Vancouver – The Board of tungsten producer Primary Metals (PMI-V, PMIZF-O) has thrown its support behind a $3.65 per share all-cash takeover bid by Japanese multi-national company Sojitz.
The deal valuing Primary Metals at about $54 million comes in at a 59% premium over its 30-day weighted average trading price as of the August 2nd bid. However, back in early 2006 the stock hit a high of $5.74 per share.
Directors of Primary Metals unanimously support the offer and have all entered lock-up agreements (representing about 55% of the companys shares on a fully diluted basis) to tender to the bid, except if a superior offer is tabled and not matched by Sojitz.
Conditional on two-thirds of Primary Metals’ shares being tendered, the offer also includes a $2-million non-completion fee payable to Sojitz under certain circumstances.
Tokyo Stock Exchange-listed Sojitz was formed in 2004 by the merger of Japanese corporations Nissho Iwai and Nichimen.
The prize that 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 31st generating net earnings of $1.5 million after non-cash income tax. Each MTU actually equals 10 kg of tungsten trioxide.
The mine also produces by-product tin, copper and aggregate.
The company has been ramping up output from the mine through its latest year, undertaking improvements to operations and building its 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.
Historic mining has occurred in the area since the late-1800s but became integrated into Beralt Tin and Wolfram in 1928. Anglo American (AAUKD-O, AAL-L, AGL-J) subsidiary Minorco acquired Beralt in 1990 but ceased mining and placed the operation on care and maintenance in 1993. Avocet Mining (AVVGF-O) then picked up the project in 1994, recommencing production in the following year. Primary Metals acquired Panasqueira from Avocet in 2003.
Strong world tungsten prices over the past couple of years (around US$250 per MTU of WO3) have resulted in robust economics for mine with the company reinvested a significant portion of recent cash flow into its equipment modernization and upgrade initiative.
Shares of the company shot up 33% to the $3.55-level following the takeover news. Primary Metals has about 13 million shares outstanding.
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