Cat fight looms over Lundin Mining assets

I’ve been predicting a cat fight over Lundin Mining’s copper assets since HudBay’s aborted takeover bid of the formerly cash-strapped miner in 2009.

So it didn’t surprise me when Equinox Minerals (EQN.TSX) made an unsolicited $5 billion Cdn bid for Lundin last week on the heels of a friendlier proposal from Inmet Mining Inc (IMN.TSX).

Inmet wants to create a shared entity structured from their respective assets, with itself as majority shareholder, while Equinox came out of the weeds last week with a proposal for a simple acquisition. The details of that haven’t been released and I don’t know if it’s an equity swap or cash offer or combination of the two, but Lundin has reportedlly dissed it as being too risky. I think it’s safe to assume there’s a lot of paper involved.

Meantime, both Lundin and Inmet have postponed their respective shareholder meetings until the end of the month.

Lundin’s stock price jump over a buck a share last week to almost $8, reflecting the buy out premium on Inmet’s offer. It fell back more than $0.30 Cdn today to $7 1/2 in afternoon trading.

I don’t think it was wise for Inmet and Lundin – which is well disposed to the merger — to back off from the deal like that; they are merely creating a window of opportunity for a potential third suitor of Lundin.

And it doesn’t help that Inmet’s share price is falling after doubts were cast on the future of its $4.3 billion Cobre Copper project in Panama. Government legislation has rolled back the rights of foreign state-owned companies, (one of which wants to partner with Inmet) to own mining projects in the tiny Central America country.

That doesn’t mean Inmet has one multi billion copper project less in its mineral inventory, but it could skew the financials of the deal in favour of Lundin.

Whatever. The point is that a third suitor is precisely what I’m expecting – and hoping – to see. It’s predictable for a couple of reasons: For one, the Lundin family are not known for retaining their mineral projects. They’re explorers, developers, and sellers, not miners. Full stop. And that makes Lundin the belle of the ball in this asset hungry market.

If you were a major or even a mid-tier mining company, wouldn’t you be keen to increase your inventories in the face of rapidly escalating mineral prices?

Let me put it another way — wouldn’t you be downright desperate to capitalize on the most compelling pricing regime in the history of mining?

For another reason, not every mid tier company is going to survive this market. It’s a case of eat or be eaten, acquire or be acquired. Companies the likes of Inmet will have to get big or get swallowed up.

We’re going to hear a lot of rhetoric from Equinox in the coming weeks, but probably nothing from the other two principals involved: That is, until they have their shareholders’ meetings at month end.

In the meantime, I’ll be grabbing all the Lundin stock I can, because I think its perceived value relative to Inmet is going to rise over the next 30 days.

Kevin Barker

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