SYDNEY - Australia's Zinifex and Belgian metals firm Umicore will combine their zinc smelters to create the world's largest zinc metal producer, driving Zinifex shares up 7 per cent.
The move, five years after Zinifex's predecessor, Pasminco, went bankrupt owing billions of dollars, will give Zinifex more exposureto fast-rising world zinc prices and provide extra cash to expand its profitable zinc mining business.
The pair will offer shares in the newly formed group, worth up to US$1.6 billion ($2.4 billion), on the Euronext exchange some time after it is assembled in the third quarter of 2007, with Zinifex likely to sell any holding for cash to fund mining.
"The zinc market is very hot right now and it's a good time to sell zinc smelters," said Daiwa senior analyst Mark Pervan.
Shares in Zinifex last traded at A$18.10, up A72c, but earlier traded close to a life high of A$18.74 hit on December 5. Umicore closed on Monday down 0.8 per cent at €115.70 ($222.40).
"I see this as a move in the right direction for Zinifex as it focuses more on mining," said ABN Amro analyst Warren Edney, who values Zinifex's smelting business at around A$1.2 billion and the mining operations at A$2.9 billion.
Zinifex chief executive Greig Gailey said Zinifex's assets would account for about 60 per cent of the assets of the new group. By that measure, the combined zinc assets could be worth A$2 billion.
"We've been in negotiations with Umicore for some time and are at quite a progressed stage," Gailey said.
UBS is acting as financial adviser for Umicore and Zinifex.
The merger comes amid strong demand for zinc due to a global supply shortfall.
Prices for zinc, used as a rust retardant in galvanised steel making, have more than doubled to around US$4300 a tonne in London Metal Exchange trading since January.
Canada's Teck Cominco, Switzerland's Xstrata and South Korea's Korea Zinc Co will be its closest rivals.
The new company will be incorporated in Belgium. Senior management will be drawn from both companies.
Zinifex, which mines and refines zinc in Australia, Europe and the United States, was assembled from the ashes of the bankrupt Pasminco group.
Awaiting an upswing in zinc prices, Zinifex delayed relisting on the Australian bourse for two-and-a-half years following the collapse of Pasminco with A$3 billion in debts, losing billions of dollars for shareholders.
