Inmet Mining Corp. says it is in talks to sell a minority stake in the mammoth Cobre Panama copper project, and again urged shareholders to reject a hostile takeover offer for the whole company.
Investors must decide by Monday at midnight whether to tender to the $5.1-billion offer from First Quantum Minerals Ltd., a Vancouver-based copper miner which has been courting Inmet since October.
"Inmet is currently engaged in constructive dialogue with a potential strategic investor to purchase a minority stake in Cobre Panama at premium values to Inmet's current analyst consensus net asset values and at a significant premium to the value implied by the First Quantum offer," Inmet chairman David Beatty said in an open letter to shareholders.
Cobre Panama is one of the world's largest undeveloped copper assets. The Panama mine would cost more than $6-billion to build, and add some 300,000 tonnes of copper to annual global production when it comes on line in 2016.
It was the first time Inmet has made reference to talks with a potential single suitor, in the past always speaking in terms of several parties, and might give shareholders more to mull as they decide whether to take up the $72 per share bid, or bet the company can extract more value down the road.
Inmet shares rose nearly 2 per cent on Friday, to $68.81 each, before closing at $68.52. First Quantum stock was up 6.2 per cent. Inmet fights the bid as its stock has retreated alongside other copper miners, forcing investors to wonder about the future value of their shares.
How shareholders vote on the deal will depend a lot on their views of a copper market that has traded sideways in recent months, and provided little visibility on future demand. Copper bulls say prices will rise to new records in the medium term, three to five years out, as the global economy recovers, while bears say demand will remain muted.
Inmet owns 80 per cent of Cobre Panama and Korea Panama Mining Corp. owns the rest, but the company has been trying to sell a further stake to mitigate project costs.
Bringing in a third party reduces risks by sharing the financial burden. At the same time it means sharing the potential payback once the project starts producing.
"A transaction with a minority partner will further de-risk Cobre Panama. It will provide an upfront cash payment as well as a source of capital to fund the partner's share of Cobre Panama capital costs going forward," said Mr. Beatty.
Inmet did not provide further details about the talks to sell a stake in Cobre Panama.
Inmet also reached out to First Quantum once again on Friday, saying it would be prepared to meet with First Quantum to discuss a supported transaction, "if First Quantum is prepared to make a fair offer to Inmet's shareholders."
"The Special Committee and the Board believe that, absent a fair offer, executing on the current plan will create higher value for shareholders," Mr. Beatty said.
Previously , First Quantum has expressed concern that a potential stake sale might be a defeating condition for its offer because it would diminish the value of Inmet.
A First Quantum spokesman declined comment on Friday.
Separately, it said it received Investment Canada Act approval for the proposed deal.