EuroZinc lone bidder for Neves Corvo

Vancouver — EuroZinc Mining (EZM-V) is the only company to have bid on the offering of the Portuguese government’s 51% interest in Somincor, the company that owns the giant Neves Corvo copper mine in the country’s southern region.

The cutoff date for bidders was Jan. 19, and if and when EuroZinc’s bid is accepted (probably in March), the sale will close within 90 days.

The government owns its 51% stake in Somincor through the Crown corporation Empresa de Desenvolvimento Mineiro. The remaining 49% is held by Rio Tinto (rtp-n), which plans to sell its interest as well.

Somincor employs 785 people and posted a net profit of 89.1 million euros in 2002.

The lack of bidders is attributed to the recent sharp fall in the U.S. dollar. When Somincor’s stake in the mine was put up for sale in November 2003, the base price was set at 115 million euros, equivalent to US$135 million; it is now about US$146 million. Initially, five companies expressed interest, namely First Quantum Minerals (fm-t), Noranda (NRD-T), Inmet Mining (IMN-T), Australian-based Gallipoli Mining, and Finnish-based Outokumpu. However, all five withdrew, citing the depreciating dollar as the reason.

The Portuguese government is offloading its interest as part of a privatization program, whereas Rio Tinto has been seeking a buyer for its interest for several years. In mid-2002, Rio Tinto was ready to hand over the Neves Corvo shares to Australian-based Murchison United, but the Portuguese government reneged on the deal.

In its bid for the Neves Corvo mine, EuroZinc has arranged a $30-million bought-deal financing with the assistance of underwriters Paradigm Capital and Pacific International Securities. The financing will consist of 50 million special warrants and result in proceeds of $20 million. Each special warrant will be sold for 40 and be convertible into one EuroZinc share and half a warrant. Each full warrant will allow the holder to buy one share for 50 in the first year and 75 in the second. The underwriters have exercised their option to buy an additional 25 million special warrants at the issue price for an additional $10 million.

Proceeds will be placed in escrow pending acceptance of EuroZinc’s bid for Somincor. If a definitive agreement is not signed by April 30, holders of special warrants may elect to cancel their special warrants and have their money returned.

Neves Corvo was built 14 years ago. It was designed to produce 1.3 million tonnes of ore, yielding 500,000 tonnes per year of concentrate averaging 26% copper. The life of the mine, based on proven reserves, was pegged at 20 years.

Last year, Neves Corvo processed 1.7 million tonnes of ore at average grades of 5.33% copper and 2.16% tin. The mine produced 329,600 tonnes of copper concentrate averaging 23.5% copper and 300 tonnes of tin concentrate averaging 61% tin.

According to estimates, the mine has 30.6 million tonnes of copper ore, and that’s not including large reserves of tin and zinc. The potential for finding additional resources is considered excellent.

Forty kilometres northwest of Neves Corvo is the Aljustrel zinc mine, which EuroZinc owns through a Portuguese subsidiary, Pirites Alentejanas. EuroZinc believes that common ownership of Somincor and Pirites Alentejanas would be advantageous from an operational perspective. The acquisition of Somincor would also elevate EuroZinc to the mid-tier of diversified base metal miners.

EuroZinc’s bid for Somincor is backed by a co-operative agreement with Boliden (BLS-T) and Helsinki-listed Outokumpu. Boliden will enter into a long-term agreement for off-take of copper concentrates, whereas Outokumpu will provide EuroZinc with equipment and other technology.