The deal also includes an exploration portfolio, an alliance aimed at sharing mining and mineral processing technology, and life-of-mine, off-take agreements for copper and zinc concentrate from Pyhasalmi.
In return, Inmet will pay Outokumpu $63.8 million in cash, issue Outokumpu a $19.8-million, 10-year, 6% promissory note and 4 million shares (with a minimum hold period of three years) at $4.50 apiece.
Also under the deal, Outokumpu’s chief executive, Jyrki Juusela, will join Inmet’s board of directors.
The cash payment will be financed via a US$40-million bank facility, arranged by the Canadian Imperial Bank of Commerce as lead banker with Macquarie Bank and Standard Bank as partners. Principal repayments on the facility begin July 1, 2003, with final maturity at the end of 2006. The subordinated promissory note has no principal repayments until maturity.
The agreement, which is expected to wrap up in the first quarter of 2002, is subject to regulatory approval because it involves a share issue.
Inmet expects the acquisition to boost 2001 copper production by 23% to about 75,300 tonnes and zinc production by 250% to 43,500 tonnes. The company says 2002 production figures could reach higher after a recent deal to acquire Gama Endustri’s 6% interest in the Cayeli copper-zinc in Turkey for about $13 million. The deal boosts Inmet’s stake in the project to 55%.
Pyhasalmi, 60 km south of Oulu in central Finland, produces 30,000 tonnes copper and 14,000 tonnes zinc annually. The mine has reserves of 17.2 million tonnes with average grades of 1.2% copper, 2.8% zinc and 0.4 gram gold per tonne. An undeveloped low-grade pyrite zone carries 18.5 million tonnes containing 0.4% copper, 0.5% zinc and 45% sulphur.
The copper-zinc ores are highly pyritic and contain about 39% sulphur by weight, making the sale of pyrite concentrate to the fertilizer industry a major contributor to mine revenue: Pyhasalmi is Europe’s leading producer of high-purity pyrite concentrate, most of which is sold under long-term contracts generating about 20% of net smelter returns.
At a production rate of 1.2 million tonnes annually, Pyhasalmi is expected to produce an average of 14,000 tonnes copper and 30,000 zinc in concentrate until 2015.
Since the beginning of production in 1962, Pyhasalmi has produced 33 million tonnes of ore containing 270,000 tonnes copper and 830,000 tonnes zinc and almost 12 million tonnes sulphur.
Over the past four years, Outokumpu has put about US$57 million into modernization, and in July Outokumpu commissioned a 1,450-metre, fully automated hoisting shaft. Production rates of 76 tonnes per person per shift are among the highest in the base metal industry. The orebody is mined mainly by sublevel open stoping. Two-hundred people work at the mine-and-mill complex.
With the modernization has come a plunge in operating costs, so that Pyhasalmi now produces copper at around US$530 per tonne (US24 per lb.). Direct mining costs averaged US$10.50 per tonne.
The companies have signed a life-of-mine smelting agreement that preserves Pyhasalmi as a dedicated source of feed for Outokumpu’s Harjavalta copper smelter and Kokkola zinc plant. There is also an agreement to co-operate on mining and mineral processing technology, which essentially makes Outokumpu the contractor of choice for Inmet’s operation. Outokumpu is predicting that the sale will not affect its 2002 earnings.
Outokumpu, which announced its intention to sell its base metal mining division in November, commissioned RBC Capital Markets to shop the assets around. Pyhasalmi is the first of the company’s large base metal mines to be sold, though
The company suspended mining at its Tara zinc mine in the Irish Republic in November, saying it would wait for an improvement in the zinc markets before bringing Tara back into production. Underground development work is continuing at Tara in the meantime. Tara’s resource at the end of 2000 was 29 million tonnes grading 7.9% zinc and 2.2% lead.
In May, Outokumpu bought the adjacent Bula zinc project out of receivership. Bula has a resource of 8 million tonnes grading 10% zinc and 2% lead.
The other major asset on the block is the small but high-grade Black Swan nickel mine in Western Australia; at the close of 1999, reserves were 1 million tonnes grading 4.2% nickel, with about half a million tonnes being mined annually for production of 20,000 tonnes nickel.
At the same time, the company has been aggressively adding smelting capacity. In April, it took possession of the Norzink zinc plant in Odden, Norway, having bought it for US$180 million from
The Kokkola zinc plant commissioned a direct-leaching stream in October, bringing annual capacity to 260,000 tonnes from 225,000 and making it the second-largest zinc plant in Europe. Expansion studies are under way for both Harjavalta and its companion refinery at Pori. The company has also been acquiring metallurgical equipment and contracting businesses in Europe.
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