Lundin mining merger with Tenke mining could spike the bidding war

It is all happening so fast: only few weeks ago on April 4th Lundin mining announced all cash offer at CAD 5.0 per share of Rio Narcea for all shares outstanding. And now we have a new deal to buy out Tenke mining with their major asset of 24.75% in Tenke Fungurume copper/cobalt mine in Congo. In announced all share deal shareholders of Tenke mining are offered 1.73 shares of Lundin minig for each share, but I will be surprised if Lundin mining will get Tenke at first price offer. Lundin mining motivation is clear: such asset is still under radar of investment crowd and almost not followed by anyone. With construction of mine at full speed and expected first production in 2008 price for Tenke mining will increase dramatically as soon as story will hit news letters and stock becomes followed by analysts. Definitely Lundins would like to keep Tenke Congo assets inside the family line of business as long as it is possible. Now Lundin family hold around 14% in Lundin mining and almost 20% in Tenke minig. It will be much harder to buy out Lundin mining then Tenke mining even at recent price due to much higher capitalisation. After the merger Lunding mining will have aproximatly 389.9 million shares. At 20 day average price before deal announcement on April 15th of CAD 13.51 per share Lunding mining market cap will be CAD 5.3 billion, not a change even for industry hevyweighters like BHP, RIO Tinto or CVRD. But what is the fair price for Tenke shareholders? Tenke Fungurume 24.75% stake was valued at CAD 1.4 billion at the moment of announcement. After conference call a lot of question need to be addressed by Tenke mining's management and Board members. Tenke Fungurume was always portrayed as one of the largest Copper deposits in the world with only half of the concession beein explored. Assessment of price was done on "flat" production of 115000 t of Cu per year without any consideration for premium for increase to 200000 t and later for 400000 annual production. New resource estimate was supposed to be published by mid 2007 which will incorporate all drilling in 2006 year done by Phelps Dodge. Feasibility study was never published in full details and total price assessment process does not look transparent. Companies have Directors which are sitting on the Boards of both Companies and conflict of interest must be definitely addressed. Now Freeport-McMoRan Copper & Gold Inc move will be very interesting: from Phelps Dodge (company was aquired recently by FCX)perspective it will be much cheaper now to bid for outstanding 24.75% of Tenke Fungurume - who could better know the value then the Operator of the property. Will they allow Lundins to keep it or they will try to bid now? In the end shareholders of Tenke mining will be in good hands with Lundins, but as Tenke shareholder I would prefer better price and if more bidders will come we can get easily ratio of 2.5 - 3.0 of Lundin mining share for 1 Tenke mining share. With proposed 73/27 ratio for Lundin mining and Tenke mining shareholders respectively Lundins will have 14%*73%+20%*27%=15.62% it is not a lot to defend against unfriendly offer, but size of the Company will help to prevent losing assets before their full pricing potential. I think that following scenario will be the best for Tenke shareholders:

1. Clear explanation by the Tenke mining Board on price decision on Tenke mining side and conflict of interest must be addressed from Lundins for their integrity for which they are highly respected in minig industry.

2. Bidding war with FCX or Newcomer will help to get higher premium for world class asset in copper/cobalt mine, but in the end it will be better to stay with Lundins at higher ratio of exchange.

2. Fast development of Russian wild card - Ozernoe zinc deposit: with Tenke Fungurume in production it could bring Lundin mining fast to 10 billion mark in market cap.

3. South American projects spin off is very positive. It will allow to concentrate on exploration and acquisition of promising gold prospects, with Lundins back up financing will be not a problem and Paul Conibear's management grip will help to make second success like Tenke in grass root exploration projects. More information on the deal could be found on:

http://cnrp.ccnmatthews.com/client/tenke_mining/release.jsp?year=2007&actionFor=644917&releaseSeq=0
Author is long Tenke mining shares