Phelps Dodge bids for Cobre

Its formal bid now on the table, copper colossus Phelps Dodge (PD-N) is waging a public campaign for control of up-and-coming producer Cobre Mining (CBU-T).

Early in November, Phelps Dodge caught Albuquerque-based Cobre off-guard with a takeover proposal. Cobre’s board rebuffed the bid, advising shareholders that it was not in their best interest to deal with Phelps Dodge without first seeing if there would be competition. Since then the two companies have been answering each other’s statements in open letters to the press.

Phelps Dodge announced its formal bid for in a news release, as well as in an advertisement in Canadian newspapers. The Phoenix-based major has offered to pay US$3.85 per share for the outstanding shares of Cobre. The company will also pay US10cents per share for Cobre’s Series A and Series B warrants.

The offer is valued at US$105 million, and represents a premium of 8% over the closing price of Cobre shares at the time of Phelps Dodge’s original announcement.

“The offer provides Cobre shareholders with a unique opportunity to realize value that otherwise would not be available in the market,” says Phelps Dodge Chairman Douglas Yearley.

The offer remains open until February 3, and is conditional upon at least 90% of the shares and warrants being deposited. The closing date was set far enough in the future for the offer to be considered a “permitted bid” under Cobre’s shareholders’ rights plan, thus giving other parties the opportunity to submit competing bids.

Cobre Chairman Jeffrey Ward has formed an independent committee to issue a recommendation on the offer. The committee is composed of several Cobre directors (excepting Ward and President Rich McNeely, who, between them, own a significant number of Cobre shares).

Ward said the recommendation and the director’s circular should be ready by Dec. 15.

Cobre operates the Continental copper mine in southwestern New Mexico, situated 3 miles from Phelps Dodge’s Chino operations.

Continental will produce 75 million lbs. of copper during 1997 at a cash cost of about US78cents per lb. Last year, Cobre embarked on a program of expansion and development which could increase production to 100 million lbs. by 1998.

Cobre recently received a positive feasibility study for a US$78 million solvent extraction-electrowinning (SX-EW) project, which should add 50 million lbs. copper while lowering the cash costs. By 2000, total production could reach 150 million lbs.