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.
Prolinks: Stone Crusher India Jaw Crusher Plant Cone Crusher South Africa Impact Crusher Supplier
"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.
Prolinks: vertical roller mill symons cone crusher raymond mill grinding mill
No comments:
Post a Comment