranda share. He had not expected a higher bid.
"I think people are rewarding Noranda for sticking to the discipline of not making an offer for purely strategic reasons, but having to fit their hurdle rate-of-return requirement as well."
NORANDA DECLINES TO BID FOR RIO ALGOM
Toronto, Ontario, October 3, 2000 - Noranda Inc. announced today that after conducting a full and thorough due diligence review of the operations and assets of Rio Algom Limited and discussions with its partner, Codelco, it will not be proceeding with its bid to acquire the outstanding shares of Rio Algom.
"The information gathered during due diligence, and our subsequent analysis, suggests an increased bid would not meet our investment threshold," stated David Kerr, President and CEO of Noranda Inc. "We have a commitment to our shareholders to be disciplined in our investment decisions and accordingly we will not be proceeding with an offer."
"In any event, we look forward to building on the excellent working relationships established with Codelco which will no doubt lead to future opportunities to work together," Kerr added.
In the absence of a new offer, Noranda intends to tender its 5.4 million shares in Rio Algom to Billiton plc. On that basis, Noranda will receive proceeds of $146 million and recognize a pre-tax gain of approximately $48 million.
"Noranda remains focused on its objective of creating value and growing the company through the operation, acquisition and discovery of high-quality mining and metallurgical assets, which may include using the proceeds to buy back Noranda shares under a normal course issuer bid. We will also continue to evaluate other opportunities," added Kerr.
Noranda Inc. is a leading international mining and metals company with more than 30 mining and metallurgical operations and projects under development in 8 countries. Noranda is one of the world’s largest producers of zinc and nickel and is a significant producer of copper, primary and fabricated aluminum, lead, silver, gold, sulfuric acid and cobalt. Noranda is also a major recycler of secondary copper, nickel and precious metals. Noranda employs over 17,000 people. It is listed on The Toronto Stock Exchange (NOR).
Noranda abandons takeover bid for Rio Algom
October 3, 2000
(UPDATE: Updates throughout. Adds background and analyst comments)
TORONTO, Oct 3 (Reuters) - Noranda Inc. (Toronto:NOR.TO - news) said on Tuesday it will not go ahead with a takeover bid for Rio Algom Ltd. (Toronto:ROM.TO - news), paving the way for Billiton Plc's (quote from Yahoo! UK & Ireland: BLT.L) C$1.7 billion ($1.15 billion) bid for the Canadian mining company to be accepted.
"The information gathered during due diligence, and our subsequent analysis, suggests an increased bid would not meet our investment threshold," Noranda's president and chief executive, David Kerr, said in a statement. "We have a commitment to our shareholders to be disciplined in our investment decisions and accordingly we will not be proceeding with an offer."
Billiton has offered about C$27 a share for Rio Algom and Noranda had been considering a counter-offer of more than C$27.50.
Noranda also said it intends to tender its 5.4 million shares in Rio Algom to Billiton and will receive proceeds of C$146 million ($98 million) for a pretax gain of approximately C$48 million.
Noranda's decision not to go ahead with its hostile takeover bid for the Toronto-based copper miner brings closer to a conclusion the long and drawn out bid for the Canadian copper miner, which has an impressive stable of assets in Canada and South America.
The assets include the Cerro Colorado copper mine in Chile, a 33.75-percent stake in the Antamina copper/zinc project in Peru, and a 25-percent in the Alumbrera open-pit copper/gold mine in Argentina. It also has a 33.6-percent stake in the Highland Valley copper mine in British Columbia.
In early September, Noranda said it would offer "at least" C$27.50 a share for Rio Algom, topping a friendly offer by Billiton in late August by 50 Canadian cents. Noranda's sweetened offer, however, was contingent on it getting a look at Rio Algom's books and certain other conditions.
Noranda launched a hostile offer of C$24.50 cash a share for Rio Algom earlier in August, saying it would sell half of Rio Algom's assets to Chile's state-owned Codelco (Corporacio Nacional del Cobre) once the deal was done. They had planned to jointly manage the assets.
But Billiton trumped Noranda's hostile offer of C$1.5 billion with its friendly bid of C$1.7 billion.
With Noranda backing out, analysts said it was inevitable that the Billiton bid, set to expire on Wednesday, would be recommended by Rio Algom.
"With Noranda withdrawing their bid, it leaves the (arbitragers), which were hoping for a higher bid from Noranda, to satisfy themselves with the Billiton offer," said Terence Ortslan, a metals analyst at T.S. Ortslan & Associates, in Montreal.
"With the absence of another offer, the arbs have no choice but to tender into Billiton, so C$27 is the right offer to go."
Ortslan praised Noranda for making the right decision instead of being caught in a bidding war.
"From Noranda's point of view, it's a good sign that Noranda can really assess the value and they will make money because they have a shareholding in Rio Algom."
Noranda, Codelco Decide Not to Top Billiton's Rio Bid
Toronto, Oct. 3 (Bloomberg) -- Chile's Codelco, the biggest copper miner, and Canada's Noranda Inc. declined to boost their hostile takeover bid for Rio Algom Ltd., clearing the way for Billiton Plc to take over the Canadian copper producer for C$2.7 billion ($1.8 billion).
Toronto-based Noranda said it will sell its 5.4 million Rio Algom shares to Billiton for C$146 million.
"I thought Billiton's offer was pretty generous," said Bill Belovay, a fund manager at Jones Heward Investment Counsel in Toronto, who said he's sold his 133,000 Rio Algom shares. ``When Noranda backed away, I wasn't surprised."
Noranda and state-owned Codelco were vying for Rio Algom's mines and deposits in Chile, Peru, Canada and Argentina amid rising copper prices. The two companies made a joint C$24.50-a- share, C$2.6 billion bid on Aug. 22, which was topped by Billiton's C$27-a-share bid three days later. The bids include C$1.11 billion of assumed debt.
"An increased bid would not meet our investment threshold," Noranda President David Kerr said in a statement.
Noranda rose 35 cents to C$14.40, a two-week high. Rio Algom dropped $1.45 to C$26.95, with more than 16 million shares changing hands, the most in at least 10 years.
Noranda had been examining Rio's financial accounts for two weeks. It had said it would offer "at least" C$27.50 a share, or C$2.8 billion, if it got access to Rio Algom's books, which it finished examining Sept. 27.
Had to Be Higher
Dale Coffin, a Noranda spokesman, said a successful bid would have had to be even higher.
"We also had to calculate in the breakup fee" of C$1.10 a share, he said. "Trying to justify that much more value was tough. We couldn't find enough value to take it to a higher level."
Jones Heward's Belovay, meanwhile, warned that demand for copper may not last.
"There's no reason for a base metals company to be trading at such a high premium-to-net-asset value, particularly when one is uncertain about whether the economy will have a hard or soft landing in 2001," Belovay said.
The London Metal Exchange's three-month forward contract for copper rose from 12-year lows in May 1999 to a three-year high of $2,022 a metric ton on Sept. 14. It's dropped 3.5 percent since then on concern that slower U.S. economic growth, rising oil prices, and a weak euro will result in lower demand.
Billiton rose 5.5 pence to 253.5 in London.
Codelco Keeps Looking
Codelco dropped out because the investment "didn't satisfy our expectations," Codelco spokesman Ivan Badilla said without elaborating.
Abandoning the bid for Rio Algom is a blow to Codelco's plans to add mines and reserves outside of Chile. The bid had been Codelco's biggest step yet to seek fresh reserves in partnership with privately held companies.
The world's largest copper producer will "stay open" to ways to expand abroad, Badilla said.
Codelco has teamed with Mexico's Industrias Penoles SA to search for copper in the Mexican desert and has said it may explore for copper in neighboring Argentina with Grupo Mexico SA.
Codelco wants to tap reserves of copper beyond Chile, the world's biggest copper producer. The amount of copper in ore is sliding at some of Codelco's five Chilean mines, including its biggest, Chuquicamata. Codelco also owns 49 percent of a Chilean mine with Phoenix-based Phelps Dodge Corp.
Codelco produced 1.6 million metric tons of copper last year, and has said that production will be similar to 1999's. The company's executives have said they plan to push ahead with acquisitions or other expansions aimed at boosting copper output 25 percent to 2 million metric tons by 2005.
Codelco President Juan Villarzu said buying mines outside Chile is crucial to assure the company will boost the amount of revenue it gives to the government, as well as keep its 13 percent share of worldwide copper production.
Executives had hoped buying half of Rio Algom would allow Codelco to move beyond copper mining in Chile for the first time since Socialist President Salvador Allende created the company by nationalizing the country's foreign-run copper mines. Oct/03/2000 17:01 ET For more stories from Bloomberg News. (C) Copyright 2000 Bloomberg L.P.
Noranda Ends Rio Algom Diligence;
VOX, The Globe and Mail (Toronto)
September 12, 2000
There's not a lot of upside left in the takeover battle for Rio Algom but there are reasons to expect a higher bid from Noranda. The company's latest offer, a conditional $27.50 a share, is higher than Rio's estimated net asset value of $25 a share (mining valuations are notoriously elastic). Noranda may raise the offer if it can find greater synergies. Whether or not it would be a good idea for Noranda to raise the bid, there are plenty of ways it can justify doing so. The price tag on recent comparable takeovers have averaged 60 per cent higher than the target's prebid stock closing price. A similar valuation would put a $29 price tag on Rio shares. Using recent copper mining asset sales as a measure would put an even greater premium on Rio -- about $33 a share. Finally, Noranda needs Rio more than does rival bidder, Billiton of Britain, especially because of Rio's Spence project in Chile, which would provide most of the synergies.
Noranda Ratings Placed On Credit Watch; Negative By CBRS
TORONTO (Dow Jones)--Canadian Bond Rating Service has placed the ratings of Noranda Inc. (T.NOR) on credit watch, with negative implications, following Noranda's improved bid to acquire Rio Algom Ltd. (ROM).
As reported, Noranda increased its offer for Rio Algom to "at least C$27.50" for each Rio Algom share, up from its original C$24.50-a-share offer. Rio Algom's original offer was topped by Britain's Billiton PLC (U.BIX), which is offering C$27 a share.
In a news release, CBRS said the ratings on credit watch include its A-1 (low) rating on Noranda's commercial paper, A- on senior unsecured debentures, BB+ on convertible debentures and P-2 (low) on cumulative preferred shares.
-Judy McKinnon, Dow Jones Newswires; 416-306-2100
Chile Govt Says Codelco Could Issue Bonds, ADRs - Paper
September 11, 2000(DJ)
Story 4391 (ROM)
SANTIAGO (Dow Jones)--Chile's government is studying the possibility of state-owned mining concern Corporacion Nacional del Cobre de Chile (Codelco) issuing debt or American Depositary Receipts to finance new projects, daily newspaper El Diario reported Monday.
One possible project would be Codelco's participation alongside Canada's Noranda Inc. (T.NOR) in a pending takeover bid of Canadian mining company Rio Algom Ltd. (ROM).
On Friday, Noranda revised its bid to acquire 100% of Rio Algom to at least C$27.50 per share contingent on the outcome of a due diligence investigation. It had previously offered C$24.40 per share, which was subsequently topped by a C$27-per-share offer from the U.K.'s Billiton PLC (U.BIX).
Noranda will release to Codelco its due diligence findings for the Chilean company's approval of the deal. If Noranda makes a concrete bid for Rio Algom, Codelco will consider purchasing 50% of Rio Algom from Noranda upon the completion of the purchase.
Chilean Finance Minister Nicolas Eyzaguirre told El Diario the government would continue to seek strategic partners for Codelco's new projects regardless of the outcome of the Rio Algom deal.
(562) 460 8546; firstname.lastname@example.org
(END) DOW JONES NEWS 09-11-00
Algom studies implications of new Noranda bid
TORONTO, Sept 11 (Reuters) - Canadian copper firm Rio Algom
Noranda, frustrated by Rio Algom's refusal on two occasions to give it access to data about its prized assets, raised its takeover offer by C$3 a share on Friday to C$27.50 per share from C$24.50, effectively giving it that access.
Noranda has agreed to sell half of Rio Algom's assets to Chile's state-run Codelco, the world's biggest copper producer, for the same price it paid, once the bid closes.
Rio Algom spokesman Corey Copeland said the company's board of directors would meet "sooner rather than later" this week to consider the new offer. "The board will have to make a determination that will take into account both the terms of our support agreement with Billiton and the way in which Noranda's request has been framed," Copeland said. "There are a great many legal niceties involved in this process," he added.
The Noranda bid is subject to satisfactory due diligence and to the two parties entering into a confidentiality agreement. Noranda spokesman Dale Coffin said on Monday the company was still waiting for a reply. "From our point of view, the sooner the better that we hear from them," said Coffin.
Billiton wants to diversify its metals portfolio with the acquisition of Toronto-based Rio Algom, which has mining assets in Peru, Argentina, the U.S. and Canada.
Analysts said Noranda's actions were intended to force the hand of Rio Algom's board of directors. "It is the board's responsibility to maximize shareholder value and now it the matter rests in their hands," a Vancouver-based analyst said.
Shares in the international mining and metals group fell more than five percent on Monday on concerns that it faces a bidding war over Rio Algom. Its shares were down 284 pence on the London Stock Exchange.
Shares in Rio Algom were down 30 Canadian cents at C$28.30 on the Toronto Stock Exchange on Monday afternoon. The shares have traded at a 52-week high of C$29 and a low of C$13.10. Noranda shares were down 10 Canadian cents at C$15.10 in Toronto.
Noranda set to raise Rio bid
Proposes 'at least' $27.50 a share
WSJE: Mining Firm Billiton Is Spending Big To Strike It Rich
September 8, 2000 (WJ)
Dow Jones News
by Charles Goldsmith
LONDON -- Three years after its 1997 listing on the London Stock Exchange, mining company Billiton PLC is on a buying spree, branching far beyond its core South African aluminum interests. Investors are split over whether the company's heavy spending will pay off.
Billiton, the world's No. 5 mining company in terms of market capitalization, last month bought a majority stake in Alcoa Inc.'s Australian aluminum refinery Worsley Alumina for $1.49 billion (1.71 billion euros) and agreed to pay $1.2 billion for Canadian copper company Rio Algom Ltd., trumping an unsolicited bid from Canada's Noranda Inc. This followed Billiton's acquisition in late July of a 2.1% stake of Brazilian iron ore producer Cia. Vale do Rio Doce, or CVRD, for $327 million.
Assuming all the deals are finalized, Billiton will have lessened its dependence on South Africa, to 40% of the company's total assets from 58%, and expanded its base metals business, which includes copper, to 16% of assets, from just 5% at June 30, the end of the company's fiscal year. In the highly cyclical mining business, this greater product range "gives a certain amount of protection in the event of a downturn in some commodity," says a Billiton spokesman.
Diversification has been one of Billiton's goals since it was spun off in 1997 from South African conglomerate Gencor Ltd. and moved to London, but the company had made few big deals as metals prices collapsed in late 1997 and 1998 owing to the Asian economic crisis.
Yet not everyone is convinced that Billiton's deal-making spree makes sense. The company's shares have been under pressure as industry analysts fret over whether the company is overpaying for the new properties and whether the copper acquisition makes any strategic logic. Though Billiton on Aug. 29 announced better-than-expected net profit of $577 million for the year ended June 30, up 51% from $383 million the previous year, the share price slumped sharply after the Aug. 25th announcement, but has since recovered somewhat, closing Thursday up 3.6% at 294.75 pence (4.87 euros), a 10-pence advance.
"The market seems happy with the Worseley deal, which sticks to Billiton's core business" of aluminum, says mining analyst Nick Wilson of investment banking Barings in London, "but what the market is not so sure about is copper, which is a very disparate market. Billiton is now nonexistent in the top 50 (of the copper market), and they're trying to buy their way into the top 10." Investors also expressed concerns that the deals would leave Billiton with a debt-to-equity ratio of 68%, compared with 30% as of June 30.
Billiton believes, however, that copper represents a very attractive investment given the element's increased use in such New Economy applications as high-speed data wires and electronic components. Copper faces a challenge from fiber-optic cables for long-distance wiring, but analysts say that copper demand will still remain strong for cabling from networks to homes, the so-called last mile of connectivity. Billiton also believes that it can mine copper efficiently through a proprietary bacterial process of extracting metal from ore; that process is co-owned by Billiton in a joint venture with state-owned Chilean mining company Codelco.
"For the moment, I'm willing to give (Billiton) the benefit of the doubt," says analyst Peter Davey of SG Securities in London. "It's very hard to put a value on something that won't be in production for 24 or 36 months. We're quite bullish on the mining sector, especially copper. China's become a giant consumer of copper, so inventories have come down to almost nothing," suggesting that prices will rise.
Another analyst, Charles Kernot of BNP Paribas in London, said he wasn't concerned about Billiton's high gearing level, given that other big mining companies have had gearing levels in excess of 100% following previous acquisitions. He adds that the industry's increased pace of consolidation will result, in the case of economic slump, in "less dramatic oversupply" than in the past, given that the reduced number of players can better adjust supply to demand. Billiton agrees.
"Increasingly," says Billiton's chairman and chief executive, Brian Gilbertson, "it seems the metal and mining business, with the possible exception of aluminum and gold, is likely to be dominated by a small number of very large, multi-commodity companies operating internationally."
The largest mining companies, in terms of market capitalization, are: Anglo American PLC, followed by Broken Hill Proprietary Co. of Australia, Rio Tinto PLC, CVRD of Brazil, and Billiton.
In terms of aluminum production, Billiton ranks third behind Alcoa and the company being formed by the merger of Alusuisse Group of Switzerland and Alcan Aluminum of Canada, which is expected to close next month. Billiton says that the Rio Algom acquisition, assuming that Rio Algom's pending projects go through, would place it fifth in terms of copper production, whose largest players are Codelco and Rio Tinto.
While size may matter, prospects for Billiton and other big mining companies over the next few years will turn as much on the strength of the global economy as anything else. Typically, demand for metals increases when economic growth as measured by gross domestic product exceeds 2%.
"If we get a soft landing in the U.S., and a good pickup in the Far East, and Europe continues to do well, we could enter a period in the next 24 months of very tight supply," says Mr. Wilson of ING Barings. "So instead of the 3% real decline in mining products over the past 20 years we could see a real increase in prices. On that basis, the prices being paid by Billiton might not seem so expensive."
Noranda Delivers Acquisition Proposal To Rio Algom
Toronto, Ontario, September 8, 2000 -- Noranda Inc. announced today that it has submitted to Rio Algom Limited a revised take-over proposal for all of Rio Algom's outstanding common shares. This superior proposal is subject to due diligence and certain other conditions, and meets all the requirements as imposed by Rio Algom to obtain due diligence.
Due Diligence Critical
"Our initial bid was based on information in the public domain and on our own estimates of available synergies," said David Kerr, President and CEO of Noranda Inc. "That is why the due diligence process is critical: it will provide us with access to more complete data provided to Billiton, which is necessary to better value the company. In the event that we can identify additional value in Rio Algom that we were previously unaware of, we propose to bid at least $27.50 per common share. We are working to make sure we present the most attractive offer for Rio Algom shareholders while meeting our own value creation and growth criteria."
Terms of the Acquisition Proposal
Noranda's proposal contemplates a take-over bid at a price of at least $27.50 per common share.
The proposal is subject to satisfactory due diligence by Noranda and to entering into a confidentiality agreement containing terms and conditions satisfactory to Noranda.The due diligence conditions of the proposal include:
access to due diligence to commence on a date designated by Noranda;
and Noranda being provided all of the information furnished to Billiton plc in connection with its due diligence investigation.
Agreement with Codelco
As previously disclosed, Noranda has agreed to sell to Codelco a 50% interest in Rio Algom's assets, immediately upon closing and at the same effective price paid by Noranda. The two companies will jointly manage the acquired assets. Codelco has previously stated, however, that unless additional value is established through full due diligence, it would not proceed with such acquisition.
Rio Algom Limited is a Toronto-headquartered mining and metals distribution company that produced approximately 184,000 tonnes of copper in 1999. Its assets are located in Chile, Argentina, Peru, Canada and the United States. Rio Algom has approximately 60.6 million common shares outstanding, of which Noranda already owns approximately 9%.
Codelco is the world's largest producer of copper -- producing 1.6 million mft in 1999, or approximately 16% of the western world's copper production -- and is one of the world's lowest-cost copper producers. Codelco controls approximately 20% of the world's known copper reserves and is also the world's second largest producer of molybdenum.
Noranda Inc. is a leading international mining and metals company with more than 30 mining and metallurgical operations and projects under development in eight countries. Noranda is one of the world's largest producers of zinc and nickel and is a significant producer of copper, primary and fabricated aluminum, lead, silver, gold, sulfuric acid and cobalt. Noranda is also a major recycler of secondary copper, nickel and precious metals. Noranda employs over 17,000 people. It is listed on The Toronto Stock Exchange (NOR).
Rio Algom Defers Shareholder Rights Separation Time
September 6, 2000 - Toronto, Ontario
Rio Algom Limited (TSE and NYSE: ROM) today announced that the Special Committee of its board of directors has deferred the separation time under its Shareholder Protection Rights Plan from the close of business on September 6, 2000 to a future date to be determined by the Special Committee. Under the Plan, the announcement by Noranda Inc. of its intention to make a take-over bid for the common shares of Rio Algom initiated the ten-business-day time period toward the separation of the rights from the common shares. At the separation time, the rights become exercisable and begin to trade separately from the common shares. The Special Committee currently believes it would be premature to permit the separation time to occur today under the Plan.
Rio Algom (www.rioalgom.com) is an international mining and metals distribution company based in Toronto, Canada. It produces copper, molybdenum, uranium, gold and coal from mines in Chile, Argentina, the United States and Canada. It is also active in mineral exploration worldwide. Rio Algom's wholly owned metals distribution group is one of the largest distributors of stainless steel and aluminium in North America.
Corey B. Copeland
Analysts ponder fate of copper companies
September. 1, 2000
The battle for control of Rio Algom (ROM-T) is keeping mining analysts busy in what would otherwise be a quiet Canadian summer. Talk on the street is that Noranda (NOR-T) will boost its $24.50-per-share bid now that rival Billiton has offered $27 per share, or $1.7 billion, to acquire control of the Toronto-based miner of base metals.
Canaccord analyst Mark Horn notes that Billiton's friendly bid represents a 10% premium to Noranda's hostile offer, yet he does not appear to find the deal particularly attractive for Billiton. "The strategic rationale for the deal appears simply to be to increase geographic and product diversification. There are no synergies of any significance to be extracted from the combination of the two groups. We are of the view that this deal dilutes Billiton's position in the value-chain ladder."
What Horn means is that through exposure to aluminum, titanium and ferrochrome, Billiton is near the upper rungs of the commodity value-chain ladder and has close relationships with its end-user customers. Copper producers tend to have little or no connection to their end-users.
What's more, he points out that Rio Algom will have a copper cost of US70 cents per lb., including acquisition and project debt-financing costs, whereas the long-term copper price forecast is about US75 cents per lb. "As such, there is a very slim margin from which to cover the cost of the acquisition and to make the deal earnings-enhancing," Horn writes.
Accordingly, the analyst has issued a "take profits/sell" recommendation for Billiton, which trades at about �2.93 on the London Stock Exchange.
Horn's colleague, Greg Barnes, has meanwhile issued a "sell" recommendation for Rio Algom, the target of the takeover activity. "The market strength that has greeted Billiton's higher bid, we believe, is a good opportunity to realize a strong gain in what has been a poor investment climate for mining stocks, and we continue to recommend selling into the strength," Barnes writes.
Rio Algom is currently Canada's second-largest copper producer, with most of its new growth projects based in Peru and Chile. The company has 60.6 million shares outstanding, and its stock trades at about $28.
If it is successful in its bid, Noranda will sell half of Rio to the world's largest copper miner, stated-owned Codelco (Corporacion Nacional Del Cobre de Chile). Unlike Billiton, Noranda stands to benefit from operating synergies with Rio Algom. The two are already one-third partners at the developing Antamina copper-zinc project in Peru.
The prospect of Rio Algom disappearing from the Canadian market has promoted Canaccord's Greg Barnes to issue a "strong buy" recommendation for Aur Resources (AUR-T), which he describes as potentially "the only one pure copper producer on the Canadian scene.
"With the pending acquisition of a 76.5% share interest in the Quebrada Blanca copper mine in Chile," Barnes adds, "Aur will have transformed itself from a junior metals producer to an intermediate mining company with solid and growing copper production."
The US$134-million acquisition is expected to triple Aur's annual copper production to more than 220 million lbs. from 70 million lbs. Copper reserves would quadruple to more than 2 billion lbs.
"An acquisition of this size does not come without risk," Barnes concludes. "The level of debt Aur is taking on means that the next two years will be primarily focused on debt reduction."
Barnes has set a target price of $4.25. Aur currently trades at about $2.30 per share and has 75.7 million shares outstanding.
Billiton outbids Noranda offer
By Stuart McDougall
September 1, 2000
An international takeover battle for Rio Algom (ROM-T) is brewing in the form of a $1.7-billion offer by British conglomerate Billiton. The bid trumps an earlier one by Noranda (NOR-T) to the tune of $200 million.
Billiton's friendly cash offer of $27 per share tops, by 10%, Noranda's similar but hostile proposal of $24.50 on Aug. 22. By that time, Noranda had accumulated 8.9% of Rio's 60.6 million shares outstanding on the open market; its grab for the remainder is backed by Chilean state-owned Codelco (Corporacion Nacional del Cobre de Chile) (T.N.M., Aug. 28-Sept. 3/00).
An anticipated bidding war immediately caused a flurry of trading activity in Rio shares, pushing them up $2.50 to $28.75 on the day of the Billiton offer -- this, in addition to a 45% jump, to $26.30, three days earlier, when 16.2 million shares crossed the floor in reaction to Noranda's announcement.
Unlike Noranda's proposal, Billiton's has the unanimous consent of Rio's board of directors and therefore does not trigger the company's shareholder rights protection plan. Billiton also has a right of first refusal to match any competing offer, be it from Noranda or others, and has been provided a break fee of US$45 million.
"[In our second-quarter conference call], we said that we were very focused on what Noranda was doing and that we were determined to ensure that our shareholders receive fair value," says Rio Vice-President Corey Copeland. "With this deal, we think we've delivered on that undertaking."
Copeland adds that a takeover circular is to be mailed shortly and, assuming shareholders accept it, that this may be followed by the deal's closure a month later. He also notes that the two companies were wrapping up weeks of negotiations when Noranda-Codelco went public.
"The timing of the Noranda bid really was coincidental," says Copeland.
Rio is Canada's second-largest copper producer and one of North America's largest distributors of aluminum and stainless steel. Other key assets include a 33.75% interest in the developing Antamina copper-zinc project in Peru and a 100% stake in the advanced Spence copper deposit in Chile.
Such a strong portfolio is sure to make any battle fierce. Both sides have deep pockets and each sees Rio as an ideal fit.
"The quality and potential of Rio Algom assets represent a unique entry vehicle into the global copper and metals market," states Billiton chairman Brian Gilbertson in a prepared release. "Given Billiton's proven project development record, our financial expertise and muscle, and the potential application of our BioCOP� technology, we look forward to realizing the potential of the Rio Algom assets by growing our new copper and base metals business into an important source of earnings and value for shareholders."
Billiton, currently devoid of significant copper production, would see this grow to 550,000 tonnes annually by 2005. This would also complement its push in copper and molybdenum bioleaching technology through a joint-venture signed with Codelco in early August. The deal sealed three years of joint research and will result in another US$200 million being invested over the next six years.
For Noranda, Rio provides an immediate near-doubling in copper reserves to 11.1 million tonnes and assurance that its copper output will rise to 1.2 billion lbs. by 2005. The two already share in an interest in Antamina, and, with the takeover, Noranda's stake jumps to 50.6%.
Starting in 2002, Antamina is projected to start cranking out 600 million lbs. copper and 360 million lbs. zinc annually over the next 20 years. Rio's share amounts to 200 million lbs. copper and 120 million lbs. zinc, plus 2.1 million oz. silver and 2 million lbs. molybdenum.
Spence would start producing 500 million lbs. of copper annually in mid-2004, of which 410 million lbs. would be in the form of concentrate and the remainder as cathode. A feasibility study is expected by year-end. Global resources stand at 400 million tonnes grading 1% copper. Recent metallurgical tests show that the entire middle layer of the deposit, which contains 200 million tonnes of enriched sulphides grading 1.2% copper, is amenable to leaching or flotation.
At presstime, Noranda had announced a request for Rio's books to conduct a due-diligence review of its operations and assets. When asked if this suggests that a counter-offer in the works, Noranda spokesman Dale Coffin replied: "At this point, we're saying Billiton had the opportunity to do due diligence and obviously came in at a higher offer. Our offer was based on public disclosure documents, and we feel it would be in the best interest of Rio Algom shareholders that we have that opportunity too."
Billiton and Noranda each plan to tap existing cash and banking facilities to cover a takeover. The latter's share would be less, as Codelco would cover half the effective takeover cost.
TOP , Bidding War for Rio Algom, Aug. 2000, Letters to Billiton , Background on Billiton
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