Sojitz makes Primary a takeover target

Vancouver — The board of tungsten producer Primary Metals (PMI-V, PMIZF-O) has thrown its support behind an all-cash takeover bid of $3.65 per share by Japanese multinational, Sojitz.

The deal values Primary Metals at about $54 million, and represents about a 59% premium over the company’s 30-day weighted average trading price as of Aug. 2. However, back in early 2006, shares in Primary Metals hit a high of $5.74 each.

Directors of Primary Metals unanimously support the Sojitz offer and have entered lock-up agreements — representing about 55% of the company’s shares on a fully diluted basis — to tender to the bid. The agreements are binding unless a superior offer is tabled and not matched by Sojitz.

Conditional on two-thirds of Primary Metals’ shares being tendered, the all-cash offer includes a $2-million break fee payable to Sojitz under certain conditions.

The prize Sojitz eyes is Primary Metals’ Panasqueira tungsten mine in central Portugal. The mine produced 99,095 metric tonne units (MTUs) of tungsten in its 2007 fiscal year ended March 31, generating net earnings of $1.5 million. Each MTU equals 10 kg of tungsten trioxide.

The mine also produces by-product tin, copper and aggregate.

Primary Metals continues to ramp up production from Panasqueira by making improvements to operations and assembling a fleet of newer, low-profile underground mining equipment.

Proven and probable reserves were boosted in early 2007 to 2.43 million tonnes grading 0.243% WO3, containing 590,000 MTUs of tungsten trioxide. An additional indicated resource of 2.7 million tonnes at 0.277% WO3 was tabled, containing a further 748,000 MTUs of tungsten trioxide.

Mining has occurred in the area since the late-1800s but many of the local mines were folded into Beralt Tin and Wolfram in 1928. Anglo American (AAUKD-Q, AAL-L, AGL-J) subsidiary Minorco acquired Beralt in 1990 but ceased mining and placed the operation on care and maintenance three years later. London-based Avocet Mining (AVVGF-O) picked up the project in 1994 and started production the following year. Primary Metals acquired Panasqueira from Avocet in 2003.

Strong global tungsten prices over the past couple of years (around US$250 per MTU of WO3) have greatly improved the economics of Panasqueira, and Primary Metals has reinvested a significant portion of the new-found cash flow into equipment upgrades as part of an overall effort to boost production.

Tokyo Stock Exchange-listed Sojitz was formed in 2004 by the merger of Japanese firms Nissho Iwai and Nichimen.

Shares of Primary Metals shot up 33% to the $3.55-level following the takeover news. The company has about 13 million shares outstanding.