15/06/2011

YESSSSSS.NYRSTAR RACHETE BREAKWATER RES

Nyrstar announces binding agreement to pursue friendly offer to acquire Breakwater Resources Ltd.

News Release
Regulated Information

15 June 2011

Nyrstar NV ("Nyrstar") today announced that it has entered into a binding agreement (the "Support Agreement") with Breakwater Resources Ltd. (TSX: BWR) ("Breakwater") pursuant to which Nyrstar has agreed to make an all-cash offer to acquire all of the issued and outstanding shares of Breakwater by way of a friendly take-over bid. Under the terms of the Support Agreement, Breakwater shareholders will receive the following consideration for each share held:

  • C$7.00 in cash per common share, representing a total value of approximately C$619 million (€442 million) to be paid by Nyrstar (the "Nyrstar Offer").
  • A special dividend of C$0.50 in cash per common share (the "Breakwater Special Dividend") to be declared payable to Breakwater shareholders of record on the business day immediately prior to the take-up of shares by Nyrstar pursuant to the offer. This represents a total value of approximately C$44 million (€32 million) to be paid by Breakwater, as consented to by Nyrstar under the Support Agreement.

The Nyrstar Offer, together with the Breakwater Special Dividend, (collectively, the "Consideration") implies a total transaction value to Breakwater shareholders of approximately C$663 million (€473 million) on a fully diluted basis (including shares to be issued from the conversion of options and warrants)[1].

Breakwater's operations consist of four zinc poly-metallic mines, including El Toqui in Chile, El Mochito in Honduras, Myra Falls in British Columbia Canada, and Langlois in Quebec Canada (Langlois is currently in ramp-up and expected to restart production in Q1 2012). Together, the operations have an annual production capacity of approximately 140,000 tonnes of zinc in concentrate, 14,000 tonnes of lead in concentrate, 6,000 tonnes of copper in concentrate, 2.3 million troy ounces of silver and 40,000 troy ounces of gold thereby significantly increasing Nyrstar's aggregate annual mining production. 

Following the acquisition of Breakwater and once all operations are fully ramped-up (as expected by the end of 2012), Nyrstar's aggregate annual mining production is expected to be approximately 475,000 tonnes of zinc in concentrate, 28,000 tonnes of lead in concentrate, 15,000 tonnes of copper in concentrate, 7.8 million troy ounces of silver[2], and 95,000 troy ounces of gold. At this level, Nyrstar would be one of the 5 largest zinc miners based on 2010 global zinc mine production[3].

The acquisition will significantly increase Nyrstar's level of zinc integration (zinc production from mines as a percentage of smelter production) from 31% to 43% (assuming all mining operations at full production as expected by the end of 2012), a significant advancement on Nyrstar's stated medium term integration target of 50%.

Due to strong by-product credits, the operations are expected to have an average zinc C1 cash costs[4] of less than US$750/tonne of payable metal once at full production, thereby supporting Nyrstar's stated objective of having an average zinc C1 cash cost across all its mining operations of less than US$1,000/tonne of payable metal.

Commenting on the offer, Nyrstar's Chief Executive Officer, Roland Junck said:

"This acquisition is in line with our strategy to selectively pursue opportunities in mining, and presents an exciting opportunity to significantly increase our zinc integration.

The acquisition will provide immediate production and cashflows and will reinforce and further diversify our multi-metals profile whilst maintaining our competitive cash cost position.

The rapid integration of the operations into the Nyrstar portfolio will be a high priority for management, and as such we have recently introduced a dedicated integration function reporting to the Management Committee.

We believe that our offer provides substantial value to Breakwater shareholders and recognises the long-term potential and value of the operating portfolio.

The acquisition will be financed from currently available funds and facilities, and is expected to be immediately accretive for Nyrstar on an earnings and cashflow per share basis."  

Breakwater's Board of Directors has unanimously recommended that shareholders tender their shares in favour of the Nyrstar Offer.  GMP Securities has provided an opinion to the Breakwater Board of Directors that the Consideration to be received by Breakwater shareholders under the Nyrstar Offer is fair, from a financial point of view, to the Breakwater shareholders.  Breakwater's largest shareholder, Dundee Corporation, which owns approximately 22.1% of Breakwater's outstanding shares, as well as all of Breakwater's directors and key officers, have each entered into a lock-up agreement pursuant to which each has agreed to tender common shares held by them in favour of the Nyrstar Offer (in total representing approximately 22.6% of outstanding shares). 

The Nyrstar Offer is conditional on a number of customary conditions including a minimum acceptance condition of 66 2/3%, receipt of all regulatory approvals and no material adverse change in Breakwater's business. The support agreement between Nyrstar and Breakwater provides for, among other things, a non-solicitation covenant on the part of Breakwater subject to customary "fiduciary out" provisions, a right in favour of Nyrstar to match any superior proposal and a payment to Nyrstar of a termination fee of C$20 million in certain circumstances, including if Breakwater accepts a superior proposal.

The Take-Over Bid Circular and Directors' Circular are expected to be mailed and filed shortly. The Nyrstar Offer will be open for acceptance for a period of not less than 35 days from its commencement.

RBC Capital Markets and Goldman, Sachs & Co. are acting as financial advisors to Nyrstar and Goodmans LLP is providing legal advice.

COMMENTAIRES DE ING CE MATIN...

NYRSTAR: EPS enhancing acquisition of Breakwater Resources

Nyrstar announced a friendly and all cash take-over offer for Breakwater Resources. The company pays C$7.0 per share (35% premium) and a special dividend of C$0.50 per share to the BR shareholders. As such, the total investment amounts to c.€473m. Based on the Bloomberg consensus 2012F EBITDA for BR of €150m, Nyrstar pays c.3.2x EV/EBITDA (below its own multiple of 3.9x on cons. estimates).

BR operations consist of 4 polymetallic mines in Chili, Honduras and Canada (2 mines). Together, the operations have an annual production capacity of c140,000 tonnes of zinc in concentrate, 14,000 tonnes of lead in concentrate, 6,000 tonnes of copper in concentrate, 2.3 million troy ounces of silver and 40,000 troy ounces of gold.

We believe this is very good news since, since (i) the acquisition multiple seems attractive, (ii) perfectly fits the strategy and increases upstream integration to 43%, (iii) Nyrstar buys 3 operational mines (one to be ramped up in 1Q12F) which are well positioned on the cost curve (C1 cash below below US$750/t), (iv) the acquisition is immediately EPS enhancing (a €150m 2012F EBITDA implies a 34% increase to our current estimates).

We expect a positive share price reaction today.

Price: €8.75. Last published: target price: €12.0; recommendation: BUY

Filip De Pauw, Brussels +32 2 547 60 97

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