Debt carefully considered in Lundin bid, Equinox says

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Equinox chief executive officer Craig Williams has answers to the burning questions about his hostile bid for Lundin Mining , but first he wants to deal with the criticism levelled by counter-bidder Inmet Mining.

"It will be fairly interesting to see how they're going to finance a $5.5-billion development project without taking on debt," Mr. Williams said in an interview in Toronto on Thursday. "Good luck."

His remarks came after Inmet CEO Jochen Tilk said earlier this week that he is averse to debt, and implied that Equinox was taking on far too much through a bank facility.

To prove that the debt level was carefully considered, Mr. Williams made it clear that Goldman Sachs and Credit Suisse stress-tested all possible outcomes for Equinox. "You can be assured that they didn't give us $3.2-billion (U.S.) on a whim."

He also shot back at HudBay CEO David Garofalo, who said Equinox's proposed deal could be "very value-destructive" and chastised Equinox for bidding as if there is a commodity super cycle. "There's no frenzy of activity here," said Mr. Williams, who is based in Australia. "I don't think it's top-of-a-cycle action."

As proof, he cited the premium being offered: "It's not a 40- or 50-per-cent premium that might indicate top-of-the-market pressure on the deal."

As for copper prices, he believes they are fairly valued despite hitting an all-time high of $4.65 (U.S.) a few weeks ago. He attributes current levels to supply constraints and doesn't see any reason for them to change much in the near future because some of the biggest development projects, such as Inmet's Cobre Panama, will take at least five years to build.

"I'm not saying there won't be bumps along the road," Mr. Williams added, "but I think the fundamentals will continue."

As for the pressing questions, many investors want to know why Equinox didn't bid for Lundin a few months ago, when corporate valuations were much less pricey and the Inmet deal wasn't on the table. Mr. Williams said he was focused on his Citadel acquisition at the time, which added the Jabal Sayid project in Saudi Arabia.

He said he wanted to get the Citadel deal completely settled, and then assess where Equinox might next turn its sights. "But matters were taken out of our hands," with the Lundin-Inmet proposed merger, and he was forced to act.

There has also been speculation that Equinox only bid for Lundin out of fear that Equinox itself would become prey for the merged Inmet-Lundin company. "Our action wasn't triggered because of that," Mr. Williams said, noting that since 2007, when First Quantum acquired an interest in Equinox, "there's been continuous speculation of them taking us over … You can't run your business worried about that."

The fact that Equinox has registered only one annual profit since it began in 1994, with a second likely to come this year, also fuels speculation that its bid for Lundin is brash.

"If you want to build a company, you have to be prepared to respond quickly to opportunities as they arise," Mr. Williams said. "People on the outside might think we were a bit hasty, but I can assure you, we went through a quite rigorous process."

His evaluation included weighing the strategic sense of a combined Equinox-Lundin, versus a combined Lundin-Inmet. Mr. Williams said looking just five years out made it all clear. In that time frame he said his merger would produce about 500,000 tonnes more copper.

"I don't know what the copper price is going to be in 2017," he said, but he isn't interested in waiting. "I'd rather be making copper now."

And it is copper that he is focused on, although Lundin produces other minerals, such as zinc. Although he said he isn't looking to sell those assets, "if the right deal was on the table, we would give it serious consideration."