Lundin Mining Corp., a Canadian copper and zinc producer, said it’s considering a C$4.8 billion ($4.9 billion) unsolicited cash-and-stock takeover bid from Equinox Minerals Ltd., which trumps an earlier offer from Inmet Mining Corp.
Lundin’s board is evaluating today’s C$8.10-a-share offer with its advisers and will make a recommendation to its shareholders “as soon as possible,” the Toronto-based company said in a statement. Inmet agreed Jan. 12 to acquire Lundin in a friendly all-stock deal currently worth C$3.6 billion. Lundin rose the most in more than two years in Toronto trading.
Buying Lundin would give Perth, Australia-based Equinox zinc, copper and lead mines in Sweden and Ireland, as well as a stake in a copper and cobalt venture in the Democratic Republic of Congo. A lack of new projects is forcing miners to expand through acquisitions. Equinox, operator of Zambia’s Lumwana mine, bought the biggest Saudi copper deposit this year.
Equinox’s bid is 14 percent more than Lundin’s average share price over 20 days. That compares with an average 27 percent premium among base-metals deals globally announced in the past 12 months, according to data compiled by Bloomberg.
“There is no substitute for cash,” Peter Arden, a mining analyst at Ord Minnett Ltd., said by telephone from Melbourne. “Equinox is a good company but it’s high-risk and not everyone would want to have Zambian copper as their underlying asset. A bit of cash is very smart.”
Shares Gain
Lundin rose C$1.25 to C$7.70 at 12:16 p.m. on the Toronto Stock Exchange. The shares earlier climbed 22 percent to $7.87, the biggest intraday gain since November 2008. Equinox fell 48 cents, or 7.7 percent, to C$5.79. Toronto-based Inmet dropped 79 cents, or 1.2 percent, to C$66.51.
Lorito Holdings Srl and Zebra Holdings & Investments, Lundin’s largest shareholders according to Bloomberg data, couldn’t be reached for comment. Both companies are owned by a Lundin family trust, according to the website of Lundin Petroleum AB, in which Lorito holds a 24 percent stake.
Inmet agreed to pay 0.0954 of a share for every Lundin share, which would give it about 53 percent of a new company to be called Symterra Corp. Equinox is offering to pay 9.5 times earnings before interest, tax, depreciation and amortization, according to Bloomberg data. That compares with Inmet’s bid, which prices Lundin at 8.3 times.
Equinox said it will offer C$8.10 in cash or 1.2903 shares and 1 cent for every Lundin share, prorated based on a maximum cash consideration of C$2.4 billion.
Superior Proposal
“This offer is clearly superior to the nil-premium merger proposed between Lundin and Inmet,” Craig Williams, Equinox’s chief executive officer, said in a statement.
Equinox will finance the cash component of its offer through a $3.2 billion bridging loan arranged through Goldman Sachs Group Inc. and Credit Suisse Group AG, Equinox said in a statement. Goldman Sachs is also lead financial adviser to Equinox.
There have been $24 billion of mining mergers and acquisitions so far this quarter, set for the best start to the year since 2008. Metal prices in London have almost doubled in the past two years as the global economy emerged from a recession.
“Anything that’s got a market capitalization of A$5 billion ($5.1 billion) or less, with good-quality mine life, in the right strategic place, then there’s every chance you’re going to see further consolidation,” Chris Weston, an institutional dealer at IG Markets in Melbourne, said by phone.
Copper Prices
The average copper price will climb 22 percent this year, Standard Bank Plc said last month. A combination of Equinox and Lundin would create a global top 10 copper producer, based on 2011 production forecasts, Equinox said in a presentation.
Equinox, with a market value of C$4.9 billion, completed the purchase of Citadel Resource Group Ltd. last month for A$970.5 million, its first acquisition in six years. Citadel owns the $305 million Jabal Sayid copper and gold project in Saudi Arabia. Equinox’s $841 million Lumwana project is Zambia’s biggest foreign investment.
Lumwana produced 109,413 metric tons of copper in 2009 and was forecast to yield 135,000 tons in 2010, Equinox said on its website. Lundin last year produced 93,450 tons of copper. Copper output at the Tenke Fungurume project in Congo, in which Lundin owns a 25 percent stake, is forecast to rise to 130,000 tons this year.
“The two key assets are the 24 percent interest in Tenke Fungurume, which is a world-class operation, and the Neves-Corvo mine in Portugal,” Equinox’s Williams said in a phone interview. Tenke “is a very significant mine,” he said.
Boost Earnings
Equinox is targeting production from the combined company of about 500,000 tons a year by 2016, it said in the statement. The deal would boost earnings and cash flow immediately and the company sees no need to sell shares to refinance the bridging loan, it said in the presentation. Equinox’s production will almost double on the acquisition, based on 2013 output forecasts, it said.
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