Lundin enters hot nickel market with Rio Narcea bid

Vancouver Aiming to add nickel to its metal production mix, Lundin Mining (LUN-T, LMC-X) is snapping up Rio Narcea Gold Mines (RNG-T, RNO-X) in a friendly all-cash transaction worth $993 million.

Rio Narcea is a Toronto-based company with assets in Spain, Portugal and Mauritania, northwest Africa. It also has a 20% equity interest in Chariot Resources (CHD-T), which owns a 70% stake in the Maracona copper project in Peru.

But the jewel in Rios crown is the Aguablanca nickel-copper mine in southern Spain, said Lundin spokeswoman Sophia Shane.

One of the largest nickel sulfide mines in western Europe, it produced 14 million pounds of nickel last year, at a cash cost of US$4.23 a pound, from an open pit operation located about 100 kilometres north of Seville.

Lundin is proceeding with the bid in a hot nickel market, which has seen prices almost triple in the past year to US$22.67 a pound, April 4.

It fits in beautifully with our portfolio by adding nickel to the mix, said Shane.

Lundin likes the fact that Aguablanca is located in the vicinity of the companys existing base metal operations in Portugal, which include the Neves-Corvo copper and Aljustrel zinc/lead mines.

Shane said the company is acquiring Rio Narcea with the expectation that Aguablancas nickel output can be expanded through improvements to the plant and via development of underground deposits.

This transaction is in line with our corporate goals to grow the company, increase value for shareholders and establish ourselves as the next major global mining house in the base metals sector, said Lundin chief executive officer Karl-Axel Waplan.

“We’re a strong believer that nickel will have a deficit going forward because of a lack of investment, so it was logical for us to add nickel,” Axel Waplan said.

In a recent research report, Lawrence Smith of Blackmont Capital described Lundin as a “mid tier” company which is aiming to fill the void in equity markets that has resulted from recent consolidation in the mining sector.

He was referring to the disappearance of former Canadian mining industry icons like Inco, and Falconbridge.

Marking the continuation of an aggressive growth plan, Lundin is offering to $5 cash for each of Rio Narceas outstanding shares and $1.04 for each of more than 22 million warrants.

Lundin said its offer represents a 23% premium over the 30-day weighted average trading price of Rio Narceas shares, and a 3.7% premium on the closing price of the shares on April 3.

Shares of Lundin rose $1.83 to $15.24 on the Toronto Stock Exchange, prior to the close of trading April 4, the day that terms of the deal were announced. Rio Narcea gained 31 cents to $5.13

The directors and management of Rio Narcea believe this is in the best interest of Rio Narcea and is a fair offer to all of our shareholders, said Rio Narcea Chairman Chris von Christierson.

The directors and officers, who together hold about 5% of Rio Narceas shares outstanding, have tendered their shares to the offer.

Rio Narcea has entered into a support agreement with Lundin Mining that provides for, among other things, a non-solicitation covenant on the part of Rio Narcea.

It also gives Lundin Mining the right to match any competing offers, and receive a non-completion fee payment of $25 million from Rio Narcea under certain circumstances.

If the bid succeeds, Lundin plans to sell Rio Narceas gold assets to Red Back Mining (RBI-T) for US$225 million in cash and the assumption of $42.5 million in debt.

A takeover bid circular containing details of the bid, is scheduled to be mailed out to shareholders and warrant holders by April 18, 2007. The offer, unless extended, will expire within 36 days of its commencement.