[Update] Inmet boosts copper reserves as First Quantum bid looms

VANCOUVER — As its future hangs in the balance, Canadian base metals producer Inmet Mining (IMN-T) continued to increase its value via a global resource update on Feb. 11, which was highlighted by a 22% jump in proven and probable copper reserves.

The Toronto-based company is staring down the barrel of a US$5.1-billion hostile takeover bid from diversified miner First Quantum Minerals (FM-T, FQM-L), with Inmet’s shareholders set to decide its fate by a 2 p.m. deadline on Feb. 27.

First Quantum effectively took its offer straight to investors in January after Inmet’s board rejected two earlier takeover attempts, despite the fact the company’s largest shareholder, Leucadia National, announced it would tender its 16% stake in support of First Quantum’s bid.

Though Inmet operates three base-metal mines in Europe, First Quantum’s main target is the massive Cobre Panama copper-gold porphyry deposit, located 120 km west of Panama City. And Cobre Panama continues to show expansion potential, with the project accounting for by far the largest slice of Inmet’s sizeable copper reserve increase.

The jump in copper reserves at Cobre Panama was predominantly due to the inclusion of the Balboa, Brazo and Botija-Abajo deposits, with total estimated in-situ copper jumping 27% and total gold reserves jumping 43%.

Proven and probable reserves at Cobre Panama clock in at 3.1 billion tonnes grading 0.38% copper and 0.07 gram gold per tonne, assuming a US$2.25 per lb. copper price. Under Inmet’s 80% stake, that equates to 9.45 million tonnes contained copper and 5.84 million contained oz. gold, which extends mine life at Cobre Panama by a decade, to 40 years.

Inmet saw incremental increases at its European operations, though the numbers are dwarfed by Cobre Panama’s sheer size.

At the company’s Las Cruces copper mine in Spain, reserves jumped by 43,000 tonnes of copper as a result of 2012 infill drilling, and now total 14 million tonnes averaging 5.44% copper for 768,000 contained lb. Las Cruces is expected to operate through 2022 under current reserve numbers, though Inmet is studying potential underground expansion vis-à-vis 38 million tonnes of primary sulphide inferred resources grading 1.1% copper, 2.6% zinc, 1.3% lead and 27 grams silver.

Reserve increases at Inmet’s Cayeli copper-zinc operation in Turkey and Pyhasalmi copper-zinc mine in Finland were predominantly driven by rising copper prices.

By adjusting copper prices to US$2.75 per lb., Inmet added 6,000 tonnes of copper and 24,000 tonnes of zinc at Cayeli, as well as 5,000 tonnes of copper and 2,000 tonnes of zinc at Pyhasalmi. Cayeli holds 7 million tonnes grading 3.06% copper and 3.64% zinc, while Pyhasalmi hosts 8.5 million tonnes averaging 1.07% copper and 1.85% zinc. Both mines are expected to operate through 2019 at current reserve levels.

Inmet’s European operations posted strong results in 2012, producing 111,700 tonnes of copper and 66,300 tonnes of zinc. The company expects similar production in 2013, with guidance falling between 108,000 and 116,000 tonnes of copper and between 56,000 and 62,000 tonnes of zinc, at cash costs of roughly 95¢ per lb. copper.

In relation to the First Quantum bid, Inmet announced on Feb. 19 that it would waive its shareholder rights plan or “poison pill” in front of a hearing with the Ontario Securities Commission scheduled for Feb. 25. The hearing was aimed at determining whether a cease trade order would have been applied to Inmet’s rights plan, but the company determined that the Feb. 27 deadline on First Quantum’s offer would “[provide] sufficient time for the full review and potential execution of all strategic alternatives being evaluated.” Inmet continues to advise its shareholders to reject the offer.

Inmet is also dealing with mining rights complications in Panama arising from an ongoing dispute with junior gold producer Petaquilla Minerals (PTQ-T), which operates the Molejon gold project next to Cobre Panama.

Inmet attempted to consolidate its land position by acquiring Petaquilla in late 2012, though the smaller company stymied Inmet’s attempts, claiming its co-operation was required for Cobre Panama’s full development.

On Feb. 12 Petaquilla announced it had secured a legal victory over Inmet in Panama’s Supreme Court, which rejected a constitutional challenge aimed at nullifying Petaquilla’s exploration and extraction rights in five areas of Panama’s Donoso district. The main contention between the companies involves the location off Cobre Panama’s proposed tailings site.

Inmet’s shares have hovered right around First Quantum’s offer range of $72 per share since the bid was announced in late 2012, which seems to indicate market skepticism regarding whether Inmet can find a superior offer before the deadline on Feb. 27. The company maintains 69.4 million shares outstanding and closed at $70.30 at press time for a $4.87-billion press-time market capitalization. Inmet maintains a tight hold over its equity, with the company’s top-five investors controlling 53% of its outstanding shares.