Inca Pacific takes $35M buyout to end ownership dispute

A protracted ownership battle looks to be ending, with Inca Pacific Resources (IPR-V) agreeing to a $35-million buyout by Lima-listed Minera Milpo.

The offer comes only months after Milpo secured the Magistral copper-molybdenum deposit in northern Peru through a national government auction that Inca Pacific strongly opposed. Inca maintains that the government improperly seized the Magistral project 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 and other indirect spending, which brought total spending to US$15.1 million, should have counted towards the US$9.7-million spending threshold.

During the ongoing disagreement the company refused to put up the $24-million bond for 2009 spending. 

The government cancelled the transfer agreement and seized the five mining claims that host the deposit. The issue went to arbitration, with Inca claiming US$195-million in damages based on money spent, the lost bond and the project’s net present value based on a 2006 feasibility study.

But arbitration does not seem to have been productive. In April the government proceeded to auction off claim rights to Milpo  for $8.02 million, $20,000 above the minimum bid, while the arbitration was still ongoing.

Now, rather than continue with arbitration and litigation, Inca has decided to take the buyout.

Milpo, which is majority-owned by Brazilian conglomerate Votorantim, is offering 61¢ for each Inca share, representing an 85% premium 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 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 a US$152 million after-tax net present value using an 8% discount rate and a 15.2% after-tax internal rate of return, 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 obtaining community agreements for 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.