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Many copper miners are familiar with Inmet’s Cobre Panama project after the copper miner shopped around a stake to help it shoulder development costs.

A flurry of activity by Inmet Mining Corp. positions the company well to withstand a hostile bid from rival First Quantum Minerals Ltd., and it appears investors are betting that First Quantum won't be able to get its target.

Inmet's release of a big increase in reserves at its Cobre Panama copper project gives investors and potential white knights comfort about the value of the site. And the raising of $500-million of debt signals that Inmet has the cash on hand to keep building the mine without having to rely on an acquirer.

Now, with First Quantum's $72 a share offer widely seen as short of the mark, Wednesday's trading suggests that investors are coming around to the idea that First Quantum may not win Inmet.

Just saying no is tough in general, but Inmet has a group of large shareholders who can stand strong if they choose to.

"I wouldn't say the chances of that are zero," Invesco portfolio manager Rory Ronan, an Inmet shareholder, told Globe and Mail mining reporter Pav Jordan, adding that saying no "would be a tougher sell for them, but not impossible."

Inmet's shares are trading above the bid, rising again on Wednesday, and analysts are saying that the bid would likely have to go to the mid-$70s and even the low $80s to get Inmet shareholders onside.

Canaccord's Orest Wowkodaw looked at seven precedent transactions from the past two years and found that the average premium to net present value (NPV) was 8.5 per cent. Applying that number to Inmet produces a value of $81.87. (One caveat is the range of prices paid relative to NPV in the precedent deals is very wide, from a discount of 36 per cent in the purchase of Quadra Mining to a premium of 85 per cent for Walter Energy's acquisition of Western Coal.)

Can First Quantum go that high? Looking at it from an accretion perspective, perhaps. But there are other considerations.

The bid is cash and stock, and issuing more shares than already contemplated gets a bit ticklish.

First Quantum is hemmed in by a couple of issues, mainly a requirement to hold a vote on the deal if First Quantum is required to issue shares equivalent to 25 per cent or more of its shares outstanding. That doesn't offer much room to add more shares, as Canaccord calculates that the current bid is equivalent to 24.2 per cent of fully diluted shares outstanding. Raymond James estimates that $2 more a share is possible before hitting the voting threshold.

Adding more debt starts to stretch the balance sheet. Bond-rating company Fitch estimates that First Quantum's net leverage will more than double to 3 times earnings before interest, taxes, depreciation and amortization based on the current terms. Adding more cash is only going to exacerbate that.

So how to explain the 5 per cent jump in First Quantum's shares on Wednesday, which recoups what the stock lost in the wake of the bid for Inmet? Copper prices are down.

So if investors think that First Quantum is going to have to pay more to get Inmet (as reflected in Inmet's rising stock), it's hard to justify bidding up First Quantum shares.

One logical conclusion then is that investors are sending up First Quantum, regaining the ground lost on the bid, because they think it's going to lose

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
FM-T
First Quantum Minerals Ltd
+2.32%14.56

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