Equinox Minerals has offered to buy Lundin Mining for C$4.8 billion ($5 billion) to expand its African copper assets, a move that could trigger a bidding war with Inmet Mining.
Equinox owns Africa's third-biggest copper mine by production, the Lumwana facility in Zambia, Thomson Reuters data shows. Lundin operates copper, zinc and nickel mines in Europe and has a 24.75 percent stake in Freeport McMoRan's massive Tenke-Fungurume copper-cobalt mine in the Democratic Republic of Congo.
The cash and stock bid comes about a month after Lundin and Inmet - a copper miner with operations in Spain, Turkey and Finland - agreed to join forces and form a Canadian copper mining major called Symterra, worth about C$9 billion ($9.2 billion).
Analysts had expected a rival suitor to emerge because the Inmet bid offered no premium to Lundin's investors.
Equinox's move, combined with near record copper prices and expected supply shortages, could spur another round of consolidation in the global resources sector, analysts said.
Global demand for copper and other base metals is rising worldwide, driven largely by China's growing need for imported metal to supplement its own supplies.
"We'll continue to see M&A in the sector. It will accelerate due to the lack of resources globally," said RBS analyst Lyndon Fagan.
Equinox Chief Executive Craig Williams told Reuters on Monday his offer was superior to the Inmet plan.
"I don't think we are at the top of the copper market and the timing was right to do this deal," Williams said in an interview. "We are offering a 26 percent premium for Lundin and Inmet's premium is zero."
Equinox's offer values the target at C$8.10 a share versus Lundin's last closing price on Feb. 25. of C$6.45 a share.
Lundin's Toronto-listed shares were trading up 21 percent at C$7.80 on Monday, but shares remained about 3.9 percent below the level of the Equinox bid.
"FAR TOO LOW"
Lundin, which had flagged the Equinox approach earlier, advised shareholders to take no action and has yet to respond formally. Inmet and Lundin officials could not be reached.
But Lundin 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."
In a note to clients, UBS analyst Onno Rutten said he views Lundin's "soft lock-ups" and C$120 million break-up fee with Inmet as "surmountable for an interloper."
Rutten said Lundin's assets are relatively attractive from a strategic perspective, due to growth opportunities and fairly long life expectancies for its mines. He raised his rating on Lundin to "buy" from "neutral".
At the time of the Inmet merger announcement analysts said Lundin was essentially putting itself in play, and Equinox's move on Monday came as no surprise.
"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 Darryl Levitt, an M&A lawyer with Macleod Dixon in Toronto.
"I do not think that the bidding process will stop here," he said.
Indeed, 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 is on the hunt for acquisitions and 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-per-year market into a deficit of more than 400,000 tonnes this year, with some analysts looking for a shortfall of twice that.
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.
© 2017 Thomson/Reuters. All rights reserved.