latest press release from uk

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    Xstrata risks rights issue to buy MIM

    Neil Hume
    Monday April 7, 2003
    The Guardian

    Xstrata, the FTSE 100 coal mining company, will today brave the volatile London market and ask its shareholders to stump up £1bn to help finance the


    long awaited £1.35bn acquisition of Australia's MIM Holdings, the world's seventh biggest copper producer.
    The rights issue is expected to be pitched at about a 50% discount to Xstrata's closing price of 486.5p on Friday night, implying shareholders will be offered the chance to buy three new shares for every two they own.

    The rest of the deal will be funded by debt. At the end of 2002, Xstrata had drawn down $600m (£390m) of its $1.4bn debt facility.

    The cash call will be the first and largest in the UK since Legal & General raised £800m in September 2002, and the size of the discount is likely to surprise the City.

    Negotiations between Swiss-domiciled Xstrata and MIM (Mount Isa Mines) over the A$1.76 a share deal have dragged on since November but reached a conclusion on Friday with the board of MIM agreeing to recommend an offer, which values the company at A$3.5bn (£1.35bn).

    Deutsche Bank is advising Xstrata, which on Friday had a market capitalisation of £1.23bn, on the deal.

    Xstrata chief executive Mick Davis has made no secret of his desire to create a diversified mining company since he acquired the South African and Australian coal assets of Glencore International for $2.5bn last year and moved the company's main listing to London.

    However, pressure has intensified on Mr Davis, the former Billiton finance director, to strike a deal as the price of coal has dived and changes to South African's mineral law have come into force.

    Under the terms of the Black Economic Empowerment Act, 26% of South African's mining industry is to be transferred to black hands over the next 10 years. On top of that, President Mbeki's government this month announced new levies on sales of minerals dug from South Africa, which ranged from 2% on coal and 3% on coal to 8% for diamonds

    Xstrata draws more than 50% of its profits from South Africa and last year coal accounted for nearly 70% of group revenues. This dependence is one reason why its shares have performed so poorly in the past 12 months. They have fallen 50% and now trade at a 30% discount to industry leader Rio Tinto.

    Analysts estimate that the MIM deal will reduce the group's proportion of South African assets from 43% to 19% and earnings before interest from 56% to 27%.

    Brisbane-based MIM is the world's seventh largest copper producer and employs 8,000 people around the world. It is best known for its 78-year-old Mount Isa copper mine although its coking coals operations in Queensland generate the bulk of group profits.

    According to City analysts MIM is a good fit because its coking coal assets will help balance Xstrata's dependence on thermal coal while MIM's zinc mines will provide feedstock for its low-cost smelter in Spain.

    The deal will all but signal the end of Australia's independently owned mining sector. In recent years CRA, BHP, now merged with Billiton, and AurionGold have all fallen into foreign hands.

    Xstrata floated in March 2002 at 870p a share and raised £1bn which it used to help pay for the Glencore acquisition. The rest of the deal was financed with shares, leaving Glencore with a 40% stake.

    In February, Xstrata reported a 17% drop in annual profits to $225m from $272m on revenues that increased 6% to $2bn.


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