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Posts Tagged ‘Symterra’

Copper wars: Minmetals in $6.5bn bid for Equinox

April 4, 2011 Comments off

“China’s Minmetals Resources has launched a C$6.3bn (US$6.5bn) unsolicited bid for Equinox Minerals, the Australian-Canadian copper miner which itself is in the throes of seeking to acquire Vancouver-based Lundin Mining. The bid is the largest-ever unsolicited takeover attempt by a Chinese mining company, at a time when China’s miners are increasingly seeking to go abroad.

Minmetals on Sunday night said its all-cash offer of C$7 per share, a 23 per cent premium to Friday’s closing price, was a superior alternative for Equinox shareholders to the Lundin acquisition, offering them ‘certainty of value and timing in realising their investments’.

The bid is conditional on Equinox dropping its offer for Lundin. Andrew Michelmore, Minmetals’ chief executive, said that the Chinese group was only interested in buying Equinox, which he said aligned with Minmetals’ strategy for growth and enhanced its global production portfolio.”

Source: Financial Times, April 4 2011

Observations:

  • Minmetals is the third stage in the developing copper wars for consolidation in the industry. In the first stage Lundin and Inmet proposed a merger of equals named Symterra. In the second stage this merger was derailed by a takeover attempt of Lundin by Equinox.
  • Minmetals is one of the most active Chinese companies in foreign investment, buying most of the assets of Australian OZ Minerals to form Minerals and Metals Group (MMG) in 2009 for $1.4bln. It appears Minerals and Metals Group and Equinox will be combined. MMG is mainly run by western managers.

Implications:

  • For most shareholders the all-cash offer of Minmetals will be preferable to the takeover of Lundin, which would increase the gearing of the company to dangerous levels. Equinox’ management might be able to get a slightly better price from Minmetals, but it is unlikely that the company will stay independent.
  • The announcement of Minmetals comes on the same day the World Copper Conference kicks off in Santiago. Many of the industry’s CEOs are gathered for this event. Also today, Chinalco announced its intention to expand the scope of activities from aluminium to other commodities, including copper. It is unlikely that other state-controlled Chinese companies will come with a competing offer for Equinox, but the meetings around the Copper Conference might trigger other M&A developments in the industry.

©2011 | Wilfred Visser | thebusinessofmining.com

Antofagasta on track for rapid growth

March 9, 2011 Comments off

“Chile’s Luksic family is due to receive more than $700m (£433m) this year after surging copper prices pushed Antofagasta, the mining company controlled by the family, to declare a special dividend of 100 cents.

A fivefold rise in the pay-out for 2010 offered proof of the copper market’s financial impact on the mining industry. Freeport-McMoRan, the US copper miner, also declared a 100 cents special dividend for 2010 to clear excess cash. London-listed Antofagasta ended last year in a net cash position of $1.3bn after profits nearly doubled.

The completion of a new mine and mine-expansion project allowed it to increase its production volumes at the time that sales prices for the industrial metal were ascending to this year’s highs of about $10,000 a tonne.”

Source: Financial Times, March 9 2011

Observations:

  • The strong results published by the Antofagasta are the result of a 46% price increase and an 18% production volume increase. Production for 2011 is expected to be over 30% higher. Cash unit costs increased 8%, in line with increasing costs shown by other companies.
  • LME Cash Seller Copper Price (March 2010 - March 2011)

  • In relation to the other big copper mining event of the moment: Lundin and Inmet have delayed their special shareholders meeting to vote on the proposed merger to form Symterra to March 28th to give Lundin time to study the takeover offer announced by Equinox. Equinox has not yet submitted a detailed offer.

Implications:

  • No problems have surfaced around negotiations with unions on new salary arrangements. Apparently the high copper price has helped the company to satisfy the unions demands, reducing the risk of strikes.
  • Antofagasta is increasingly looking beyond Chile’s borders for expansion: USA, Sweden, Pakistan, and Australia are mentioned in the exploration pipeline. Although all current production is in chile and the Sierra Gorda, Antocuya and Los Pelambres areas in Chile still hold potential, the company will not be able to sustain growth rates it requires to keep up with Codelco, Freeport, and the diversified miners without expanding abroad. This expansion will require significant managerial and organizational change.

©2011 | Wilfred Visser | thebusinessofmining.com

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

Symterra: Inmet, Lundin Merger to Forge Copper Mining Giant

January 19, 2011 Comments off

“Inmet Mining Corp.’s planned merger with Lundin Mining Corp. will catapult the combined 9 billion Canadian dollars (US $9.1 billion) miner among the world’s biggest copper producers as demand for the widely used industrial metal shows no signs of easing.

The combined company, to be known as Symterra Corp., will generate annual production of around 500,000 metric tons of copper starting in 2017, up from around an estimated 205,000 metric tons this year, ranking it among world’s top five senior copper producers. Chile’s Antofagasta PLC is the biggest copper producer, with output of more than 600,000 metric tons estimated for this year.

Inmet and Lundin, both based in Toronto, will combine five copper mines in Portugal, Spain, Turkey, Sweden and Finland with two huge copper projects—Inmet’s 80%-owned Cobre Panama operation, one of the world’s largest undeveloped copper projects with a mine life exceeding 30 years, and Lundin’s 24.8% stake in the Tenke Fungurume mine in the Democratic Republic of Congo. The initial phase of that project calls for a 40-year mine.”

Source: Wall Street Journal, January 13 2011

Observations:

  • Although both headquartered in Toronto, Lundin and Inmet don’t have operations in North America. Most of the current production takes place in Europe, with focus of production in the future shifting to Asia, Africa and potentially Latin America.
  • The market capitalization of both firms is roughly equal at $4.4bln. Inmet has demonstrated a stable performance over the past years with profit margin in the range of 25-50%. Lundin has not been as profitable yet, but has access to the promising Tenke Fungurume project.

Implications:

  • The main driver for the merger is combined spending power for the development of Cobre Panama and Fungurume and the dilution of political risk associated with operation in Papua New Guinea and Congo.
  • Analysts point to the difference in corporate cultures of the two companies as a potential obstacle for smooth integration. The composition of the new board, with Inmet’s Jochen Tilk as president & CEO, indicates that Inmet’s ‘corporate citizenship’ culture might become dominant.

©2011 | Wilfred Visser | thebusinessofmining.com