Deals rock Canada’s base metals miners

The second week of 2011 was a breathtaking one in the Canadian base metals scene, with three substantial deals.

• The biggest is the proposed merger of equals of Inmet Mining and Lundin Mining to create a $9-billion base metals miner to be named Symterra Corp. and led by Inmet CEO Jochen Tilk.

The merger will combine Inmet’s more cautious, Torontonian corporate culture with Lundin’s flamboyant Vancouver wheeler-dealer mentality, but with the common thread of copper production. Symterra may have 80% of its revenue come from copper, and it would have the potential to produce 500,000 tonnes of copper annually from existing and planned projects by 2017.
The challenge will be the logistics of managing such a far-flung empire, with current operating mines in Turkey, Finland, Portugal, Spain, Sweden, Papua New Guinea, and the Democratic Republic of the Congo.

• Cleveland-based iron ore and coal giant Cliffs Natural Resources once again showed its newfound willingness to buy upstream mineral assets in Canada, as it tabled a friendly $4.9-billion all-cash offer to buy Toronto-based Consolidated Thompson Iron Mines.

The prize is Consolidated Thompson’s new Bloom Lake open-pit iron ore mine and two adjacent iron ore development projects located in the established iron ore camp of western Labrador and eastern Quebec. Bloom Lake is ramping up to an annualized production rate of 8 million tonnes of iron ore concentrate, and work is already underway to expand facilities to double that rate.
With Cliffs already having its own iron ore mine, plant and related infrastructure in the region, integration of the assets should be fairly straightforward, with Cliffs showing a willingness to retain some of Consolidated Thompson’s expertise in the area.
The deal also brings Cliffs a new relationship with Consolidated Thompson’s largest shareholder and China’s third-largest steelmaker Wuhan Iron and Steel (Group) Corp. of China, giving the North America-focused Cliffs more exposure to Asian steel markets.
Cliffs, which opened its first iron ore mine in 1850 in Michigan’s Upper Peninsula, has gotten involved in several very early stage projects in Canada and beyond in the last couple of years: funding Altius Minerals to help the junior look for iron ore in Labrador; partnering with Toronto-based Estrella Gold, which has early stage iron ore-copper-gold (IOCG) assets in southern Peru; striking a similar IOCG exploration agreement with Aussie junior Mariana Resources in Chile; moving into the chrome business with the surprise acquisition of Spider Resources and its logistically challenging Big Daddy chromite deposit in the Ring of Fire polymetallic camp in Ontario’s remote James Bay region; and the acquisition a year ago of Montreal-based Freewest Resources for its chromite assets, also in the Ring of Fire.
It was only a year and a half ago that Consolidated Thompson attempted to buy out the three-member Wabush Mines iron ore joint-venture partnership in Quebec and Labrador for US$120 million. Consolidated Thompson had lined up U.S. Steel Canada and ArcelorMittal as sellers, and only needed Cliffs to tender its 28.6% share to get a 100% interest. Instead, Cliffs exercised its right of first refusal and became 100% owner of the Wabush iron ore complex, which will now be integrated with the Bloom Lake assets.

• Thirdly, David Garofalo-led HudBay Minerals is venturing outside North America for the first time with its agreement to buy Toronto-based Norsemont Mining for $520 million in cash and shares, or a 33% premium.

Norsemont’s crown jewel is its 100% interest in the low-grade Constancia copper-silver-molybdenum deposit high in the rugged mountains of southern Peru. According to a 2009 feasibility study, a 50,000-tonne-per-year open-pit mine at Constancia could annually produce a copper concentrate containing an average of 70,533 tonnes of copper metal, as well as a moly concentrate. Silver and gold would be produced as a byproduct.
Garofalo, who joined the company after many years as Agnico-Eagle Mines’ CFO, looks to be following Agnico’s style of M&A, scooping up a 100% interest in a well-advanced, large project with lots of exploration upside in a high-quality mining jurisdiction.
• Mountain-top coal mining in the Appalachians is quickly joining natural gas fracking and oilsands mining as socially unacceptable methods of resource extraction in the public mind in North America. This week the U.S. Environmental Protection Agency took the unprecedented step of revoking a water permit for Arch Coal’s large-scale, proposed mountaintop-removal Spruce Mine No. 1 in West Virginia.