TORONTO (Reuters) - Teck Cominco Ltd TCKb.TO will buy Global Copper Corp GLQ.TO in order to obtain the coveted Relincho copper-molybdenum deposit in Chile, and will spin off the rest of the junior miner as a new company, the two Canadian firms said on Monday.
The offer values Relincho at about $415 million, and would boost Teck’s overall measured and indicated copper resources by about 25 percent.
If successful, the deal will likely accelerate a wave of small-scale takeovers as mining giants push to replace reserves while global demand for metals is strong.
“We received abundant interest from a bunch of companies about Relincho,” said Global Chairman Ross Beaty.
“We’ve had a great run and it’s time to turn the project over to a ... major mining company which can do the hard work and spend the big money to advance Relincho to production,” he said on a conference call that did not include Teck management.
Under the deal, Global shareholders will receive C$12 or 0.26667 of a Teck class B subordinate voting share for each Global common share, subject to pro-ration. They will also receive one share of the new company, to be called Lumina Copper Corp.
Teck will absorb Relincho — which contains some 876 million tonnes of copper and is located about 660 km (415 miles) north of Santiago — while Lumina will hold all of Global’s other assets, including properties in Argentina.
Teck, a global copper and zinc major, also owns the Quebrada Blanca project in Chile, although few synergies were seen between the two.
“It was a way for Teck to add to their copper exposure ... and their acquisition cost seems reasonable,” said Kerry Smith, an analyst at Haywood Securities.
Excluding the value of Lumina stock to be received by Global shareholders, the offer represents a 29 percent premium to Global’s 20-day volume weighted average, the companies said.
Shares of Global jumped C$2.34, or 21 percent, to C$13.47, which is above the offer price and may suggest that investors expect a competing bid. Teck fell C$1.12, or 2.4 percent, to C$45.49 by early afternoon on the Toronto Stock Exchange.
In total, Teck expects to issue about 6.9 million shares and pay about $104 million in cash.
Terms of the buyout require Teck to pay an additional consideration of cash or shares if its stock price is less than C$45 at the deal’s closing. If the stock is more than C$55 at closing, Teck will reduce the number of shares to be issued.
Global faces a C$12.5 million termination fee, and Teck has the right to match any superior offer.
If the deal is approved by shareholders, Lumina will operate under existing Global management and likely be listed on the TSX. Global was created after a larger company, called Lumina, was split up in 2005.
Copper futures hit a record $8,820 per tonne last month on the London Metal Exchange, benefiting from strong demand and a sliding U.S. dollar. With metals hot, miners have rushed to replace their depleted pipeline of reserves.
Haywood’s Smith noted the copper grades at Relincho were particularly enticing for Teck, which struck a deal last month to keep one foot in the door of the big Petaquilla copper project in Panama.
The boards of the two miners, as well as holders of more than 40 percent of outstanding Global shares, have agreed to the deal, which Global’s Beaty called an “excellent offer.”
Reporting by Jonathan Spicer; editing by Rob Wilson