Kazakh miner Kazakhmys Plc is due to become the biggest shareholder in its bigger rival ENRC Plc by buying a 7.7 percent stake from the government, boosting the chances of a merger, analysts said. Kazakhmys said on Tuesday it had no immediate plans to launch a full take-over, but analysts said the stake building raises the game as the rivals jostle for position.
"The probability of the eventual combination of the two companies has clearly been raised following this news, with KAZ's positioning relative to ENRC improved too," said Liberium Capital analyst Michael Rawlinson. ENRC shares jumped 5 percent to 1,391 pence while Kazakhmys shares rose 1.3 percent to 1,648 pence by 0935 GMT, compared with a 0.7 percent fall in the UK mining index.
The market was expecting Kazakhmys to sell its ENRC stake after a lock-up on the shares expired on Friday. The overhang has helped take 14 percent off its share price since May 19. Kazakhmys, which ENRC has looked at buying recently, paid for the ENRC stake - which now stands at 22.2 percent - by issuing 80.3 million of its shares to the government.
"We view the 7 percent top up is worth more to Kazakhmys than they paid because it takes them to a more influential blocking position without a premium and allows them to take the associate earnings through their income statement," said Rawlinson.
After adjusting for share dilution, the move would boost estimated earnings next year by 19 percent, he added. Kazakhmys, the world's No 10 copper producer, said it had no plans at the moment to bid for all of ENRC, but hoped to work with its rival. "There are plenty of options for cooperation open at the moment, but we really need time to explore them," Chief Executive Oleg Novachuk told a conference call.
He said the government had an interest in spreading its investments between the nation's two major mining groups. "With this investment, the government of Kazakhstan has diversified their investments across the two major listed Kazakh resource companies." With the move, the government got a 15 percent stake in Kazakhmys and cut its stake in ENRC to 11.7 percent.
Analysts have said that the government eventually would like to create a national champion mining group that could expand in the region and abroad, but Novachuk declined to comment on this possible scenario. ENRC is the world's No 1 producer of ferrochrome and a major exporter of iron ore with a market capitalisation of $33.l7 billion, more than twice that of Kazakhmys at $14.6 billion.
ENRC, which floated on the London stock exchange in December, said on March 12 it was considering a take-over of its rival, but failed to submit any offer until last month when it made a non-binding proposal. Kazakhmys rejected ENRC's 7.05 billion pound approach, which later said it had decided not to launch a formal bid.