Mysterious Metall still looking for an acquisition

Even though it wants to be regarded as an operating mining firm with gold and base metal projects throughout the world, Metall remains best known for its holdings in Teck Corp. (TSE) and Cominco Ltd. (TSE).

No one at Metall is denying that the relationship between Metall and its affiliates has been mutually beneficial. An increase in third quarter net income to $6.2 million or 16 cents per share compared to $5.2 million or 14 cents per share in the same period last year is credited largely to Metall’s 49% stake in Temagami Mining Co., the company that controls Teck.

A 10% stake in Cominco and a 20% interest in the Highland Valley Copper group also contributed to Metall’s recent results.

But Zeitler has set out to establish his company as an operating mining firm with a broad array of international interests. Going into 1989, his chief goal is to convince the investment community that Metall is slowly shedding its holding company image and getting more directly involved in the business of mining. Phelps Dodge

Metall took a step in that direction recently when it spent $10.7 million to buy Phelps Dodge Corp.’s remaining 24% stake in Turkish miner Cayeli Bakir Isletmeleri. As Cayeli’s largest single shareholder with 49%, Metall is attempting to develop a large zinc/copper/ silver project in Turkey’s northeast coastal region. At a cost of around 38 cents (US) copper per lb and 45 cents zinc, Zeitler says Cayeli could be producing as much as 100,000 tons of copper and 70,000 tons of zinc concentrates annually, by 1992.

Reserves stand at 15 million tons grading 4.54% copper and 7.79% zinc, and 1.05 oz silver per ton and a 2,000 ton-per-day pilot plant was scheduled to be up and running before year end. Cayeli is also looking for epithermal-type gold deposits in Turkey.

Meanwhile, Metall is planning to establish itself as an operator in Australia where it has a 25% stake in a producing gold project called the Callion Joint Venture. Located in Australia’s Kalgoorlie area which is dotted with open pit gold mines, Callion is expected to produce about 25,000 oz gold annually for several years. Callion program

With its foot firmly in the Australian door, Metall is betting that a number of other gold producers in the region will want to draw on the company’s narrow vein mining experience and that joint venture agreements will follow.

“We have six people in Australia overseeing an underground development program at Callion,” said Zeitler who is attempting to bring some new projects into Metall’s portfolio.

Equipped with $120 million in cash, Metall isn’t limiting itself to any particular metal or country. As the 62.7%-owned subsidiary of a German metals colossus, Metall doesn’t have to.

Metallgesellschaft AG’s experience in the mining and metals business (it has developed a safety steering wheel for the Porsche 944 sports car) is so broad that Metall can look at everything from U.S. lithium projects — which it did last year — to the precious and base metal mines which are being sought by other cash rich mining companies like Noranda Inc. (TSE), Rio Algom (TSE) and Northgate Exploration (TSE).

As a former project evaluator in Metallgesellshaft’s mining department, Zeitler is no neophyte in the business of cutting deals. He and Metall Chairman Heinz Schimmelbusch are influential members of the Teck and Cominco boards and their experience has been used to install new technology at the Trail smelter in British Columbia. Nanisivik mine

Back in the mid 1970s, Zeitler was responsible for assembling the financing package needed to bring the Nanisivik zinc mine in Baffin Island into production. He selected Graham Farquharson to take charge of building what was the first mine in Canada to be located north of the Arctic circle. Metallgesellschaft is still buying concentrates from Nanisivik.

Zeitler maintains that the Canadian investment community won’t truly embrace his company until it makes the big North American acquisition which it has been promising since Metall’s inception.

But American precious and base metal projects are being sold at a premium and he is under no pressure from his board to make any rash moves.

“We will buy when we think we have the right project,” he said. “Our criteria is long term reserves and we want to be in the lower half of the cost curve.”

Like his competitors, Zeitler has been scouring the continent for the right project to beef up the company’s portfolio. He put in a bid for the East Kemptville tin mine which the Bank of America subsequently returned to Rio Algom for $41 million plus royalties. Metall was also outbid by Denver-based Cyprus Minerals for a number of lithium deposits put up for sale by Newmont Mining of New York. Cypress paid $90 million for the deposits which are located in Nevada, North Carolina and Chile. Highland Valley

Through its holdings in Teck, Cominco and Highmont Mining, Metall’s interests extend to the David Bell and Williams gold mines at Hemlo, Ont, the huge Red Dog lead zinc deposit in Alaska and the Highland Valley Copper mine in British Columbia.

A 16.7% interest in ACG Ltd. Partnership has given Metall exposure to the Afton copper mine near Kamloops, B.C. The company has already decided that it will increase its stake in ACG to around 27%.

Metall is also involved in a Papua, New Guinea gold/copper mine by virtue of a 7.5% stake in Ok Tedi Mining Co. Despite a number of problems including a 12-day strike and lower than expected head grades, Ok Tedi was planning to produce around 500,000 oz gold and 180,000 tons of copper concentrates in 1988.

In October Metall spent $15.4 million through a rights offering to acquire an additional 10.4 million shares of Brisbane, Australia-based M.I.M Holdings Ltd. keeping its stake in the base metals producer to 5% or 52.3 million shares.

M.I.M.’s Mount Isa mine in northeastern Australia produced 72,400 tonnes copper, 85,800 tonnes of lead and 96,700 tonnes of zinc in 1987. Since M.I.M. also produces coal and gold from mines in Queensland and Ravenswood respectively, Metall considers its investment in the company as an important window to the Australian mining industry.

While Zeitler says he is actively pursuing available projects in North America with vice-president of corporate development Norman Hardie, he declined to discuss any of those involved. However he was prepared to reveal the company’s acquisitions strategy.

“In mining, you have to be constantly looking around but you also have to sit still,” said Zeitler. “A good thing only comes along every two or three years and when it does you have to be ready to jump into negotiations and move quickly,” he said.

According to the Metall president, he only has to consult his board when a possible acquisition is being considered.

“We are sitting around being very alert and when the right opportunity comes along we will be ready,” he said.

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