* Cobre Panama project hampers Inmet’s ability to raise bid
* Equinox seen having an advantage over Inmet
* Other mining majors seen jumping into the fray
By Euan Rocha
TORONTO, Feb 28 (Reuters) - Inmet Mining IMN.TO is likely to shy away from a bidding war with Equinox Minerals EQN.AX over Lundin (LUN.TO), disappointing investors in the mid-tier copper producer who are banking on an even richer payday.
Though copper prices are soaring on the back of raging Chinese demand [ID:nN27203451] [ID:nN28280870], Inmet may have neither the stomach, nor the wherewithal to outbid Equinox, which offered C$4.8 billion ($5 billion) to buy the Canadian base metal miner on Monday.
Lundin’s 24.75 percent stake in Freeport’s (FCX.N) massive Tenke-Fungurume copper-cobalt mine in the Democratic Republic of Congo and its Neves-Corvo copper-zinc mine in Portugal are assets that appeal to both Inmet and Equinox. But many doubt that Inmet will rise to the rival suitor’s challenge.
“I don’t think Inmet will do that,” said Stifel Nicolaus analyst George Topping. “It’s not that kind of company really, they are more likely not to get involved in a bidding war.”
Toronto-based Inmet, which owns copper mines spread across Turkey, Finland and Spain, may have its sights set elsewhere. It’s building a war chest in order to finance its Cobre Panama copper-gold project in Panama — the $4.3 billion mine is expected to produce over 250,000 tonnes of copper and 90,000 ounces of gold annually.
“Cobre Panama is such a large project that Inmet would not want to deplete their cash in order to take Lundin,” said Topping.
"One of the big reasons for doing the Lundin transaction is that it gives them the scale with which they can build Cobre Panama," he added. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ DEALTALK on Equinox [ID:nL3E7E107P] FACTBOX: Equinox, Lundin, Inmet operations [ID:nL3E7DS0WI] For Starmine Comparison: link.reuters.com/ran38r For Breakingviews: [ID:nN28247917] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Zambia-focused Equinox’s C$8.10 a share cash-and-stock bid comes a month after Lundin and Inmet agreed to join forces and form a Canadian copper mining major called Symterra, worth about about C$9 billion. Shareholders of Inmet would own 52.6 percent of the new company and Lundin investors the rest.
The Lundin-Inmet deal is structured as a so-called “merger of equals” and offers Lundin’s shareholders no premium. In contrast the Equinox is offering Lundin shareholders a 26 percent premium to Friday’s closing price.
UBS mining analyst Onno Rutten says Equinox has a bidder’s advantage in the battle, given its higher valuation multiples and larger market capitalization.
If Inmet offers Lundin shareholders a larger chunk in the new company it would effectively result in a reverse takeover of Inmet, wrote Rutten, in a note to clients.
“Inmet’s ability to exercise its right-to-match the Equinox offer could, in our view, be hampered by its inability to offer a meaningful higher equity ratio and its inability to offer meaningful cash without jeopardizing a construction start at Cobre Panama,” he said.
Inmet CEO Jochen Tilk, who was making a joint presentation with Lundin at a conference in Florida on Monday, sidestepped a query on offering a premium to Lundin shareholders and stressed that he believes Inmet’s offer to be a superior proposal.
That said, a few analysts still believe Inmet could make a sweetened offer, and some even argue Inmet’s current offer is superior for Lundin shareholders over the long run.
“We anticipate that the Symterra transaction in its current no-premium form is dead,” said Canaccord Genuity analyst Orest Wowkodaw, in a note to clients. “However, we anticipate that Inmet is likely to return with a more traditional takeover offer that includes a premium.”
While a face-off between Equinox and Inmet remains unlikely, some say other bidders could jump into the fray, as Lundin’s lock-up agreements and its C$120 million break-fee on the Inmet deal, are seen as surmountable hurdles.
“We believe Lundin’s assets are relatively attractive from a strategic perspective, due to the fairly long mine lifes and growth opportunities at Tenke and Neves-Corvo,” said Rutten.
$1= $0.97 Canadian Reporting by Euan Rocha; Editing by Frank McGurty