First Quantum Minerals Ltd. (FM), a producer of copper in Africa, said it’s confident a C$5.1 billion ($5.2 billion) hostile bid for Inmet Mining Corp. will succeed after holding talks with shareholders.
First Quantum today took its C$72-a-share offer in cash and stock straight to Inmet investors as it seeks to gain control of a copper project in Panama. The offer requires acceptance by holders of 66 percent of Inmet shares. First Quantum said it’s been in talks with shareholders since December.
“The feedback from both sides has been very positive,” Clive Newall, president of First Quantum, said in an interview today in London. “They can see the rationale for this transaction.”
The offer is 36 percent more than Inmet’s closing price on Nov. 27, the day before Toronto-based Inmet said it rejected two previous unsolicited proposals from First Quantum. Inmet has to respond to the offer by Jan. 24 while shareholders have until Feb. 14 to decide whether to back it, Newall said. First Quantum has asked Inmet to open up its books, he said.
“We are confident, as confident as you can be, to get the required support of the shareholders,” Newall said in the interview. “We believe that sort of price is the price that will get the two-thirds of shareholders across the line.”
First Quantum dropped 4.4 percent to C$20.59 at the close in Toronto, while Inmet (IMN) was unchanged at C$72.25.
“The Inmet board will carefully evaluate the terms of First Quantum’s unsolicited bid,” Chairman David Beatty said in a statement. Inmet has set up a special committee to review the offer, he said. It will also examine other strategic options, some of which pre-date First Quantum’s approach.
Inmet stockholders are being offered First Quantum shares, cash, or a combination of both resulting in a total mix of about 50 percent in shares and 50 percent in cash. The cash component of the latest offer will be financed through existing cash resources, undrawn financing facilities of $1.25 billion and a $2.5 billion acquisition facility provided by Standard Chartered Bank, First Quantum said.
Cobre Panama is the second-largest copper venture under construction, after Rio Tinto Group’s Oyu Tolgoi mine in Mongolia, according to a November presentation posted on Inmet’s website. The project will cost about $6.2 billion and produce an average of 266,000 metric tons a year of the metal, which has more than quadrupled in price in the past 10 years in New York.
First Quantum doesn’t expect a rival bid for Inmet because it wouldn’t be possible to reduce the cost of Cobre Panama by outsourcing most of the work, Newall said. First Quantum builds as much as 95 percent of its projects with its own staff while other mining companies employ contractors, he said.
“We don’t really expect any interlopers,” Newall said. “It does look like Chinese groups are exercising discipline, they aren’t paying too much.”
Other potential buyers would have little opportunity to cut costs at the project, he said.
First Quantum will only find out how much it can reduce costs at Cobre once it’s carried out due diligence.
“We know we can cut the capital by a significant amount,” Newall said. “But how much we can’t say before the due diligence.”
First Quantum is developing the Sentinel copper project in Zambia which will produce as much as 300,000 tons of the metal by the end of 2014 at a cost of about $1.7 billion, the company said last month. Costs are lower than at Cobre Panama because First Quantum is mainly using its own staff, Newall said.
First Quantum operates the Kansanshi copper mine in Zambia, the Guelb Moghrein copper and gold mine in Mauritania, the Ravensthorpe nickel facility in Australia and Kevista in Finland. First Quantum is the world’s 13th-largest copper producer and predicts it will become the sixth-biggest in 2016, it said last year.
Inmet operates mines in Finland, Spain and Turkey. Leucadia National Corp. (LUK:US) is its largest shareholder with a 16 percent stake and Temasek Holdings Pte Ltd., Singapore’s state investment company, has 11 percent, according to data compiled by Bloomberg.
First Quantum made an offer of C$62.50 a share for Inmet on Oct. 28 and another at C$70 on Nov. 25, before announcing Dec. 16 it would take a sweetened C$72 a share bid straight to Inmet shareholders.
Inmet said Nov. 28 it adopted a shareholder-rights plan, or poison pill, to block an unsolicited bid.
Goldman Sachs Group Inc., Jefferies Group Inc. and RBC Capital Markets are advising First Quantum. CIBC World Markets and law firm Torys LLP are advising Inmet. Scotiabank is financial adviser and Osler, Hoskin & Harcourt LLP is legal counsel to the special committee of the Inmet Board.
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