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Posts Tagged ‘shares’

Copper wars: Equinox, Lundin & Inmet

March 1, 2011 Comments off

“African-focused copper miner Equinox Minerals (EQN.TO) offered C$4.8 billion ($4.9 billion) to buy Canada’s Lundin Mining (LUN.TO) in an unsolicited bid that threatens to scuttle Lundin’s rival C$9 billion tie-up with Inmet Mining. The cash and shares bid could kick off a bidding war for the base metal miner as near record copper prices and expected supply shortages spurs another round of consolidation in the global resources sector, analysts said.

The proposed bid comes just over a month after Lundin and Inmet Mining Corp (IMN.TO), a copper miner with operations in Spain, Turkey and Finland, agreed to combine and create a new Canadian copper mining major called Symterra, worth about C$9 billion ($9.2 billion).”

Source: Reuters, February 28 2011

Observations:

  • Equinox offers a combination of cash and shares, worth C$8.10 per share of Lundin; a 26% premium over current share price. This is more or less the price to which Lundin’s shares increased after the January 12 announcement of the merger with Inmet, but Lundin’s share price has dropped over 20% in the past 5 weeks.
  • The proposed deal between Lundin and Inmet to form Symterra is a ‘friendly’ merger, in which the boards advise the shareholders to vote for the exchange of shares in a shareholder meeting (planned for March 14th). Equinox’ offer is a ‘hostile’ takeover: an official procedure in which an offer is made for all outstanding shares, for which no board approval or shareholder approval from the target is required.

Implications:

  • Equinox’ board presents the deal as clearly superior to the Symterra merger plan, using the short term growth perspective as key argument. The value driver for the Symterra deal would be the development of Inmet’s Cobre Panama project, for which it required the spending power of Lundin. The recommendation of Lundin’s board to the shareholders will be crucial for the outcome of the battle.
  • A combination of forces of the 3 companies should not be ruled out, as it would maximize the synergies between the firms. This would create a player with copper output similar to Rio Tinto’s copper production. Clearly combining 3 companies would not only face integration obstacles, but would also depend heavily on the ability of the management teams to cooperate.
  • Potential rival bidders for Lundin (and/or Equinox and Inmet) include BHP Billiton, Rio Tinto, Freeport-McMoran, Teck, First Quantum, and Chinese players. Vale communicated that acquisitions of this size would not be likely, though it would help the company to diversify. With the battle for ownership opened it would be surprising if more than one company out of the group of Lundin, Equinox and Inmet survives this year stand-alone.

©2011 | Wilfred Visser | thebusinessofmining.com

Norsk Hydro buys Vale assets

“Norsk Hydro has agreed to buy the aluminium assets of Vale, the Brazilian metals and mining group, in a $4.9bn deal that will secure the Norwegian company’s raw material supplies for decades. The move will give Norsk Hydro control of Paragominas, the world’s third-biggest bauxite mine, as well as Vale’s alumina refining and aluminium production facilities in Brazil.
Norsk Hydro, Europe’s third largest aluminium maker, said the deal would boost its competitiveness by providing a long-term supply of high-quality, cost-efficient raw materials. The Oslo-based company, 43.8 per cent owned by the Norwegian government, will pay Vale $1.1bn in cash, with the remainder in new Norsk Hydro shares and $700m of assumed net debt.”

Source: Financial Times, May 3 2010

Observations:

  • Norsky Hydro ensures access to large resources of bauxite, thus reducing the risk of price volatility between miners and processers.
  • Vale’s cash position has improved after the combination of this transaction ($600 million cash now + $200 million in 2013 and $200 million in 2015) and last week’s acquisition of the Simandou assets, for which it had to pay only $500 million immediately.
  • Vale gives as a rational that “its participation in the primary aluminum metal industry is small, and has no growth potential due to the lack of access to low-cost sources of power generation, as energy is a key factor for the competitiveness in this business. “ (Source: Vale press release, May 2 2010).

Implications:

  • Vale transfers the risk of electricity costs (and potential associated carbon emission costs) to Norsk Hydro.
  • Vale appears to be focusing more on the iron and steel market. However, in order to reduce dependency on the iron ore price targeted acquisitions of companies with good resources of zinc, chromium & nickel or precious metals (given the current operating margins) are likely.