Event: "LUN, together with its JV partner, Freeport-McMoRan
Copper & Gold (FCX, US$33.64, RESTRICTED), in a newly formed
entity, has entered into an agreement with OM Group Inc. (OMG, not
rated) to acquire a cobalt chemical refinery in Kokkola (Finland),
and the related sales/marketing business, for initial consideration
of $325Mln, plus an additional $110Mln payable over 3 years
contingent on revenue-based performance targets."
Impact: "Positive. The deal provides direct end-market access
for the cobalt-hydroxide production from the Tenke Fungurume
copper/cobalt project (
). Kokkola processes unrefined cobalt and related metals and
manufactures advanced inorganic products for use in a variety of
applications in various end use markets, including batteries,
chemicals, and tooling industries. TFM currently produces ~12Kt of
cobalt annually, expanding to 20Kt by 2020. We estimate the
transaction (through increase in payables factor on TFM's cobalt
sales) increases our LUN NAVPS by 6.1% to $6.62 (from $6.06)."
New Cobalt JV structure similar to that of TFM. "LUN will hold
an effective 24% interest in the new JV, with FCX holding a 56%
interest (operator) and Gecamines a 20% interest. LUN and FCX will
together fund the initial acquisition costs on a 30/70% basis,
resulting in LUN providing $97.5Mln towards the initial purchase
price and up to $33Mln over a three year period in contingent
payments. The acquisition is subject to customary closing
conditions, including required regulatory approvals, and is
expected to close in 2Q13."
Valuation: "Our TP of C$6 is based on a 50/50 weighting of 1x
our NAVPS (C$6.62/share) and 5x FY13/14 EV/EBITDA (adjusted for
Tenke). LUN reports 4Q12 earnings Thursday February 21st after
market close. We expect 4Q12 copper, lead and zinc production of
24.6Kt (incl TFM), and 8.5Kt, and 25.5Kt, respectively, at an
average cash cost of $1.84/lb of copper (Neves Corvo)."