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First Quantum takeover of Inmet crosses finish line

File photo of a First Quantum operation.

KATRINA MANSON/Reuters

First Quantum Minerals Ltd. has gained control of Inmet Mining Corp. after a drawn-out hostile bid, charting a course to the major leagues of copper mining as it takes on the massive Cobre Panama project.

Vancouver-based First Quantum said on Tuesday that holders of just over 61 per cent of Inmet stock had tendered to the $5.1-billion cash-and-stock bid. First Quantum also lowered the minimum threshold for acceptance to 50 per cent and extended the deadline another 10 days.

In winning Inmet, First Quantum will get Cobre Panama, one of the world's largest undeveloped copper projects. When it is up and running some time in 2016, the project will add around 300,000 tonnes a year of copper production for the next 40 years.

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The First Quantum deal could in theory still be scuppered by a surprise white knight bidder, but that is seen as increasingly unlikely at a time when the mining world is facing some of its grimmest times since the financial crisis of 2008. The anticlimactic outcome of the deal, with no higher offer made by First Quantum, reflects the sombre state of the mining industry, which is coping with lower prices, uncertain demand and a string of recent writedowns due to overpriced deals done in the industry's high-flying days a few years ago.

Today's mining industry is not highly conducive to bidding wars. Chief executives are gun-shy, the copper price outlook has worsened and financing alternatives have all but dried up.

"This is a period when balance sheets are being cleared up, not added to," said John Hughes, an analyst with Desjardins Securities in Toronto.

"Obviously, in particular the large companies, the BHPs, the Rio Tintos and Anglos of the world who are literally downsizing their balance sheets by writing off large project investments ... it's very difficult for these players to come in and start acquiring new assets," Hughes said.

In the past year alone, some of world's largest mining companies have announced multibillion-dollar writedowns on assets bought just a few years ago, when metals prices were were on a steep upward trend with no end in sight.

The Cobre Panama project, plus organic growth from projects in Zambia, Peru and Finland, could put First Quantum production at over one million tonnes a year, making it one of the world's largest pure-play copper miners. That is up from annual production today of some 300,000 tonnes of copper, used in everything from electrical wires to roofing and plumbing and industrial machinery.

Cobre Panama, meaning Panama Copper, will be the largest in Central America and one of the most ambitious projects ever in Panama, home to the namesake canal that joins the Pacific and Atlantic oceans.

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Add to that that Panama is still an untested mining jurisdiction and it may not be surprising that Inmet's share price rarely traded above the First Quantum offer of $72 a share after it was tabled. First Quantum began courting Inmet in October, making two informal bids before the hostile offer in December that valued the company at $5.1-billion at the time.

Copper prices are near $3.50 a pound today, compared to $3.80 a pound when First Quantum first approached Inmet with a proposed friendly deal.

"When they started talking about this deal, there was a bit more positive sentiment toward the commodity in general. I think the market is just a little more wary on the metal itself," said Terry Thib, a long-time holder of Inmet shares and a portfolio manager with Norrep Funds in Toronto. "This looks like a done deal," he said.

Inmet declined comment on Tuesday, but a banner add recommending shareholders vote against the deal had been removed from its website by the afternoon.

The company had called from the start for shareholders to reject the bid as too low, especially after taking into account a decline in the value of First Quantum shares amid bumpy copper markets. Inmet said on Friday that the value of the offer was closer to $67.70 a share, equivalent to some $4.7-billion.

Inmet shares rose nearly 2 per cent to $69.98 a share. First Quantum shares traded close to flat at $20.69 a share.

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About the Author
Mining Reporter

Pav Jordan is a mining reporter for the Report on Business. More

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