Outokumpu swaps assets with Boliden

An asset-swap deal between Scandinavian metal producers Outokumpu of Finland and Boliden (BLS-T) of Sweden will move almost all Outokumpu’s remaining mining assets to Boliden.

The exchange will give Outokumpu a 49% shareholding in the reorganized Boliden and a controlling position on the Swedish company’s board, and effectively turns Outokumpu into a downstream metal-fabrication business. Boliden doubles in size, and as part of the deal will refinance itself using a rights offering.

Under the terms of the agreement, Boliden takes ownership of the Tara zinc mine in Ireland, Outokumpu’s two zinc smelters (in Kokkola, Finland, and Odda, Norway), and Outokumpu’s downstream copper operations, the Harjavalta smelter and Pori refinery, both in Finland. A Dutch-based metal sales operation comes with the deal.

The parties valued the Outokumpu assets at EU 736 million. In exchange, Outokumpu gets rights to a share issue that will give it a 49% interest in Boliden, with an implied value of EU 307 million. Boliden will take a bank loan to provide EU 373 million in cash, and issue Outokumpu a subordinated vendor note of EU 56 million.

Boliden, in turn, will sell Outokumpu its metal-fabrication business (four European plants) and its Boliden Contech division, which markets mining and processing technologies developed by the company. Boliden gets 5 million shares in Outokumpu (a 2.8% interest) in exchange for the fabrication and technology businesses, valued at EU 49 million.

Boliden is also planning a further issue of rights to existing shareholders, amounting to a value around EU 150 million. Both Outokumpu and the Carl Bennet Company, one of Boliden’s largest shareholders, have committed to taking up their share of rights in the secondary issue.

The rights issue, if fully subscribed, would give Boliden about EU 800 million in net shareholders’ equity, against net debt of EU 700 million. At the end of the second quarter, Boliden had about EU 330 million in shareholders’ equity and about EU 560 million in long-term debt.

Outokumpu gets four seats on the new Boliden board, with three directors to be appointed by the present shareholders. There will also be some employee representation on the new board. Jan Johansson, Boliden’s chief executive officer, remains in office, with Tom Niemi of Outokumpu as his deputy.

The deal is to go before a meeting of Boliden shareholders, currently scheduled for November, once a final agreement has been signed. It will also be subject to review by competition regulators. Closing is scheduled for year-end.

The Tara zinc mine, which resumed production a year ago after a one-year suspension, can produce concentrate containing 200,000 tonnes zinc and 40,000 tonnes lead annually. It has reserves of 12.8 million tonnes grading 9% zinc and 2.1% lead, plus resources of 17.2 million tonnes grading 7.1% zinc and 2.2% lead.

Outokumpu also acquired the property immediately to the north, Bula, which hosts the northern extension of the Tara orebody, in May 2001. The extension has a resource of 8 million tonnes running 10% zinc and 2% lead.

The zinc plant at Odda is the same one Boliden and Rio Tinto (RTP-N) sold to Outokumpu in early 2001. It has an annual capacity of 150,000 tonnes and Kokkola — about 130 km across the Gulf of Bothnia from Boliden’s copper smelter at Ronnskar — produces 260,000 tonnes annually.

The Harjavalta copper smelter, just east of Pori, produces 160,000 tonnes copper per year, with 125,000 tonnes refined at Pori. Added to Ronnskar, the plants bring Boliden’s copper-smelting capacity to 400,000 tonnes per year.

Outokumpu, shed of its main mining and smelting assets, becomes principally a stainless steel and fabricated-copper producer. Earlier this month the company reached an agreement to sell its precious-metals assets to Australian junior Dragon Mining. Dragon will pay EU 5.5 million in cash and issue 40 million shares to Outokumpu. Dragon may pay a further EU 1.5 million in cash, depending on the financial and operating performance of the properties it is receiving. That sale is scheduled to be finalized after a 30-day due-diligence investigation by Dragon and its lenders.

The deal includes the Orivesi gold mine, about 40 km northeast of Tampere, Finland, which Outokumpu had expected to close this year. Orivesi is a decline mine that has produced 375,000 oz. gold since 1994. Dragon plans to drill a gold-mineralized structure Outokumpu discovered in exploration drilling on the mine’s 525-metre level, in the hope of putting together a resource that will make it possible to resume production.

Dragon also gets the Vammala mill, about 40 km southeast of Tampere, which processes Orivesi ore, and a portfolio of exploration properties. The most advanced of the exploration projects is the Pampalo project near the border with Russia, with a resource of 900,000 tonnes grading 6.8 grams gold per tonne. A decline at Pampalo extends to a vertical depth of 272 metres.

Also in the deal is the Kylylahti polymetallic property near Outokumpu in eastern Finland, which hosts a semi-massive sulphide with an inferred resource of 2 million tonnes grading 2.63% copper, 0.39% cobalt, 0.76% zinc and 0.9% nickel. A zone of disseminated mineralization holds an inferred resource of 1.4 million tonnes grading 0.61% copper, 0.18% cobalt, 0.39% zinc and 0.33% nickel. Both the zones carry a gold credit of 0.9 gram per tonne.

With the Dragon deal and Outokumpu’s earlier sale of its 49% interest in the Arctic Platinum Project to joint-venture partner Gold Fields (gfi-n), the Finnish company has made a complete exit from the precious-metals business.

Outokumpu retains two mines, of which one — the Kemi chromite mine in northern Finland — remains a core asset of the company’s stainless-steel division. The other mine is the Hitura nickel mine south of Oulu, which feeds the Harjavalta nickel smelter east of Pori. Outokumpu sold the nickel plant to the ill-fated OM Group (omg-n) in 2000.