February 28, 2011 / 6:11 AM / 9 years ago

Equinox's $5 billion Lundin offer may spur bidding war

TORONTO/SYDNEY (Reuters) - Equinox Minerals has offered to buy Lundin Mining for C$4.8 billion ($5 billion) to expand production in Africa while copper hovers near record highs, a move that may trigger a bidding war with Canadian rival Inmet.

Equinox, which owns one of Africa’s largest copper mines, said on Monday its C$8.10-a-share cash and stock bid is far superior to Inmet’s rival offer, which would pay no premium to Lundin shareholders.

Equinox’s bid, which comes at a time when China is driving global demand for copper and pushing prices to record highs, is 26 percent above Lundin’s closing share price on Friday.

Even as Lundin said its board would review the Equinox proposal, the company’s top management slammed the unsolicited bid as unattractive and too risky.

“What are the possible strategic operational benefits that come from a combination with Equinox? I’ve looked and I see zero. If they’re there, they’re eluding me at this stage,” said Lundin Chief Executive Phil Wright said at a conference in Florida.

Under the friendly Lundin-Inmet arrangement, announced a month ago, the pair would join forces to form a major Canadian copper miner called Symterra with a market capitalization of C$9 billion. Shareholders of Inmet would own 52.6 percent of the new company and Lundin investors the rest.

What’s at stake is Lundin’s 24.75 percent stake in Freeport McMoRan’s massive Tenke-Fungurume copper-cobalt mine in the Democratic Republic of Congo and its Neves-Corvo copper mine in Portugal, along with other assets in Sweden, Ireland and Spain.

“We’ve been looking at Lundin for years now to be honest,” Equinox Chief Executive Craig Williams told Reuters. “We’ve been following their progress and we know their two key assets — Tenke and Neves Corvo — pretty well and have looked at them in the past.”

With copper and other metals trading near record highs and shortages expected to crop up, a fresh round of consolidation in the global sector is likely. Among base metal miners, mid-tier producers such as Lundin are among the most attractive targets, analysts say.

“The longer-term fundamentals for base metals are strong as we move from the recovery phase to the expansion phase of the economic cycle,” said Darryl Levitt, an M&A lawyer with Macleod Dixon in Toronto.

“There are very few new copper mines coming on-stream in the foreseeable future, so the key now is to secure good deposits.”

Equinox’s Williams said an Equinox-Lundin combination would produce more than 250,000 tonnes of copper in 2011, and 500,000 tonnes by 2016.

“I don’t think we are at the top of the copper market and the timing was right,” said Williams. “We are offering a 26 percent premium for Lundin and Inmet’s premium is zero.”

Lundin’s shares rose nearly 20 percent to close at C$7.65 in Toronto on Monday. That’s still 6 percent below Equinox’s C$8.10 bid. Lundin said it is in the process of reviewing the offer and advised shareholders to take no action until its board has issued a recommendation.


While Lundin has advised shareholders not to act on the Equinox offer, the company’s Chairman Lukas Lundin told a Swedish daily newspaper that the Equinox offer is far too low.

“It does not look that tempting right now, but we have to examine the bid and Equinox,” he said. “The only thing I can say right now is that with this premium, it won’t happen.”

At the time of the Inmet announcement analysts said Lundin was essentially putting itself in play, and Equinox’s move on Monday came as no surprise to some.

“Given that the proposed merger between Lundin and Inmet was billed as a ‘merger of equals’ with no premium equated to either company and no anticipated future cost savings from the merger, another bidder which could demonstrate better synergies and cost rationalizations was bound to appear,” said Levitt.

“I do not think that the bidding process will stop here,” he said.

Equinox is offering C$8.10 in cash for each Lundin share, or an alternative offer involving 1.2903 Equinox shares plus one cent for each Lundin share. There is a maximum cash consideration of about C$2.4 billion and a limit on the Equinox shares issued of around 380 million.


With the copper sector hot, there has been speculation that Equinox, listed in both Australia and Canada, may well become a takeover target for global miner Rio Tinto. Rio said this month it was looking at copper prospects in Africa.

The extended timeframe between finding new resources and putting them into production means the best way for a company to cash in on record copper prices is to buy another miner.

London Metal Exchange copper touched a record high of $10,190 a tonne earlier this month, and on Monday stood at $9,880. It has risen more than a third in the past year.

“It’s going to be much harder going forward to get project financing unless you have a big balance sheet. It used to be private equity would support these smaller firms develop projects, but they are also finding it harder to find finance,” said a commodities market analyst in Singapore.

Supplies of copper are ample at present, but analysts expect slow investment during the financial crisis and a rebound in demand to push the 21 million tonne-a-year market into a deficit of more than 400,000 tonnes this year, with some analysts looking for a shortfall of twice that.

($1=$0.98 Canadian)

Additional reporting by Sven Nordenstam in Stockholm, Jim Regan in SYDNEY, Sonali Paul and Miranda Maxwell in Melbourne, Nick Trevethan in SINGAPORE and Allan Dowd in VANCOUVER; Editing by Ed Davies, Lincoln Feast and Frank McGurty

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