Minmetals saves Lundin’s bacon

In what looks to be one of the major themes in mining this year, mergers and acquisitions again took centre stage in early April.

• Equinox Minerals’ high-stakes, hostile bid for Lundin Mining took a surprise, hunter-becomes-the-hunted twist. Instead of a rival bidder for Lundin appearing on the scene, as many had said there was half a chance of happening, China Minmetals’ Hong Kong-based subsidiary Minmetals Resources came out of left field with a $6.3-billion hostile bid for Equinox, contingent upon the bid for Lundin being dropped.

In what would be a modern Chinese miner’s largest-ever takeover outside China, Minmetals is offering $7 in cash per Equinox share, or a 23% premium to the previous closing price of $5.71 and a 33% premium to the last 20 days of trading.

Expecting at least a sweetener, if not a bidding war, traders quickly pushed Equinox shares to $7.50, where they’ve stayed, and dropped Lundin shares once again below $8 after driving them to a new high of $8.33 just before Minmetals’ entrance.

Interestingly, Inmet Mining’s shares have been on a tear since the company officially called off its merger of equals with Lundin owing to the superior Equinox bid, rising from below $63 to $72.50 at presstime.

After having bought OZ Minerals for $1.2 billion in 2009, Minmetals Resources already owns the Century zinc mine in Queensland, the Sepon copper-gold mine in Laos, the Golden Grove polymetallic mine in Western Australia and the Rosebery polymetallic mine in Tasmania.

Equinox’s Zambian copper mine looks to be a good fit for Minmetals, and the only doubt would be the Saudi government’s view of a major Chinese company opening a mine inside their oftentimes xenophobic country.

Chinese majors have run into deal-killing, nationalistic sentiment from governments in Canada and Australia before, most notably when Minmetals eyed Noranda in 2004 and when Chinalco tried to boost its stake in Rio Tinto to 18% in 2008, but since Equinox’s assets are offshore, the acquisition should get swift approval from both countries’ foreign-investment review boards.

• The second M&A deal is a classic Canadian junior success story, with Vancouver’s New Gold offering $550 million in shares for Peter Bernier’s Richfield Ventures and its 4-million-oz. Blackwater gold property in central B.C.

That amounts to an offer of $10.38 per Richfield share for a company that only optioned the Blackwater project in 2009 and a stock that traded at $4 in January 2011 and as little as 16¢ in mid-2009. Blackwater only had its first resource estimate a year ago, and is still awaiting its first scoping study.

The bid shows gold majors such as New Gold, Kinross Gold and Goldcorp remain ready and eager to swoop in and take over a junior before a feasibility study is completed, when the geology looks right. This canny wheeling and dealing is a big reason Canadian gold miners continue to be a dominant force in the industry.

• People involved in mining in Quebec continue to ponder the implications of the provincial budget tabled in mid-March. In it, Finance Minister Raymond Bachand moves forward the two-year-old Plan Nord to develop Quebec’s territory north of the 49th parallel by proposing $2 billion in new infrastructure spending over five years, $500 million in equity participation by provincially owned Investissements Québec, and the creation of a new Plan Nord fund.

While more details of the plan are due in the next few weeks, Plan Nord has large implications for the mining industry in Quebec, with roughly half of all mineral exploration activity in the province taking place in the plan’s territory. On the positive side, new infrastructure such as the Otish road extension pave the way for new mine development in previously too-isolated areas, while pledges to exclude up to half of the Plan Nord territory from industrial development promise to neutralize large swathes of land from mineral development.

• At presstime, gold and silver prices were breaking out to new highs, with spot gold hitting all-time nominal highs above US$1,465 per oz. and silver surging to 31-year highs above US$39 per oz. Platinum and palladium prices are also on the upswing, reversing major downtrends in mid-March and retracing levels attained a month ago.

All the usual factors are at play, including political unrest in the Middle East and North Africa, oil prices rising well above US$100 per barrel, and a determination by U.S. authorities to complete their latest round of quantitative easing. However, many wonder if the gold rally may stall for a while owing to predicted interest rates hikes, and the past year’s drop off of inflows to gold exchange traded funds.