New zinc giant
The metals industry continues its relentless course of consolidation, this time in the area of zinc production. Australia-based Zinifex has announced it will merge its smelting operations with those of Belgium-based Umicore and then spin the company off as a jointly-owned venture.
The combination will create the new #1 zinc maker in the world, replacing South Korea's Korea Zinc. The market is still very fragmented, with the new entity producing only 10% of world market share, but it's clear that zinc is following in the footsteps of steel and aluminum. Currently, Xstrata (since its merger with Falconbridge) is #2 in zinc production, while Zinifex is #3 and Umicore #4. We understand that China is actively building new smelters.
It also comes as zinc mining becomes more consolidated. Zinc is used to coat steal to make it rust-resistant, and is used heavily in the automobile industry, for example. It is also sued for making brass.
The big zinc deals this year include:
- October, 2006, Swedish Lundin Mining Corporation merged with Canadian-based EuroZinc Mining Corporation. The new company retains the name Lundin Mining Corporation
- August, 2006, Swiss-based Xstrata acquires Canadian-based Falconbridge, with significant zinc interests.
- June, 2006, UK-based ZincOx Resources plc acquires US Big River Zinc Corporation
Zinifex is a relatively new company, constituted in 2004 from the remnants of bankrupt Paminco Company in 2001. It also smelts lead. Both zinc and lead are record prices, partly due to demand from China. The deal will, according to analysts, generate over $2 billion for Zinifex, and every indication is that Zinifex will use the money to buy more zinc mines. Of course, there is also speculation that Zinifex, now cash-rich, itself will become a takeover target now that it will be a purer play.
Umicore (formerly Union Miniere) smelts zinc, copper, and precious metals, with an emphasis on recycled materials. In 2005, it spun off its copper manufacturing operations into a new company, Cumerio.
The new company will be truly worldwide, with operations in Australia, U.S., the Netherlands, Belgium, France, Thailand, and China.
The deal is, at least for Zinifex, is a typical case of de-verticalization. The combination of two pieces of teh supply chain, mining and smelting, turns out to havee less valuable than separting the two fucntions.
