TORONTO First Quantum Minerals Ltd (FM.TO) said on Thursday it believed Inmet Mining Corp's IMN.TO board was selling shareholders short by refusing to enter into talks on a takeover proposal put forward by First Quantum earlier this month.
Toronto-based Inmet, which is building the Cobre Panama copper mine in Central America, said on Wednesday it had turned down a C$4.86 billion ($4.89 billion) unsolicited proposal from its larger rival, saying the offer was "highly conditional" and not in the best interests of its shareholders.
"First Quantum is both surprised and disappointed at the circumstances under which the Inmet board chose to forego this significant opportunity," First Quantum Chief Executive Philip Pascall said in a statement.
Vancouver, British Columbia-based First Quantum, which owns assets in Africa, Australia, South America and Europe, said it believes that Inmet shareholders would support a transaction that offers immediate and attractive cash value for the shares.
First Quantum said it had approached Inmet on three separate occasions during the last two months to engage in discussions, but Inmet has spurned all its overtures.
Under First Quantum's proposal, the company is offering up to C$2.461 billion in cash and would issue a maximum of 112.679 million shares, in a deal that values Inmet at C$70 a share, or C$4.86 billion. This follows an initial bid of C$62.50 that was put forward by First Quantum in October.
Shares of Inmet, which closed at C$52.80 on Tuesday, rose more than 17 percent to C$62 following news of the First Quantum offer on Wednesday. Inmet shares rose a further 5.6 percent on Thursday to close at C$65.50.
First Quantum shares fell 2 percent to close at C$20.37 on the Toronto Stock Exchange.
Despite the premium on offer, analysts on Bay Street argue that First Quantum will have to sweeten its bid significantly if it hopes to secure a friendly deal.
"We think the C$70 a share offer price will likely not be compelling to most Inmet shareholders given Inmet's significant growth profile and leverage to higher copper prices," said JPMorgan analyst Tyler Langton, in a note to clients.
First Quantum also faces an uphill battle if it seeks to go hostile without the support of major shareholders, as Inmet's top three shareholders own close to 40 percent of the company's stock, according to Thomson Reuters data.
A source close to First Quantum, however, said the company has received preliminary indications from some significant investors in Inmet that they would like the company to engage with First Quantum on the proposed bid.
"We have reason to believe that there will be support," said the source.
Inmet said it would not comment beyond the statement issued on Wednesday.
Some analysts speculate that First Quantum's bid could spark a new round-robin bidding war in Canada's mid-tier copper space, similar to the flurry in 2011 following the failure of the proposed tie-up between Inmet and Lundin Mining (LUN.TO).
That so-called "merger of equals" was derailed when Equinox Minerals jumped into the fray with a counter bid for Lundin. And that offer then fell apart when Equinox itself was acquired by the world's top gold miner Barrick Gold Corp (ABX.TO).
UBS analyst Matt Murphy, however, believes that a bidding war for Inmet is unlikely, as Inmet recently conducted an extensive and well-publicized hunt for a potential partner on its Cobre Panama project.
"We believe most interested parties had an opportunity to earn-in to the project or acquire Inmet during its partnership search and are unlikely to now engage in a bidding war," said Murphy, in a note to clients.
($1 = 0.9936 Canadian dollars)
(Reporting by Euan Rocha; Editing by Gerald E. McCormick, Tim Dobbyn and Leslie Gevirtz)