Nyrstar tables $663M bid for Breakwater

Toronto-based zinc miner, Breakwater Resources (BWR-T), agrees to a $663-million friendly takeover bid by European smelting giant Nyrstar.

Under the agreement, Nyrstar would offer $7 per share, for a total of $619 million in cash. While Breakwater would pay a special dividend of 50¢ per share or $44 million to its shareholders, a day before Nyrstar acquires all of its shares.

This puts the total value of the transaction at $663 million, or $7.50 per share, which translates to a 44% premium over Breakwater’s closing share price on June 14.  

“The offer made by Nyrstar represents an attractive and fair premium to the current share price,” said Breakwater’s CEO David Petroff, in a prepared statement.  

The company says the offer also represents a 41% premium to the 20-day volume-weighted trading average.

Canaccord Genuity analyst Orest Wowkodaw wrote in a June 15 research note that the offer price is fair, “given that the offer is friendly, is all cash, and represents a premium to our NPV (net present value) valuation along with a significant premium to the current share price in the context of what we believe to be a relatively weak near-to medium-term zinc price environment.”

He also pointed out that the company was the last sizable pure zinc producer in North America not associated with a smelter or trading house, adding that a lot of zinc smelters have recently been acquiring mines to secure feed, as the availability of zinc concentrate may start to shrink.

Similarly, Nyrstar has been seeking zinc assets to increase its mine supply integration, and set an integration goal of 50%.

With the Breakwater acquisition, Nyrstar will near its integration target as it would acquire four zinc-polymetallic mines from Breakwater, including El Toqui in Chile, El Mochito in Honduras, Myra Falls in British Columbia, and Langlois in Quebec. The Langlois mine is expected to resume production in early 2012.

Together, the four mines would have a production capacity of about 140,000 tonnes of zinc in concentrate, 14,000 tonnes of lead in concentrate, 6,000 tonnes of copper in concentrate, 2.3 million oz. silver and 40,000 oz. gold per year.

This would push Nyrstar’s mine supply integration to 43% from 31%.

“The acquisition will provide immediate production and cash flows and will reinforce and further diversify our multi-metals profile whilst maintaining our competitive cash cost position,” stated Nyrstar CEO Roland Junck, in a press release.

As Breakwaters’ directors and officers and largest shareholder, Dundee Corp., enter into lock-up agreements, the miner is advising shareholders to tender their shares in favour of the bid.

“Nyrstar’s offer provides Breakwater’s shareholders with immediate liquidity and accordingly, we are recommending shareholders tender their shares to the Nyrstar offer,” said Petroff.

If the deal goes through, Ned Goodman’s Dundee Corp., which owns 22.1% of Breakwater, would stand to benefit the most.

Last November, Goodman agreed to sell DundeeWealth to the Bank of Nova Scotia (BNS-T, BNS-N), and is now ready to say adieu to Breakwater.

However, the transaction requires at least two-thirds acceptance, regulatory approvals and no material change in the miner’s business.

The deal has a $20-million break fee if Breakwater accepts another offer, however, Nyrstar can match superior bids.

Wowkodaw of Canaccord Genuity noted that the chances of a competing offer or a bid sweetener by Nyrstar materializing are slim. He reduced his rating on Breakwater to hold from buy, and lowered the target price to $7.50 per share from $7.75.