Musto warms to MIM offer, sues Metall Mining

Proving that hostile takeovers are just that, International Musto Explorations (TSE) has served notice it will proceed with legal action against Metall Mining (TSE) and Metall’s financial adviser, McLean McCarthy Inc.

Musto’s claims include alleged breach of contract and breach of fiduciary duty resulting from the use of confidential information for unlawful purposes. The “unlawful purposes” include solicitation of the purchase of shares in the capital of Musto from shareholders of Musto, contrary to securities legislation.

Responding to these charges, Metall President Klaus Zeitler said: “We can only speculate as to why Musto would have commenced this frivolous action. If, however, it was intended to impede our offer to purchase all the shares of Musto, it will have had the opposite effect.”

The action taken by Musto comes on the heels of an offer from Metall to buy all the outstanding shares of Musto for $16.25 per share. At that price, the offer would cost Metall about $240 million. The offer was rejected by Musto’s management.

Musto said the offer was rejected because its financial advisers “determined that (it) was not the best proposal received.”

Metall’s offer was one of four proposals received by Musto either to joint-venture or sell an interest in the Bajo de la Alumbrera gold-copper deposit. Situated 1,000 km northwest of Buenos Aires, Argentina, the project contains 543 million minable tons averaging 0.53% copper and 0.02 oz. gold per ton at a cutoff of 0.2% copper. Annual production is expected to be 250 million lb. copper and 360,000 oz. gold after the first 5.5 years of production.

Metall’s offer was contingent upon its receiving at least 50.1% of the outstanding Musto shares. As well, Musto was not to enter into any legally binding joint-venture agreements regarding the property.

Zeitler went on to say that “Musto shareholders have the right to choose,” adding that “our bid gives them the critical choice between the certainty of our cash now and the uncertainties of a long-term mining investment.” Musto has estimated the cost of developing the project to be US$600 million. Indications that Musto had chosen MIM Holdings were suggested earlier when Norman Fussell, chief executive officer of MIM, stated his company had signed a letter of intent with Musto to take an interest in the venture and become operator.

Under the agreement, MIM has agreed to pay Musto US$130 million for a half interest in the Bajo deposit. Of this sum, US$10 million represents repayment of all Musto’s investment in the project and US$120 million will be dedicated to the project itself. It is expected that 60% of the US$600-million development cost will be financed, leaving US$240 million to be raised through equity financing. The US$120 million would therefore be sufficient to fund Musto’s additional share of the costs. MIM would use reasonable efforts to obtain the debt financing and all subsequent revenues would be split on a 50-50 basis.

The offer will close Feb. 17 and is contingent upon the agreement being signed and MIM satisfying itself with regard to title.

As a result of the lawsuit, Musto is seeking damages as well as interlocutory and permanent injunctions preventing Metall from receiving and using further confidential information.