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ByJoseph Ciolli-Aug 11, 2011 6:58 PM MT
Lundin Mining Corp. (LUN), which lostalmost half its value after spurning two takeover bids, nowneeds an acquirer willing to pay the biggest premium for adiversified minerals deal to make shareholders whole again.
The copper producer’s market capitalization has plungedC$2.2 billion ($2.2 billion), or 42 percent, in about fourmonths since rejecting a C$4.8 billion bid from Equinox MineralsLtd. and abandoning plans to sell itself after deeming offers tobe inadequate. To recover the losses, Lundin would now have tofind a buyer willing to pay a 71 percent takeover premium,making it the most expensive diversified-minerals deal greaterthan $500 million, according to data compiled by Bloomberg.
While bidders may still be lured by Lundin’s stake in acopper mine in the Democratic Republic of Congo and a valuationcheaper than 97 percent of the Toronto-based company’s rivals,Chairman Lukas Lundin may insist on a price exceeding Equinox’sprior offer, according to Stifel Nicolaus & Co. Potentialsuitors now must weigh a 17 percent slump in copper prices andincreasing signs the U.S. may fall back into a recession asstocks suffer the worst slump since the financial crisis.
“It was a complete debacle when they rejected the Equinoxbid and failed to find any alternative bids,” George Topping, aToronto-based analyst at Stifel, said in a phone interview.“With the hindsight of the current market and current shareprices, they should’ve done that one and moved on.”
Sophia Shane, a spokeswoman for Lundin, declined to commenton takeover speculation and said company executives were notavailable.
Inmet vs. Equinox
Inmet Mining Corp. (IMN)’s all-stock agreement in January valuedLundin’s equity at C$4.2 billion, or a 2.2 percent premium,according to data compiled by Bloomberg. Equinox, the owner ofAfrica’s largest copper mine, countered a month later with anunsolicited cash-or-stock offer of C$8.10 a share, a 14 percentpremium, the data show.
In March, Lundin rejected Equinox’s bid, later saying thePerth, Australia-based company’s offer was “low ball,” “risky”and required too much debt financing. Lundin then mutuallyterminated its deal with Toronto-based Inmet and adopted apoison pill to thwart hostile bids while it considered options.
“Lundin actually decided to put itself for sale andexplore strategic alternatives to fight off the Equinox bid,”Yemi Oshodi, a managing director of M&A and special situationstrading at New York-based WallachBeth Capital LLC, said in aphone interview. “That higher bid obviously never materialized.Lundin was left with nothing. They have cost shareholders adecent amount of money.”
Destroying Shareholder Value
Equinox withdrew its bid April 25 when it agreed to bebought by Toronto-based Barrick Gold Corp. (ABX) Lundin abandoned saleplans in May after offers came in too low.
Lundin has plunged 42 percent since April, wiping outC$2.24 billion in market value. The stock reached C$9.26, or amarket capitalization of C$5.39 billion, April 29 as traders whoprofit from mergers and acquisitions bet on a higher offer.
The copper and zinc producer now trades at a 6 percentdiscount to its book value. Only two of 34 diversified-mineralscompanies greater than $1 billion are valued below their assetsminus liabilities, data compiled by Bloomberg show.
While copper was trading near a record when Inmet andEquinox made their bids, the metal has since retreated asAmerica’s economy expanded less than economists estimated in thesecond quarter. Copper for delivery in three months on theLondon Metal Exchange closed yesterday at $8,881 a ton afterdropping as much as 17 percent from its Feb. 15 intraday peak.
Copper Prices
The metal used in electric wire, roofing and plumbing willaverage $9,918 next year before dropping to $8,762 in 2013, themedian of analysts’ estimates compiled by Bloomberg showed.
The Standard & Poor’s 500 Index has plunged 14 percent fromits 2011 high as Europe’s debt crisis worsened, S&P downgradedthe U.S.’s AAA credit rating for the first time and reports onmanufacturing and consumer spending showed the world’s largesteconomy is slowing.
Given the decline in global equity valuations, it would be“tough” for Lundin management to turn down a bid around C$8 ashare, WallachBeth’s Oshodi said. Lundin may be interested inabout C$8.50 a share, Normand Lamarche, a fund manager at FrontStreet Capital in Toronto, said in a phone interview. The firmhas $3 billion under management and owned more than 600,000shares of Lundin as of May 31.
Record Premium
“People had a lot of faith in Lukas Lundin, that he was adeal guy,” John Stephenson, a portfolio manager at First AssetInvestment Management Inc. in Toronto, which has $2.5 billionunder management and owns Lundin shares, said in a phoneinterview. “The end result was he didn’t get the price hethought it was worth. I would hope that if he got an offer forC$9 at this point he’d take it and run.”
To reach the April high of C$9.26, Lundin would have to bepurchased at a 71 percent premium to yesterday’s closing priceof C$5.40. The highest announced premium ever offered in thediversified minerals industry for takeovers greater than $500million was 64 percent, data compiled by Bloomberg show.Matching Equinox’s C$8.10-a-share bid would mean a 50 percentpremium to yesterday’s close.
BHP Billiton Ltd. (BHP), the world’s biggest mining company, andNyrstar (NYR) NV failed to reach an agreement on a joint bid forLundin, and talks ended last week, two people familiar with thematter, who asked not to be identified because the discussionsweren’t public, said this week.
While Nyrstar, the world’s largest refined zinc producer,is still interested in some of Lundin’s assets, it can’t affordto buy the company on its own, one of the people said. GeertLambrechts, a spokesman for Balen, Belgium-based Nyrstar, didn’treturn a telephone call or e-mail after normal business hours.
Tenke Copper Mine
Lundin owns 24 percent of Tenke Fungurume, a copper andcobalt mine in the south of the Congo. Freeport-McMoRan Copper &Gold Inc. (FCX) holds a 56 percent stake in the $2 billion project,and Gecamines, Congo’s state-owned mining company, owns theremaining 20 percent. Lundin also owns the zinc mines ofZinkgruvan in Sweden and Galmoy in Ireland and the Neves-Corvocopper and zinc mine in Portugal.
The company’s copper mines, which accounted for 66 percentof revenue last year, and zinc production that contributed 13percent of sales may attract separate buyers, said Stifel’sTopping.
Freeport, the world’s largest publicly traded copperproducer, may bid for Lundin’s copper assets to consolidate itsownership in the Tenke mine, WallachBeth’s Oshodi said. Eric Kinneberg, a spokesman for Phoenix-based Freeport, didn’trespond to a voicemail or e-mail requesting comment.
HudBay Merger
A merger with HudBay Minerals Inc., a Canadian zinc andcopper miner, may also be an option for Lundin, said Topping. In2009, HudBay scrapped a bid to acquire the 80 percent of Lundinthat it didn’t already own for about C$684 million, datacompiled by Bloomberg show.
“We’re not looking to do large-scale M&A,” said John Vincic, a spokesman for Toronto-based HudBay. “Our focus is onearlier stage assets at this point. Our hands are full with twolarge-scale construction projects.”
“With regards to a specific acquisition of Lundin, we nevercomment on market speculation,” he said in a phone interview.
The possibility that economic growth will slow further asEurope’s sovereign debt crisis worsens means Lundin may havemissed the chance to sell itself at the best price, FirstAsset’s Stephenson said in a phone interview.
“The sentiment is overwhelmingly negative, and there’svery much a feeling in the market that these guys missed it,”Stephenson said. “They should’ve sold when there was someinterest in the name.”