Equinox spoils Symterra dream

Nothing’s ever simple when it comes to Lundin Mining. This week, the volatile Vancouver-based international base-metals miner had its cozy proposed merger with Canada’s Inmet Mining fall apart in the face of a hostile, $4.8-billion bid by Australia’s Equinox Minerals.

• Equinox is offering $8.10 in cash and shares for each Lundin share. That represents a generous 26% premium to Lundin’s share price compared to the day before the offer, or a 13% premium to Lundin’s 30-day trading average.

The Inmet-Lundin deal would have seen the two essentially merge as equals – with no premium paid – under the new name Symterra Corp. It would have begun life with a $9-billion market capitalization based on five operating mines in Europe and Turkey, plus two large copper development projects, including Lundin’s 24.75% stake in the potentially very lucrative new Tenke copper mine in the Democratic Republic of the Congo.

Although Inmet ended 2010 sporting a healthy balance sheet including $534 million in cash and equivalents, the company also has hefty capital requirements ahead, as it prepares to finance planned construction of its wholly owned, very large but low-grade Cobre Panama copper-gold project in the jungles of Panama, which may cost on the order of US$4.3 billion to build.

Given Inmet’s financial handcuffs, and the company’s generally cautious nature forged out of a brutal but necessary downsizing it endured in the late 1990s, it looks unlikely that Inmet will enter a bidding war for Lundin. Instead it will probably dust itself off, pocket the $120-million break fee, and get back to work in Panama while it scouts out other merger and acquisition opportunities.

For its part, Equinox has become a bit of an enigma these days, having transformed itself from a single-asset mine development company focused for a decade on building its Lumwana open-pit copper mine in Zambia into today’s multi-continental wheeler-dealer copper player.

With cash flow coming in from Lumwana’s successful startup and an ambitious expansion in the works, Equinox set its sights beyond Zambia for the first time late last year, buying Australian-listed Citadel Resource Group for $1.25 billion in a friendly deal. Equinox bought Citadel for its Jabal Sayid copper-gold development project in western Saudi Arabia, due to start production in 2012, plus its portfolio of Saudi Arabian exploration projects.

About the only reason left for Lundin shareholders to stick with the Inmet merger is an emphasis on potential political risk. Inmet, with mines in Turkey, Finland and Spain, plus its Panamanian project, may prove to be a lower-risk business than Equinox if the Arab revolts we’ve seen in a half-dozen countries in northern Africa and the Middle East spread to Saudi Arabia, paralyzing business and provoking a backlash against foreign, Western investment.

Much of Equinox’s motivation in buying Lundin lies in the opportunity to get a piece of the action of the technically superb Tenke mine, which is operated by Freeport-McMoran Copper & Gold, with Gécamines holding a 17.5% free carried interest. There may be a few Equinox shareholders worried the company is embarking down the same painful path blazed by First Quantum Minerals, which built itself into a mid-tier copper miner on the back of high-quality assets in Zambia and then squandered boatloads of hard-earned cash on large copper assets across the border in the perennially troubled DRC.

• Speaking of trouble in the DRC, the week also saw a major assassination attempt there, as a large gang with machetes launched an attack on President Laurent Kabila’s residence in Kinshasa.

The day after the attack, which was repulsed, the DRC government lifted a temporary ban on some small-scale mining in the country’s northeastern provinces that was intended to cut off funding to armed groups beyond the government’s control. This has naturally led to speculation among DRC watchers that the Kinshasa attack was a plot by eastern-based groups seeking to have the mining ban lifted. Meanwhile, presidential elections are slated for November. Kabila came to power in 2001 after his father, Laurent Desire Kabila, was assassinated.

• In South Africa, President Jacob Zuma launched African Exploration Mining and Finance Corp., currently a subsidiary of the Central Energy Fund, as the country’s new government-owned and operated mining firm, under which all state interests in mining will be consolidated. While Zuma fell short of pushing for nationalization, he stated that the government must be more than a regulator in the country’s mining industry.