* Cash and stock deal worth C$1.41/shr
* Terrane's majority shareholder Goldcorp backs deal (Adds analyst's comment, updates share price move. In U.S. dollars unless noted)
By Euan Rocha
TORONTO, July 15 Molybdenum miner Thompson Creek Metals (TCM.TO)(TC.N) said on Thursday it intends to acquire exploration company Terrane Metals TRX.V in a deal worth about C$650 million ($625 million) as it moves to diversify its commodity exposure.
The acquisition will give Denver, Colorado-based Thompson Creek exposure to copper and gold through Terrane's flagship Mt. Milligan project in central British Columbia, while giving it further growth prospects through Terrane's Berg project, a copper-molybdenum-silver project, also in British Columbia.
Dahlman Rose analyst Anthony Young said the deal is a good move for Thompson Creek as investors will begin to view the company as a mid-tier base metal company, rather than a pure-play molybdenum name.
"We like management's move to diversify away from molybdenum as we believe that this will help to insulate the company's earnings from volatility in one metal," Young said in a note to clients.
Molybdenum, often produced as a by-product of copper mines, is used primarily to strengthen steel. The demand and price of molybdenum is often based on the vagaries of steel demand. The metal currently sells at roughly $15 a pound, well below 2007-08 levels of more than $30, but better than the sub $10 levels seen at the peak of the last year's recession.
"The acquisition of Terrane fits well in our strategic growth plan, providing us with clear production and revenue growth while diversifying our commodity exposure," Thompson Creek Chief Executive Kevin Loughrey said in a statement.
Thompson Creek will pay shareholders of Terrane 90 Canadian cents in cash and 0.052 of a Thompson Creek share for each Terrane share. That implies a value of C$1.41 per Terrane share, a premium of 21 percent to the miner's closing price of C$1.17 on the on the TSX Venture Exchange on Wednesday.
The deal, which is dilutive to Thompson Creek's shareholders in the near term, pushed its shares down 5 percent to close at $9.08 on the New York Stock Exchange. Shares of Terrane jumped 16 percent to close at C$1.36 on the TSX Venture Exchange.
Thompson Creek said it has also entered into an agreement with Royal Gold (RGLD.O), which will buy 25 percent of the gold produced by Mt. Milligan once the project goes into production. Thompson Creek will receive staged cash deposits totaling more than $600 million from Royal Gold, which will be offset against Royal Gold's future gold purchases.
The cash from Royal Gold will be used to help fund the deal and fund the construction costs at Mt. Milligan, which is expected to cost about C$915 million and begin production in 2013.
Thompson Creek said the deal will require the approval of two-thirds of Terrane's shareholders at a meeting that is likely to be held in September. It will also require approval by the Supreme Court of British Columbia.
Canadian gold miner Goldcorp (G.TO), which owns 58 percent of Terrane's outstanding voting equity, has agreed to support the deal. The agreement has also been unanimously approved by Terrane's board of directors.
Following the close of the deal, Terrane's shareholders will own about 14 percent of Thompson Creek's outstanding shares, with Goldcorp alone owning a roughly 7 percent stake.
Loughrey said that although Goldcorp is not bound by any lock-up agreement, it has agreed to work with Thompson Creek if it decides to eventually sell its stake in the company.
RBC Capital Markets acted as financial adviser to Thompson Creek in connection with the proposed transaction, while National Bank of Canada acted on behalf of Terrane. ($1=$1.04 Canadian) (Reporting by Euan Rocha; editing by Peter Galloway)