Timminco grows

Specialty and light-metals company Timminco (TIM-T) has added silicon metal and ferro-silicon to its mix of products by acquiring Quebec-based Bcancour Silicon.

Headquartered in Toronto and with facilities in Canada, the U.S. and Australia, Timminco already produces specialty metal products such as magnesium, aluminum, calcium and strontium alloys.

Bcancour produces high-quality, chemical- and electronics-grade silicon metal and specialty ferro-silicon, which are used to manufacture consumer and industrial products such as silicon sealants, pigments, cosmetics, semiconductors, and fibre optic cables.

Reflecting a valuation and fairness opinion provided by RBC Capital Markets, Timminco acquired Bcancour by issuing 30.9 million shares valued at about $34 million. Timminco also took on Bcancour’s net bank debt of $17 million, effectively doubling the company’s debt load.

Bcancour had been owned indirectly by Safeguard International Fund L.P., which is also Timminco’s controlling shareholder. Prior to the deal, Safeguard owned 26% of Timminco’s shares and voted a total of 50.3% under an agreement with Timminco’s second-largest shareholder. With the acquisition completed, Safeguard now owns 59% of Timminco and controls the votes of about 72% of Timminco’s shares.

The newly expanded Timminco has total assets of about $175 million and will have annual revenues of about $200 million. Timminco says the combined company will have greater operating scale and financial strength, and less volatility of sales and earnings.

The hoped-for improvement in financial muscle is key for Timminco, which has been in non-compliance of the covenants in its credit facility since May 2004, and is trying to renegotiate its credit arrangements.

(As a result of the non-compliance, Bcancour’s and Timminco’s lenders had to give their blessing to the acquisition.)

For the first half of 2004, Timminco posted a net loss of $2.6 million (or 7 per share) on sales of $51.5 million, compared with a net income of $5 million (18) on sales of $54.3 million for the first six months in 2003. Timminco blamed the loss on “difficult business conditions,” characterized by a high price for inputs, including purchased magnesium, ferro-silicon and natural gas. With 90% of its revenues in U.S. dollars, the sinking greenback also depressed Timminco’s earnings.

In response, Timminco raised the prices of all its products sold worldwide by a minimum 10% in August.