Australia's Oxiana eyes growth paths

By James Regan

MELBOURNE (Reuters) - Oxiana Resources Ltd. OXR.AX Managing Director Owen Hegarty has no doubt the mergers dramatically altering ownership of big mining houses worldwide will continue. He's just not sure whether his company will remain predator or fall prey.

"Our preference of course is to acquire businesses because we are a growth-oriented company," Hegarty told the Reuters Global Mining and Steel Summit in Melbourne."

"The flip side of that is other companies are doing the same thing," Hegarty said.

Alcan Inc. AL.TO rejected on Tuesday a $27.6 billion takeover offer from rival Alcoa Inc. (AA.N: Quote, Profile, Research, Stock Buzz), with the Canadian company said it was in talks with third parties.

Shares in Rio Tinto Ltd./Plc. (RIO.AX: Quote, Profile, Research, Stock Buzz)(RIO.L: Quote, Profile, Research, Stock Buzz) this month raced on speculation of a pending $100 billion-plus bid by larger rival BHP Billiton Ltd./Plc. (BHP.AX: Quote, Profile, Research, Stock Buzz)(BLT.L: Quote, Profile, Research, Stock Buzz). Brazil's CVRD (VALE5.SA: Quote, Profile, Research, Stock Buzz)>(RIO.N: Quote, Profile, Research, Stock Buzz) meanwhile has acquired Canada's Inco, while London-listed Xstrata (XTA.L: Quote, Profile, Research, Stock Buzz) bought Toronto-based Falconbridge.

Analysts frequently name fellow Australian Zinifex Ltd.ZFX.AX or South Africa's Anglo American Ltd. (AAL.L: Quote, Profile, Research, Stock Buzz) as possible suitors for Oxiana.

Zinifex because it is looking to grow and diversify in mining and Anglo American due to its bent on acquiring assets outside South Africa.

Over the past five years, Oxiana has yielded the best total shareholder returns of any company on the Australian Stock Exchange, enlarging its market capitalization to A$5 billion from A$20 million in 2000. Hegarty says he'd like to see Oxiana's market capitalization at A$10 billon by 2010.

Goldman Sachs JBWere thinks Oxiana may acquire another producing asset soon to counter a forecast decline in earnings in 2007 and 2008 as the company prepares to boost gold output.

Oxiana, the first to mine in Laos -- its Sepon copper and gold project -- two years ago paid Newmont Mining (NEM.N: Quote, Profile, Research, Stock Buzz) A$265 million for the Golden Grove zinc and copper mine in Australia.

"We believe that Oxiana may well plug the EPS decline in fiscal 2007/fiscal 2008 through an acquisition of a current producer, similar to the acquisition of Golden Grove in 2005," Goldman Sachs JBWere analyst Ian Preston said in a research note.

Last month Oxiana completed a A$415 million scrip purchase of Agincourt Resources, delivering the Martabe gold mine in Indonesia and the Wiluna gold mine in Australia and a controlling stake in uranium prospector Nova Energy Ltd.

It also has reached a pact with China's third largest nickel miner, Henghao Group, to evaluate mining projects in China.

"It's always harder to hit a moving target," Hegarty says.

Analysts expect Oxiana to turn a profit of around A$417 million this year, based on Reuters Estimates of 12 forecasts.  Continued...