Mining News: Freeport sees 'limited' opportunities for M&A

Freeport-McMoRan Copper & Gold is prepared to act on acquisition opportunities that arise, but see "very limited" prospects for corporate activity, CEO Richard Adkerson said on Monday.

 

The company is focused on spending its growing cash flow on capital projects, and will look at reducing debt opportunistically, he said in a presentation at the BMO Metals & Mining Conference under way this week in Florida.

 

"And then beyond that we look at shareholder returns," he said.

 

As far as acquisitions are concerned, the emphasis is on both size and asset quality, Adkerson said.

 

"We are not likely to do a small transaction," he said. "If an opportunity comes to us, it will have to be a big opportunity.

 

"Smaller companies may have lots of M&A opportunities, but for a company our size, the opportunities are limited."

 

Freeport said last month it could spend between $8-billion and $10-billion over the next five years if all the projects it is considering were approved.

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Shares in the company edged up 1% on Monday, to $52,95 apiece by 16:00 in Toronto.

 

There has been increasing corporate activity in the copper sector, most recently with Equinox Minerals' announcement that it will make a hostile offer for Lundin Mining.

 

Lundin already agreed last month to merge with fellow Canadian Inmet Mining.

 

Freeport-McMoRan is the second-biggest copper producer after Chile's Codelco, and the biggest publicly traded copper miner. It is also a top molybdenum producer and ranked ninth in terms of gold production in 2010, according to estimates from GFMS.

 

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Mining News: Lundin mulls hostile move from Equinox amid threat to Inmet tie-up

Vancouver-based Lundin Mining is evaluating a hostile takeover offer from Equinox Minerals, the company confirmed on Monday, and asked shareholders not to take any action until it makes a recommendation.

 

But while a big jump in the miner's shares suggested investors are giving Equinox's C$4,8-billion bid at least a fighting chance, Lundin CEO Phil Wright said he did not see any strategic benefit from the proposed deal.

 

The company will continue to work on completing its planned merger with Inmet Mining, Wright said in a presentation at a conference in Florida, which was broadcast over the Internet.

 

Lundin and Inmet announced plans last month for a 'merger of equals', which means neither company's shareholders will receive a premium for swapping their shares into stock in the combined company, to be called Symterra Corp.

 

Equinox, on the other hand, is offering C$8,10 in cash and shares for each Lundin share, which represents a 26% premium to Lundin's closing price on Friday and a 13% premium to the 30-day volume weighted average price.

 

The bid is "far superior" to the Inmet deal because of the premium being offered, Equinox CEO Craig Williams argued. He said the company had been watching Lundin for some time and decided to act after the transaction with Inmet was announced.

 

Lundin said on Monday its board was reviewing the Equinox announcement with its financial and legal advisors and will make a recommendation to shareholders as soon as possible.

 

"I would say the conclusion is that it has to be a superior offer," Stifel Nicolaus analyst George Topping told Mining Weekly Online.

 

"And at this stage you can see by the reaction of the share price, the market clearly believes that it's a superior offer."

 

Shares in Lundin Mining rose 18,6% on Monday, to C$7,65 apiece by 16:47 in Toronto, after trading as high as C$7,85 earlier in the day.

 

Equinox was down 8,6%, at C$5,73 a share.

 

If the Equinox bid were to be deemed superior, Topping said it would be difficult for Inmet to find a way to compete with the newer offer.

 

Inmet is already faced with financing its C$5-billion Cobre Panama project, so would be reluctant to source more debt to fund what would probably need to be a cash sweetener for Lundin shareholders, he commented.

 

It's also not likely that another company would enter the fray with a competing offer, given what has become "a pretty messy situation", he said.

 

Topping said there is still a case to be made that the Inmet-Lundin tie-up makes more sense in the longer term.

 

"But mostly investors are driven by short term considerations, and in the short term they are being offered a premium."

 

Equinox's main asset is the Lumwana copper mine in Zambia, and the company recently bought Citadel Resource Group, which had a copper/gold project in Saudi Arabia.

 

Lundin has mines in Portugal, Sweden and Spain and owns a minority interest in Freeport-McMoRan Copper & Gold's Tenke Fungurume copper/cobalt mine, in the Democratic Republic of Congo.

 

Equinox was attracted by the stake in Tenke Fungurume, for which Freeport has big expansion plans, as well as Lundin's Neves-Corvo mine in Portugal, Williams said earlier.

 

"From Equinox's point of view, Lundin brings a lot to the table," Topping said.

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"It brings diversity, it brings the strength of cash flow that most other companies don't have. And Lundin's assets are considered top-notch, if you look at Tenke, it's one of the best mines in the world and Neves-Corvo is an excellent asset."

 

DEBT DOUBTS

 

Equinox, which has a market capitalisation of around C$5-billion, did raise some eyebrows on Monday with the announcement that it will fund the entire acquisition and retire its own existing debt with a new $3,2-billion bridge facility.

 

The firm said it is offering Lundin shareholders the option of C$8,10 in cash, or 1,2903 Equinox shares plus $0,01 for each Lundin share, with a maximum cash payout of around C$2,4-billion.

 

Equinox said it will not need to issue equity to finance the cash portion of the transaction, and executives were adamant that the company will not have problems refinancing the bridge loan, even if the copper price were to weaken.

 

"We are confident that even if there is a downturn in the copper market, we are not putting ourselves under undue risk," VP for business development Carl Hallion said.

 

But analysts on Monday were wary of the sizeable bridge loan, given the trouble the mining sector had shifting acquisition debt accumulated before the financial crisis in 2008.

 

Raymond James analyst Tom Meyer lowered his rating on Equinox shares to 'underperform', and cut his target price on the company to C$6,50 from C$7 a share.

 

"We believe the higher risk profile from the additional debt is not necessarily fully offset by the greater geographical and metal diversification with Lundin's asset," Meyer wrote in a note.

 

Equinox needs approval by more than half of its own shareholders for the acquisition, and plans to hold a vote about 35 days after the offer is formally launched, Williams said.

 

The offer for Lundin is also subject to the termination of the existing Lundin-Inmet arrangement.

 

Under the deal between Inmet and Lundin, the companies agreed to a C$120-million break fee if the transaction were to fall apart.

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Coal Mining News: SNC-Lavalin Signs Contract to Develop Colombian Coal Mine

Canadian Engineering firm SNC-Lavalin has signed a contract with its 50/50 joint venture partner Sinclair Knight Merz (SKM) to develop phase I of the Cerrejon coal mine project in Colombia.

 

SNC-Lavalin will provide engineering, procurement, construction management and precommissioning services to expand the mine facilities and infrastructure, including rail and port facilities at Puerto Bolivar.

 

The total project value for phase 1 is over $1bn.

 

The Cerrejon mine, which currently produces 32 million tons of thermal coal a year for export, is expected to raise its exported volume of coal to 40 million tons a year with a planned future upgrade to increase the total output to 60 million tons a year.

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Mining News: Norilsk Nickel Offers $12bn for UC Rusal's 20% Stake

Russia-based MMC Norilsk Nickel's subsidiary has made a new offer of $12.8bn to acquire a 20% interest in the company held by its UC Rusal's subsidiary United Company RUSAL Investment Management (Rusal).

 

As part of the proposed transaction, UC Rusal, Rusal and the purchaser will enter into a two year shareholders' agreement which will provide the purchaser with rights to direct the voting and disposal of the remaining shares in the company held by Rusal.

 

Norilsk Nickel expects the acquisition to be conditional on regulatory approvals, UC Rusal shareholder approval and the consent of UC Rusal's lenders.

 

Norilsk's earlier offer made to UC Rusal to acquire a 25% interest for $12bn was rejected in 2010.

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Canadian Mining ; Canadian miners see 'only benefits' from TSX-LSE tie-up

The Canadian mining sector was generally positive on Wednesday about the news that the holding company of the Toronto Stock Exchange has agreed to a 'merger of equals' with the London Stock Exchange group.

 

"I think there are quite a lot of tangible advantages to this, obviously cross listings will be facilitated and more accessible, the access to capital will definitely be extended," Tony Andrews, the executive director of the Prospectors and Developers Association of Canada, said in an interview.

 

Andrews said he met earlier in the day with senior TMX Group officials to discuss the implications of the deal, and noted that the existing structures of the various exchanges will remain in place.

 

"My assessment of this is that it will not have any negative effects on our members, but there are going to be a lot of benefits."

 

Mining Association of Canada chairperson Douglas Horswill commented that while the overall effect may not be huge, the implications of the merger should be positive for Canadian mining companies.

 

"Anything that deepens the capital markets and makes capital available, and I guess if its more available it's cheaper, will help the mining industry over time," he told Mining Weekly Online.

 

"And to the extent that the merger exposes Canadian listed companies to a wider world audience of investors, that should have some impact for them from the point of view of investment and opportunities to obtain capital."

 

The merger, in which the TMX will be acquired by the LSE Group, will create the biggest exchange company in the world by total listings, at more than 6 700 companies with an aggregate market capitalisation of some C$5,8-trillion.

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One of the key features of the new group will be the significant representation of mining companies listed on the exchanges.

 

The TSX and TSX-V already have more mining listings than any other exchange, and a merger with the LSE will add top global players, including the world's number-one and -three mining groups, BHP Billiton and Rio Tinto.

 

There are more than 1 400 mining and minerals exploration companies listed on the TSX and TSX Venture Exchange, while the LSE lists some 178 across its main board and the Alternative Investment Market, or Aim, for smaller companies.

 

The second-biggest mining exchange is the ASX, which has some 610 listings in the sector, followed by the NYSE, NYSE Amex and JSE, all with fewer than 100 listed mining companies.

 

The biggest producers of both gold and potash, Barrick Gold and Potash Corp of Saskatchewan, are also both listed in Toronto.

 

The merged entity intends to build on its "number one position" in natural resources, TMX CEO Thomas Kloet told reporters on Wednesday morning.

 

Kloet will be president of the enlarged company after the merger, and LSE CEO Xavier Rolet will be CEO.

 

CANADIAN APPROVALS?

 

Under the terms of the merger agreement, TMX shareholders will receive 2.9963 LSE group ordinary shares for each TMX share, which will result in LSE shareholders owning 55% and TMX shareholders holding 45% of the enlarged share capital of the LSE group, the holding company of the merged group, which will be renamed after closing.

 

A new name for the group has yet to be decided on, Kloet said at a press conference.

 

The size of the transaction and strategic nature of the TMX Group has prompted a lot of speculation about whether the deal will require and receive approval by the Canadian government, under the Investment Canada Act.

 

The legislation, which requires proof that large foreign takeovers will result in 'net benefit' to to the country, drew little attention until last year, when Industry Minister Tony Clement refused to approve miner BHP Billiton's planned $40-billion acquisition of Potash Corp of Saskatchewan.

 

But both Kloet and Rolet said on Wednesday that the TMX-LSE deal is "a very different proposition" to the Potash Corp situation.

 

The deal is a merger of equals, and the combined entity will be run by representatives from both companies, with headquarters in both Canada and the UK, they said. The groups will make undertakings to the government to satisfy the net benefit requirements.

 

Clement told reporters in Ottawa that he had not yet determined whether the transaction would merit a review and require approval under the Investment Canada Act, the Globe and Mail reported.

 

But Andrews said he does not expect the deal will be scuppered by the federal government.

 

"I don't foresee them having any sort of motivation to block it," he commented.

 

"Consolidation is a global trend, and I think it's in the interests of all Canadians that our capital markets remain competitive."

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Also on Wednesday, the operator of the Frankfurt Stock Exchange confirmed that it was in advanced talks to buy the holding company of the New York Stock Exchange.
 

Peru Mining News: Peru Discovers Large Volumes of Gold and Silver

 

Peru has discovered large volumes of gold and silver in the north of the Peruvian Andes, Cajamarca region, Lima, according to the country's Ministry of Energy and Mines.

 

The ministry announced the discovery at the 7th International Congress of Exploration, ProExplo 2011, held in Lima.

 

The discovery contains 1.34 million ounces of gold and 33.3 million ounces of silver, reports Xinhua.

 

The newly found gold bed is estimated to be up to 6km long and more than 400m deep.

Coal Mining News: Mechel to Develop Russian Coal Mine

Russia's Mechel OAO has signed a loan agreement to finance the construction of the second line at the Sibirginskaya mine, owned by its subsidiary Southern Kuzbass Coal.

 

Under the agreement, a loan of R6.19bn ($210m), granted by Transcreditbank OAO, will be used to finance equipment acquisition, the construction of the surface complex's buildings and excavation for the mine's second line.

 

According to Mechel, the plant has reserves of over 90 million tons.

 

Mechel CFO Stanislav Ploshchenko said the launch of the mine's second line will double the production capacity of the plant.

 

The plant's first line is operating with a design load of 1.2 million tons per annum and the second line is expected to be launched in 2014.

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Mining News: TMX, LSE in 'advanced' talks on merger

Canada's TMX Group, which operates the Toronto Stock Exchange, the Montreal Exchange and the TSX Venture Exchange, confirmed on Tuesday that it is in "advanced discussions" with the London Stock Exchange on a potential merger.

 

The group issued a statement, describing the deal as "a possible merger of equals to create an international exchange leader", following media reports, including in the Financial Times and the Telegraph.

 

The TSX and TSX-V already have more mining listings than any other exchange, and a merger with the LSE would add top global players including the world's number-one and -three mining groups, BHP Billiton and Rio Tinto.

 

"Current discussions contemplate an exchange ratio close to the current market capitalization of London Stock Exchange Group plc and TMX Group Inc," the TMX said.

 

"It is currently contemplated that the executive management and senior leadership of the merged group will be drawn from a balance of leaders from both organisations."

 

The merged group would be co-headquartered in London and Toronto and continue to be overseen by its existing regulatory authorities, the statement said. The TMX said it would not comment further.

 

The LSE would use its Toronto-listed secondary shares to acquire TMX, the Financial Times said in its report, citing people close to the situation.

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The article said that LSE CEO Xavier Rolet would become chief executive of the new group, while TMX chairperson Wayne Fox would be chairperson and Thomas Kloet, the CEO of the TMX, would be president.

 

TheToronto-based TMX Group was created after the TSX agreed in December 2007 to buy the Montreal Exchange for C$428-million in cash and 15,3-million TSX shares.

 

Mining News: AfDB Funds Mining Projects in South Africa

The African Development Bank (AfDB) has launched New Africa Mining Fund's second Africa-focused junior venture capital fund, NAMF II, in Johannesburg.

 

The NAMF II equity fund will invest in mining projects within the Southern African development community region (SADC).

 

The fund, which has achieved its first close for $73.6m, including AfDB's $14.7m contribution, will have a total commitment of $111m.

 

NAMF II will focus on the upstream stages of the mining investment cycle over five years and will have a life of eight years.

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The investments will facilitate growth and expansion in Greenfield projects across the SADC region and developing companies in the private sector, according to the AfDB.

 

New Africa Mining Fund principal Neil Gardyne said Africa is well endowed with the mineral resources that will grow in demand over the next two decades by emerging economies such as China and India.