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Inmet shareholders urged to reject bid

Keywords: Tags  Inmet Mining, First Quantum, Jochen Tilk, copper, Cobre Panama, Claire Hack

LONDON — Inmet Mining Corp.’s board has encouraged shareholders to reject First Quantum Minerals Ltd.’s hostile takeover bid, Inmet said Jan. 22.

Inmet has a solid portfolio of low-cost operations in areas without significant political risk, with major growth and upside potential at its flagship copper development project, Cobre Panama, the board said.

"The board recommends that shareholders reject the offer and do not tender their shares," Inmet president and chief executive officer Jochen Tilk said during a conference call, adding that the board is still considering potential alternative strategies and that "nothing has been precluded," including a possible further stake sale in Cobre Panama.

Inmet has already entered into confidentiality and standstill agreements with several parties interested in offering alternatives to Vancouver, British Columbia-based First Quantum’s takeover bid, the company said.

"Analysts and shareholders have been vocal in criticizing the offer (of Canadian $72, or $73, per Inmet share) is below what they consider to be fair value," Tilk said.

The combined venture would also be overextended on the projects it would be able to deliver, Tilk said, and First Quantum is already busy with its own construction plans.

The real premium offered by First Quantum amounts to just 19 percent, which is unusually low in a hostile takeover, he added.

Analysts covering Inmet also view the value of the offer as too low to attract shareholders, saying it won’t offset the possible increased execution risk presented by the combination, Tilk said during the call.

Cobre Panama is expected to drive Inmet’s copper production up 176 percent by 2018, David Beatty, chairman of Inmet’s board, said. As the project moves closer to production, shareholders are expected to benefit substantially from an increase in the company’s valuation.

Inmet’s board also concluded that the timing of the offer would mean that Inmet shareholders wouldn’t see the full value of taking Cobre Panama to production and shareholders would be exposed to more geopolitical and developmental risk from First Quantum’s development projects, as well as higher cash costs and lower copper exposure.

The board also stated that First Quantum’s past projects have had an average capital cost of less than $500 million and referred to First Quantum’s only project in Latin America, southern Peru’s Haquira project, which is experiencing permitting delays.

Cobre Panama, on the other hand, is considerably larger and hasn’t experienced the same delays, as the key permits were received at the end of 2011, Tilk said.

"This is a unique proposition: It’s one of the only advanced copper assets not in the hands of a major company," he said. "We recognize investors’ concerns over financing, but we have now successfully demonstrated funding capability."

Inmet itself generated $2 billion in notes, with an additional $1 billion from its Franco-Nevada Corp. precious metals stream, while the company’s South Korean partners have committed $1.4 billion.

"We also have $2 billion already accumulated on our balance sheet in operational cash flow," Tilk said. "We have no requirement to dip into our future operating cash flow or to issue dilutive equity. The single biggest contributor to unexpected (capital expenditure) inflation is the lapse of time between estimates and awarding commitments."

To avoid this, Toronto-based Inmet has already awarded $4.1 billion worth of contracts, of the estimated $6.2 billion required for the completion of construction at Cobre Panama.

The First Quantum offer, which is subject to a number of conditions, expires Feb. 14. 

A version of this article was first published by AMM sister publication Metal Bulletin.

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