Teck Cominco to buy Aur for Chile copper assets

A file photo of the Teck Cominco smelter plant overlooking the small city of Trail in southern British Columbia July 6, 2006. Teck Cominco said on Tuesday it would buy Aur Resources in a friendly cash and stock offer worth C$4.1 billion ($3.87 billion), boosting the base metal giant's copper production.

TORONTO (Reuters) - Teck Cominco (TCKb.TO) has agreed to buy Aur Resources AUR.TO with a friendly cash and stock offer worth C$4.1 billion ($3.9 billion) that will significantly boost Teck's copper production, the companies said on Tuesday.

Cash-rich Teck, one of the world's top zinc producers, has been reviewing ways to spend its pile of money over the past nine months. The Aur deal would boost Teck's copper production immediately, balancing Teck's strength in zinc and coal, and also add copper deposits under development.

Teck's copper production will rise by 43 percent upon closing, expected in August, while reserves and resources will jump by 15 billion pounds, more than double current levels.

"Further, it also gives us long-term growth through project development and expansion and in a country that we believe is one of the very best countries in the world in which to operate in mining, and that is Chile," Teck Chief Executive Don Lindsay said during a conference call.

The C$41-a-share offer is a 29 percent premium to Aur's Toronto-listed closing price of C$31.70 on Friday.

By midday on Tuesday, the stock was up 32 percent at C$41.88, suggesting some saw the possibility of outside bids.

However, analysts said other offers were unlikely.

"I wouldn't expect other bidders, because it's a very hefty premium to the current share price, and Teck Cominco paid what we feel is more than full value for this stock," said Haytham Hodaly, analyst at Salman Partners.

In a note, Tony Lesiak of UBS Investment Research called Aur a high-quality, long-life producer with significant expansion potential and low political and operations risk.

He agreed other offers were unlikely, but pegged Chilean copper miner Antofagasta (ANTO.L) as the most likely to make a rival bid, due in part to its large cash balance.

Vancouver, British Columbia-based Teck will pay a maximum of C$3.1 billion in cash and issue a maximum of about 22 million shares. It will finance the deal with cash, and will still have about C$2 billion in cash at the close of the transaction to finance further acquisitions.

"This is certainly not the last step in the transformation of Teck to a high growth company," Lindsay said.

With the transaction -- which is expected to add to earnings and cash flow per share immediately -- Teck is on pace to triple both its copper and gold production over the next five years, he said.

HIGH PRICES, RICH PREMIUMS

The deal comes as sky-high metals prices have driven consolidation in the mining sector.

Copper prices have more than doubled since early 2006, and are up about 22 percent this year. Copper for September delivery HGU7 was off 0.2 percent at $3.52 per pound on the New York Mercantile Exchange on Tuesday.

"The consolidation we're seeing in base metals shows that the sector believes prices will continue to be strong going forward," said Terry Badger, co-manager of the U.S. Global Investors Global Resources Fund, which holds Teck shares.

Aur CEO Jim Dill said he expected demand for building products in China and India to continue to drive demand for copper.

Aur's directors have recommended that shareholders accept the offer. The companies have entered a support agreement that says Aur will not solicit any new offers, and that Teck Cominco will have the right to match any bids.

The agreement also includes a break fee of C$140 million to be paid to Teck if Aur accepts a better offer.

Aur's core assets are its 76.5-percent stake in the Quebrada Blanca copper mine in Chile, a 90-percent interest in the Andacollo copper mine and copper-gold deposit being developed in Chile, and 100 percent ownership of the Duck Pond copper-zinc mine in Newfoundland, Canada.

Teck's shares were up 38 Canadian cents at C$45.58 at midday on Tuesday.

(Additional reporting by Scott Anderson in Toronto and Susan Taylor in Ottawa)

($1=$1.06 Canadian)