Silver Giant Extracts Billion Pounds, M&A Possible

Despite disappointing pricing and sloppy secondary performance, Mexican silver miner Fresnillo did manage to extract almost £1bn from a hostile equity market, some of which might be used for M&A. The $1.94bn equivalent IPO spinoff from Penoles went 80% to UK investors, with the rest bought mostly by US accounts. “The quality of the book was extremely high,” says a banker on the deal, describing the bulk of buyers as “industry experts.” He adds that of the 180m shares sold, only 5% changed hands in the first day of trade, and predicts a rebound in price. “This was a deal that was covered, obviously we would have liked it to have been covered more. We still think that it’s a fantastic achievement to raise a billion pounds for this asset. It’s not an easy climate at the moment but we are incredibly pleased,” adds the banker. However, analysts were not impressed. “This is an interesting deal but comes at a difficult moment in light of the retreat in silver,” says mining research specialist Hallgarten, which has a short recommendation on Fresnillo. “We are not into the concept of paying $8bn for a stock that only produced $161m last year and might at a stretch produce $230m in FY08,” it adds, saying that it is waiting for significant retracement before buying. According to Hallgarten, Fresnillo might use proceeds to buy Mag Silver, the silver exploration company focused on the Mexican silver belt. The Vancouver-based entity was trading close to $13 Friday and Hallgarten says it could go for $18 a share or more. “Fresnillo is by far the best fit buyer, and the buyout will almost certainly be friendly,” says the research boutique.