Home > Financial reports, Market change > Copper wars: Lundin deciding on sale

Copper wars: Lundin deciding on sale

May 13, 2011

“Lundin Mining Corp. expects to say by the end of May whether it can reach a deal for the sale of the company as a whole or for the sale of individual assets. ‘We should be in a position…to give some indication (by the end of this month) in terms…of whether a transaction is likely to arise or not,’ Chief Executive Phil Wright said on a conference call Wednesday, following the release late Tuesday of the copper miner’s first-quarter results.
Lundin reported higher year-over-year earnings, but they still fell short of expectations as sales suffered from shipping disruptions. Toronto-based Lundin effectively put itself up for sale at the end of March, after a bid by Equinox Minerals Ltd. scotched plans for a merger with Inmet. Barrick Gold Corp. then agreed to buy Equinox, but Lundin executives said at the time they would continue to seek a buyer. Lundin is open to proposals to either sell the company outright or to sell off its assets piecemeal. But a sale or breakup of Lundin is ‘not a certainty,’ Mr. Wright said Wednesday.”

Source: Wall Street Journal, May 11 2011

Observations:

  • Lundin management is considering options to sell the company after they did not succeed in merging with Inmet and they decided not to cooperate with a sale to Equinox.
  • The company’s most valuable asset is a 25% stake in the world-class Tenke Fungurume project in Congo. Freeport-McMoran holds the majority stake in this project and has the first right to buy Lundin’s stake if Lundin decides to sell.

Implications:

  • The difference in taxation of an asset sale compared to a share sale will be an important consideration for Lundin, although the $100mln taxation hit of a total asset sale corresponds to only some 2% of the company value. Most likely it is easier to get a good price for individual assets (especially Tenke Fungurume) and in that way maximize total value for Lundin’s shareholders.
  • The actions by Lundin’s management to put the company up for sale seem to indicate mr. Lundin, the founder and chairman of the company, has given up the hope to keep his company independent or to merge it with another small party to create a larger player.

©2011 | Wilfred Visser | thebusinessofmining.com

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