* Deal will vastly expand Capstone’s copper resources
* Bid being backed by funding from South Korea’s KORES (Recasts; adds details on deal, background, bylines, TORONTO to dateline)
By Euan Rocha and Hyunjoo Jin
TORONTO/SEOUL, April 18 (Reuters) - Capstone Mining (CS.TO) said on Sunday it has agreed to acquire exploration company Far West Mining FWM.TO in a cash-and-stock deal worth C$685 million ($713 million), as it moves to expand its copper resources and future output.
The bid is being backed by South Korea’s state-owned Korea Resources Corp (KORES), which will acquire a 30 percent stake in Far West’s flagship asset the Santo Domingo copper project in Chile for C$210 million, following the close of the deal. KORES will also separately acquire a 11 percent stake in Capstone for C$170 million.
The bid for Vancouver, British Columbia-based Far West comes amid a flurry of M&A activity within the copper sector, as prices for the metal hover just shy of a record high of over $4.50 a pound.
Under the terms of the offer, Capstone is offering 1.825 shares of Capstone and C$1 in cash for each share of Far West. This implies an offer price of C$8.68 a share, or a 13 percent premium to Friday’s close.
“The proposed acquisition of Far West is consistent with Capstone’s strategy of building a growth focused mid-tier copper producer in the Americas and represents an excellent value opportunity for our shareholders,” Capstone’s Chief Executive Darren Pylot said in a statement.
Capstone said the acquisition will result in a 200 percent increase in its copper output between 2011 and 2016, while boosting the size of its copper resources by more than 125 percent. The company has forecast 80 million to 85 million pounds of copper production this year.
As part of the proposed deal, KORES will arrange for a debt financier to fund 65 percent of the capital costs related to the construction of Santo Domingo. In addition, the Korean company will fund 30 percent of the capital expenditure costs on its own, leaving Capstone to fund the remainder.
Capstone already owns the Cozamin copper mine in Mexico and the Minto mine in Canada’s Yukon Territory. It also owns the Kutcho copper-zinc-gold-silver project in British Columbia.
Last month, Capstone said it was on the acquisition trail, willing to spend up to C$1 billion as it seeks to double its copper production. [ID:nN0787204]
In exchange for its investment, KORES will enter into an off-take agreement for 50 percent of all copper concentrate and iron concentrate produced from the Santo Domingo project over the life of the asset.
South Korea relies on imports for most of its copper needs, and imported over 1 million tonnes of copper in 2010. KORES expects its overseas investments in copper projects to take the country’s self-sufficiency rate in the key metal to 30 percent by 2015, from 6 percent in 2010.
The price of copper, used in power lines, construction and industrial applications, has surged over the last two years on strong demand from China and other emerging economies. This in turn has led to a spate of M&A activity within the sector.
Earlier this month, China’s largest metals trader Minmetals (1208.HK) launched a C$6.3 billion unsolicited bid for copper miner Equinox Minerals EQN.TO, in a bid to expand its asset base into Africa and the Middle East. Equinox itself is locked in a hostile battle to acquire rival Canadian base metal miner Lundin (LUN.TO), which owns assets in Europe and Africa.
KORES itself has also been actively seeking assets within the sector. Last year, Augusta Resource Corp AZC.TO sold a 20 percent stake in its Rosemont copper-molybdenum project in Pima County, Arizona to a Korean consortium comprised of KORES and LG International Corp (001120.KS).
The South Korean investor, which also has stakes in other Canadian-owned projects, has investments in 30 exploration, development and production projects spread over 12 countries.
KORES also plans to set up an overseas unit to oversee its copper projects in central and South America and list the affiliate’s shares on Toronto Stock Exchange in the next five years a company spokesman said.
Last month, KORES said it was seeking to list its Canadian, South African and Australian units to fund resources acquisitions overseas. [ID:nL3E7EV0NP] (Editing by Andrew Marshall)