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Aim-traded Sylvania Resources has announced a merger with Helsinki-listed Ruukki to create one of the largest mining groups outside the majors. The terms are one Ruukki share for every 1.81 Sylvania shares, valuing Sylvania at around 93p, against its current share price of 72p.
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The merger seeks to create an integrated platinum and ferrochrome group, and exploits the fact that the tailings (material left over from mining and processing) of each metal provide natural source material from which to extract the other.
Ruukki chief executive Alwyn Smit describes the deal as a "business merger" founded on low-cost production that is still profitable at current commodity prices. He aims to unlock value from low-grade platinum, particularly the tailings dumps targeted by Sylvania that make it currently the lowest cost platinum producer. Sylvania is also involved in off-market takeover offers for SA Metals and Great Australian Resources that offer shallow exploration, which could add further low-grade input for Ruukki's smelters.
The merger is expected to close in early 2010. It will then take around a year to begin smelting platinum and start realising the synergy benefits. The enlarged group is targeting a main market listing in London and, depending on market performance before then, could be big enough to warrant a place in the FTSE 250.
Elsewhere among platinum juniors, Jubilee Platinum plans to acquire Braemore Resources, which holds the licence to the 'ConRoast' smelting and refining process designed to reduce costs and recover purer platinum. Braemore needs capital to finance the construction of commercial facilities, and platinum production to feed its smelters. This is where Jubilee steps in with its substantial, though not yet producing, Tjate project.
The deal involves one Jubilee share for every 15.818 Braemore shares, valuing Braemore at close to its current 2.25p share price. Jubilee acquires valuable technology and near-term ore treatment capability, although the upside is somewhat impaired by it agreeing to finance up to 50m rand (£3.8m) of Braemore's costs, in addition to which it needs to raise funds to build a ConRoast plant. Jubilee chief executive Colin Bird said that the deal would make Jubilee "the only platinum junior able to go from exploration to finished metal".
Such deals target efficiencies from integrated production to offset the uncertain platinum market. Sylvania has secured an attractive deal and its shares are good value at 72p. Jubilee's shares are also good value at 34p on the basis of its Tjate project alone.
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