REFILE-DEALTALK-Lundin seen walking away from tie-up with Inmet

Tue Mar 29, 2011 7:11pm EDT

(Refiles to remove extraneous word "from" in paragraph 1)

* Co likely to use material adverse effect clause to walk

* Lundin shares continue to trade in-line with Equinox bid

By Pav Jordan and Euan Rocha

TORONTO, March 29 (Reuters) - Lundin Mining Corp (LUN.TO), part-owner of the massive Tenke-Fungurume copper-cobalt mine in the Democratic Republic of Congo, may walk away from a bid by Inmet Mining IMN.TO, and could seek another buyer.

The proposal, dating from January, would create a C$9 billion Canadian copper miner called Symterra, a company that could produce some 500,000 tonnes of copper per year by 2017.

But shareholders said Lundin, which is also being courted by rival Equinox, might now argue that Inmet faces extra costs to develop its Cobre Panama project, and that's a "material adverse event" that could let Lundin walk away from the deal.

"The sense they gave the market was that they were uncomfortable with the Inmet deal and were considering withdrawing," one shareholder said on condition of anonymity after speaking with the company last week.

Obstacles have mounted since the Lundin-Inmet deal was first announced, including both Equinox Minerals' EQN.TO rival offer and problems centered on Inmet's $4.3 billion Cobre Panama copper-gold project.

The government of Panama now says it favors a natural gas plant over a coal plant to power the mine. Inmet has already completed engineering and some permitting work for the coal facility, and a change could cause delays and higher costs.

"There's certainly now been a lot of doubt cast on whether this coal-fired power station will be approved, and that is a pretty material departure from what we looked at when we did our due diligence," Lundin CEO Phil Wright said on a recent conference call.

Inmet would have to use more expensive power from the grid until it got the green light to use power from the planned natural gas facility, and the company says the cost of power from a natural gas facility will likely be higher than current estimates for coal generated power.

The concerns also contributed to proxy advisory firm ISS urging Lundin shareholders to vote against the acquisition, reversing an earlier recommendation in favor of a deal.

"The Lundin-Inmet deal is sort of dead on arrival," another shareholder said.

Lundin declined to comment.

If it pulls out of the planned tie-up with Inmet, Lundin would face a C$120 million break fee, which might be mitigated if the company can prove its change of heart is based on a material adverse change. Any such move is likely to push Inmet to sue.

"Any invoking of a material adverse event clause, to justify walking away, will likely lead to litigation as a result of the differing interpretations of a material adverse event," said Darryl Levitt an M&A lawyer with Macleod Dixon.

RIVAL BID

Lundin shareholders could also opt for the Equinox offer, which values Lundin at C$4.46 billion.

Based on Monday's close, the Equinox offer is worth about C$7.59 per share. Lundin's shares closed at C$7.51 on Monday and have consistently traded at a slight discount to Equinox's offer price, implying that shareholders think Equinox is more likely to win.

Lundin's board has opposed the deal because of the amount of debt it implies.

If Lundin drops the Inmet deal, Lundin could be on the market, as a unit or in parts, some shareholders said.

"I think they (Lundin) are going to put the company up for sale," said one of the shareholders. "They are going to offer people the opportunity to bid for it and I think they are going to offer people the opportunity to bid for it in parts." (Reporting by Euan Rocha and Pav Jordan; editing by Janet Guttsman)

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