Merger of Katanga and Nikanor to Create Value by Unlocking Synergies of Adjacent Properties

Implications: It is refreshing to see a merger of mining companies that will truly create added value through synergies in contrast to many mergers that appear to be not much more than empire-building exercises.  The merger of Katanga Mining Limited and Nikanor PLC will result in the consolidation and integration of two very promising mining properties in the Democratic Republic of Congo.  The properties are adjacent to each other so significant operational synergies can be achieved by combining operations.  These synergies are expected to include capital savings, lower unit operating costs and increased production.  The newly combined operation is expected to produce annual output of approximately 400,000 tonnes of copper and 40,000 tons of cobalt, making it a truly world-class operation. 

Analysis: The consolidation trend in the Mining Industry has spurned numerous mergers in recent years as mining executives have become aware that finding worldclass projects through greenfields exploration is becoming increasingly rare and difficult.  There is certainly some justification for acquiring additional mineral reserves through mergers and acquisitions as global demand for precious and base metal minerals appears sustainable well into the future.  It is a quick way to obtain a larger piece of the pie quickly, a pie for which the world seems to have a growing appetite.  However, it is sometimes hard to see the added value from such mergers if the sole motivation for combining two companies is to acquire additional reserves.

The merger of Katanga Mining Limited and Nikanor PLC on the other hand epitomizes a mining merger that creates added value as the resulting combined operation will be much more than the sum of its parts.  Since the merger will integrate the operations of two adjacent properties, significant synergies can be achieved by the sharing of labor force, expertise, processing facilities, mine site infrastructure like conveyer belts and roads, haul truck fleet, etc.  Management has announced that it also expects to be able to blend the ores of the two properties to maximize processing efficiency and to achieve enhanced copper and cobalt recoveries, higher production and reduced acid costs.  Management also expects to be able to achieve capital savings over time by executing a more phased approach to the development of the combined site. The synergies are expecially clear in this case because the two adjacent properties were once operated as an integrated operation in the past.