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First Quantum expected to boost Inmet offer

by Scott Stuart  |  Published December 17, 2012 at 4:41 PM
Investors seem to expect a significantly higher offer for Inmet Mining Corp. than the one persistent bidder First Quantum Minerals Ltd. has put forward.

First Quantum raised its bear hug offer for copper miner Inmet Sunday to C$72 ($73) in a mix of cash and stock from a former bid of C$70 also in mixed consideration and an opening bid of C$62.50 in late October. The revised offer of roughly $C4.8 billion valued Inmet shares Monday at C$69.45 if shareholders received a pro rated 50% cash and 50% stock for their shares. Inmet traded at C$73.06 at a premium of C$3.61 to their value in the offer.

Inmet, which declined to enter talks over the C$70 bid, said it had not yet received the revised proposal. Inmet did not return a call.

Several sell-side analysts have put target prices on Inmet shares in the low C$80s.

The raised bid by First Quantum comes just days after Inmet announced an increase in proven and probable mineral reserves at the Cobre Panama project, of which it owns 80%. The company estimated the yield from the Cobre mine, which is a key target of the First Quantum bids, to be higher by 27% at an estimated 26 billion pounds over previous forecasts. The increased reserves are expected to extend the mine's life from 31 to 40 years, Inmet said.

In early 2011, Inmet entered a no-premium "merger of equals" with Lundin Mining Corp. to combine cooper operations. That deal was mutually terminated after Equinox Minerals Ltd. made a hostile bid for Lundin. Equinox eventually was acquired by Barrick Gold Corp.

The industry has seen a number of bid contests, but unlike the Lundin merger, First Quantum is starting at a reasonable premium.

Freeport-McMoRan Copper & Gold Inc. has always been a potential bidder, but Freeport is currently engaged in two deals and has not been focused on base metals, a risk arbitrageur said. It seems that after allowed due diligence, Inmet could get the price up over C$75 per share, he said.

On the call in support of its bid, First Quantum said it is seeking to engage with Inmet, conduct due diligence on the Cobre project and if opportunities arise respond in a form that will be beneficial to the shareholders of both companies. So the bid is not final. First Quantum claims that Inmet shareholders have expressed some support for the potential combination. First Quantum said it passed on a previous opportunity regarding Inmet and the Cobre project because First Quantum's strategy does not include taking minority stakes in mining operations.

Leucadia National Corp. owns 15.9% of Inmet and holds one of the ten director seats on the Inmet board, which is unstaggered. The company held its last annual meeting April 27.

Inmet adopted a poison pill in response to the First Quantum approach last month. The pill expires after six months on May 28 unless it is ratified by Inmet shareholders at the next annual meeting.

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Tags: Barrick Gold Corp. | Cobre Panama | Equinox Minerals Ltd. | First Quantum Minerals Ltd. | Freeport-McMoRan Copper & Gold Inc. | Inmet Mining Corp. | Leucadia National Corp. | Lundin Mining Corp.

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Scott Stuart

Senior Writer: Arbitrage



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