The spin-off, called Nyrstar, is expected to start operations in September, and while no indication has been given to the size of the IPO, NyrstarÆs assets are estimated to be worth about $4 billion.
The formation of Nystar was mooted back in December last year when Zinifex signed a deal with BelgiumÆs Umicore to combine their zinc and lead smelting activities into a separate company. The company was officially created in April, with Zinifex owning a 60% share and Umicore 40% - a split reflecting the value of the assets contributed to the business.
At a general meeting in Melbourne yesterday, chairman Peter Mansell said the sale of the companyÆs interest in Nyrstar would provide it with a significant injection of cash. ôIf the proceeds from the sale cannot be successfully re-invested, then surplus cash will be returned to shareholders,ö said Mansell.
Mansell said existing shareholders in Zinifex and Umicore would not be offered a priority allocation in the IPO and nor would the sale be open to retail investors in Australia. ôThese offerings would have delayed the process and would have added significantly to the complexity and cost of the IPO and, therefore, potentially lowered the return from the bookbuild process,ö he said.
When operational, London-headquartered Nyrstar will be the worldÆs largest producer of zinc and zinc alloys ahead of competitors Korea Zinc and Xstrata. It will have an annual output of 1.2 million tonnes of zinc products, amounting to 10% of global market share.
The move has been considered a strategic win for Zinifex which can now focus on its core mining activities. The company, which was on the brink of collapsing in 2001, has experienced a turn-around as global zinc prices have soared. Two of its most promising projects include: Dugald River in Australia, one of the largest undeveloped high-grade zinc deposits in the world; and its Canadian copper/zinc deposits acquired through the recent acquisition of Wolfden Resources.
Yesterday, the company revealed its intention to pursue projects in Sweden, Tunisia, Mexico and China. With the sale of its Nyrstar shares, it will have the cash available for acquisitions.
Earlier this month, several equity analysts upgraded their earnings expectations for Zinifex on the back of an increase in metals prices. Peter OÆConner, a research analyst at Credit Suisse, has an outperform rating on the company. ôZinifexÆs earnings estimates have increased by 2.6% in financial year 2007 and 4.4% in 2008,ö says OÆConner. ôWe have also increased our target price by 14% from A$19.72 per share to A$22.50 a share.ö
Zinifex shares fell 85 cents yesterday to A$19.69 in line with a broader 1% fall in the Australian stock market. In mid-December last year, just after the Umicore deal was announced, Zinifex shares were trading at A$18.10.
UBS has acted as financial advisor to Zinifex and Umicore during the spin-off process.