July 11, 2011 / 12:32 PM / in 6 years

UPDATE 3-Stillwater Mining to buy Peregrine for $450 mln

* Deal will allow Stillwater to diversify into copper, gold

* Peregrine owns Altar copper-gold project in Argentina

* Shares of Peregrine jump on TSX; Stillwater shares fall (Adds analysts’ comments; updates share price. In U.S. dollars unless noted)

By Euan Rocha

TORONTO, July 11 (Reuters) - Platinum and palladium producer Stillwater Mining Co SWC.N said on Monday it plans to buy Canada’s Peregrine Metals PGM.TO for about $450 million so that it can diversify into copper and gold mining.

Vancouver-based Peregrine owns Altar, a large undeveloped copper-gold project in Argentina’s San Juan province. The project has a measured and indicated resources of 7.4 billion pounds of copper and 1.5 million ounces of gold.

Stillwater, which owns the Stillwater and East Boulder mines in Montana, said the takeover will improve its strategic position and growth pipeline. The company also owns the Blitz and Graham Creek projects in Montana and the Marathon project in Ontario. All are platinum group metal projects.

“For several years, one of Stillwater’s primary strategic goals has been to grow and diversify our business through the acquisition and development of high-quality mining assets,” Stillwater Chief Executive Frank McAllister said in a statement.

McAllister said the Peregrine deal gives Stillwater broader diversification into copper as well as meaningful exposure to gold.

Dundee analyst Rodney Cooper noted that the bid provides Peregrine’s investors with a significant premium and fairly values the company’s Argentine asset.

“We view the current offer from Stillwater as favorable to Peregrine shareholders and recommend they tender their shares,” Cooper said in a note to clients.

SIGNIFICANT PREMIUM

Stillwater is paying 0.08136 shares of Stillwater common stock and $1.35 in cash for each common share of Peregrine. Based on Friday’s closing prices, the deal values Peregrine at about C$3.16 a share. Shares of Peregrine closed at 81 Canadian cents on Friday.

Peregrine shares closed C$1.79 higher at C$2.60 on the Toronto Stock Exchange on Monday, while Stillwater shares fell more than 22 percent to $18.46 on the New York Stock Exchange.

JPMorgan analyst John Bridges said investors were right punish shares of Stillwater as the deal brings “too much base metal into the company”.

Bridges, in a note to clients, also argued that it is too early to value the Altar project. “We struggle to see the reason for the premium offered,” he said.

Upon completion, Stillwater and Peregrine shareholders will own about 89.5 percent and 10.5 percent, respectively, of the combined company on a fully diluted basis.

The transaction has been unanimously approved by the boards of directors of both companies and is expected to be completed by Sept. 30, the companies said in a joint release.

Peregrine has advised its shareholders to support the deal. It said its officers and directors have agreed to tender their shares in favor.

The bid is subject to regulatory approvals and a favorable vote of at least two-thirds of the holders of Peregrine common shares at a special meeting of shareholders.

Deutsche Bank is acting as financial advisor to Stillwater and has provided the company with a $200 million bridge loan to finance the deal. Salman Partners is acting as Peregrine’s financial advisor.

$1=$0.97 Canadian Reporting by Euan Rocha in Toronto and Krishna N Das in Bangalore; editing by Peter Galloway

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