Billiton Trumps Noranda, Codelco on Rio Algom Bid

Friday, August 25, 2000

London-based mining and metals group Billiton (LSE: BLT) today announced an agreed US$1.2bn bid for 100% of Toronto-based mining-metals distribution company Rio Algom (TSE and NYSE: ROM).

Billiton outbids a hostile US$1bn offer from Toronto-based mining and metals company Noranda (NYSE: NOR) partnered by Chile's state copper corporation Codelco.

Rio Algom's attraction to Billiton is its "very good collection" of low-cost, modern copper mines and projects, chiefly in Latin America "where the cost of production tends to be low and where there is an ethic of work and efficiency," Billiton CEO Brian Gilbertson told a conference call this morning.

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With around 200,000tpy production at present, climbing to 550,000tpy by 2005 when the US$2.3bn Antamina (copper-zinc, Peru) and Spence (copper, Chile) projects come on line, Billiton would be the world's fifth biggest copper producer.

Buying Rio Algom would complete Billiton's corporate aim of becoming a major global player in eight base metals, Gilbertson said. It recently entered the iron ore sector after paying US$327.3mn for 2.1% of Rio de Janeiro-based CVRD.

"We have done a thorough analysis of this company [Rio Algom] and its assets. We have built a very detailed evaluation model and, very importantly, we have completed our review and due diligence," the Billiton chief executive told the conference call.

Billiton's C$27.00/share offer represents a 49% premium on Rio Algom's August 21 closing price, the day before Noranda announced its C$24.50/share bid. Rio Algom's stock price shot to C$26.25 after that offer.

Gilberston said: "We are offering a price here that we think is full and fair, and we are not in the habit of overpaying for an asset. Our projection is that this entry price will provide a good return for Billiton shareholders."

Rio Algom's board has unanimously recommended acceptance of Billiton's bid, which is conditional on approval by two thirds of its shareholders. Billiton would have the right to match any counter offers.

"I can't guarantee we shall not be outbid," Gilbertson told the call, adding Billiton had walked away from deals in the past when the price went too high. But if all goes well, the deal could be completed by early October, he said.

Rio Algom's other chief assets include the 100,000tpy Cerro Colorado copper mine (Chile), a 25% stake in Alumbrera copper-gold mine (Argentina), 33.6% of Highland Valley (Canada) and its metal distribution operation.

Codelco's partnership with Noranda marks the state company's first foray into corporate takeover battles. Billiton and Codelco operate a 50:50 joint venture - Alliance Copper based at Codelco's Chuquicamata mine in northern Chile's Region II - which is working on commercially proving pioneering bio leaching of sulfide copper ore.