Inca Pacific takes $35-million buyout to end ownership dispute

Vancouver – A protracted ownership battle looks to be closing with Inca Pacific Resources (IPR-V) agreeing to a roughly $35-million buyout by Peruvian-listed Minera Milpo.

The offer comes only months after Milpo secured the Magistral copper-molybdenum deposit in northern Peru through a government auction that Inca Pacific strongly opposed.  Inca maintains that the government improperly seized the Magistral project that it had spent the past decade and about $40-million developing.

Problems started in 2009 when the government asserted that Inca’s local subsidiary had not spent enough on the project for the previous year and so seized a $3-million performance bond. The company argued that money spent by Inca Pacific itself and other indirect spending, which brought total spending to US$15.1-million, should have counted towards the US$9.7-million spending threshold.

As that disagreement was on-going, the company refused to put up the $24-million bond for 2009 spending and so the government cancelled the transfer agreement and effectively seized the five mining claims that host the deposit. The issue subsequently went to arbitration, with Inca claiming damages of US$195-million based on money spent, the lost bond and the net present value of the project based on a 2006 feasibility study.

But arbitration does not seem to have been productive, as the government proceeded to auction off the rights to the claims to Milpo in April of this year for $8.02-million, $20,000 above the minimum bid, while the arbitration was still on-going.

Now, rather than continue with arbitration and then litigation, Inca has decided to take the buyout from Milpo. The Lima-listed company, majority owned by Brazilian conglomerate Votorantim, is offering 61¢ for each Inca share, representing a premium of 85% to the closing price just before the offer and a 132% premium to the 30-day volume-weighted average closing price. Inca Pacific’s board of directors has endorsed the deal, and roughly 26% of shareholders have locked into the offer.

For its investment, Milpo is getting a property with a resource of 195.5 million measured and indicated tonnes grading 0.51% copper and 0.052% molybdenum for 2.2 billion lbs. copper and 223 million lbs. molybdenum, plus inferred resources of 55.4 million tonnes grading 0.55% copper and 0.023% molybdenum.

Inca Pacific’s feasibility study on the project outlined a 20,000-tonne-per-day open pit mine producing 75.2 million lbs. copper, 6.3 million lbs. molybdenum and 380,000 oz. silver annually from the project for 15 years. The study established an after-tax net present value of US$152-million using an 8% discount rate and an after-tax internal rate of return of 15.2%, with a 3.3-year payback on the US$402-million capital cost.

At the time the government seized the bond, Inca had secured environmental approval for the project after waiting 15 months and was working to secure community agreements as well as secure government approval to extend the production deadline from 2011 to 2014. Inca first secured the project in 1998 through a government auction that gave the company seven years to develop the project.

Inca’s share price went up 25¢ or 76% to 58¢ on news of the bid with 9 million shares traded.