Thursday, January 13, 2011

Copper, Zinc and Cobalt: Inmet and Lundin Announce Merger of Equals to Create Symterra Corporation, czx.v, tnr.v,,,,,,,, rio,, tck

    This deal came even faster than we expected: Lundin Mining is taken out.

"Now market will be taking US13¢ per pound of copper resource as a new benchmark for the new deals. All projects are different, but this deal could be a tipping point and ignite rush for the new deals to secure Copper Supply for Chinese growth."

"It seams to be only yesterday and it is so far away - we are living now in the "new normal", but old values are still here. Decoupling is happening these days after the financial crisis. Lundin Mining after years of waiting - and near death experience with stock price at one point below 0.6CAD  in 2009 - has finally received approval of contract for Tenke Fungurume mine from DRC government. 

    As one of our loyal readers from those days mentioned - we have spent a lot of time writing about this project. We came into it after the war in DRC, when Tenke mining was trading at 0.6CAD and we have seen it sold to Lundin Mining at above 20CAD - sweat memories. Then political uncertainty has taken its force in DRC over the project and we visited the story again only a few times. We are writing here mostly about the companies we are interested in and which we own or have owned before as our investment. We never give any investment advise here - only share our journey and travel notes with you. You have to decide always by yourself: what and when to buy, sell or just enjoy the scenery we are writing about. Always consult with qualified financial adviser, who shares you views and investment goals.

Tenke Fungurume is back and so we are with our pen and paper to share with you this story again. We have another M&A target in the Copper market now back in business. We would expect a new coverage issued on the company and more investment research from Canadian financial institutions, with potential upgrades on valuation. Company is up today on volume - chart shows the cup and handle formation - break out to the upside is in the cards with high copper prices. The share price will have to reflect new valuation with settled political uncertainty over this huge copper project in DRC. Country discount will always be there, but the fact that Tenke Fungurume is now producing and will expand its production rate at these prices will drive the valuation.

Lundin Mining presentation: 
2010 Bank of America-Merrill Lynch Mining Conference
Tenke Fungurume Video

Lundin Mining will present now a sizable opportunity as a target itself with market cap at 4 billion now. According to 
CIBC "Be Long What China's Short. M&A will drive this sector activity and we have just a few quality juniors with large copper deposits to go after." 
Lundin Mining is in no way a junior mining company, will have attention from Majors in the Copper sector. Freeport McMoran - J/V partner on Tenke Fungurume - will be a natural suitor for this Jewell. In our logic it have to attempt at least to buy out the share of Lundin Mining in Tenke Fungurume - otherwise it will be done by others and Chinese, who are very active in DRC, will be backed by the DRC government in this case. An outright bid for all Lundin Mining operations could be in the cards as well.

We believe that Lukas Lundin will have to make his move and show that now - with cash flow from Tenke Fungurume and further expansion of production in DRC - he can build value in Lundin Mining itself. Realisation of the facts, described above, by the market could bring the share price north of CAD10.0 (we will not be surprised to see a target price of this magnitude with company's book value at around CAD5.2 now and E/P at CAD 0.13 in Q2 2010). Lukas will be again in a very favorable position after these very tough few years for the company. He can and should use his currency - shares in the company above CAD10.0 to buy another companies with sizable projects at still undervalued valuations among juniors. He should definitely, in our opinion, to study well opportunities for acquisition in 
CIBC report. His another company - NGeX Resources is a part of that M&A list with its properties in Argentina, Chile, Africa and Canada is moving up nicely in price these days as well.TNR Gold has a few J/V projects with NGeX Resources in Argentina. Lukas Lundin was buying recently NGeX Resources in the market.

We won't speculate about Lundin Mining involvement, potentially, in 
Los Azules story, but will point to the few facts, which are keeping us guessing about the future move.  Lukas was personally involved in TNR Gold as an investor at one point, knows management there very well and Paul Conibear - Senior Vice president of Lundin Mining corporate development - served on the Board of TNR Gold for a few years. By the way - Tenke Fungurume is his baby - we would like to congratulate Paul and all team at Lunidin Mining with this ground breaking achievement for the company. Lukas was investing in Minera Andes before as well, at least before Rob McEwen came into the picture. We do not know, what stake he has now, but he knows the story about Los Azules very well. Rob is more of a gold guy and Lukas knows the basic metals commodity story very well, particularly copper. Will it make sense for Rob to sell Los Azules to Lukas Lundin at the right price after settlement with TNR Gold and clearing the property title?  We do not know at this moment, but any twist in this direction can bring a new dynamic to the all situation regarding Los Azules and its development. It is too early to say more about it at this moment.

Another interesting move by Lundin Mining could be in its core zinc business with 
Canada Zinc Metals still in the M&A picture. Even after Chinese involvement, company is still at the very attractive levels of valuation. Its Akie deposit represents one of the largest zinc and lead deposits in the world and based in  Canada. With recent financing from Tongling, Chinese giant will have more than 30% in Canada Zinc Metals, Lundin Mining is the second largest shareholder after Tongling now in that company. We were thinking that Mandarin will be the only language for all presentations in that company, but found recently information on the bullboard about Lundin Mining visits to the Akie property - it could be easily confirmed by the management. "As I have a large shareholding in CZX I stay in regular communication with management. A team from Lundin Mining was up at the property not too long ago. Apparently the visit went very well...don't forget Lukas Lundin is a wheeler and dealer. Trust me - others are knocking too.
Any sophisticated investor (and I know you are one) knows that all it would take is a large pp with another mining company (including Lundin Mining) and the playing field is levelled."
We have mentioned before:  
"Among the other developments today, we have mentioned that Lundin Mining has increased its loan facility and the maturity of the loan - will Lukas Lundin go shopping one day to increase his resource base for the next leg up in this commodity bull? He still maintains stake in Canada Zinc Metals along with all Chinese participants - should someone decide to chase this dragon - story could become very interesting."

The nearest future will show how our 
Value Web in a very close and interconnected sector will play itself out. Today we can say only one thing - that Lukas Lundin is back after the crisis and he is stronger then ever, our big picture view is the ideal world for his Midas touch. We will expect him making headlines in the nearest future on a different M&A fronts."

Please, do not forget, that we own stocks we are writing about and have position in these companies. We are not providing any investment advise on this blog and there is no solicitation to buy or sell any particular company here. Always consult with your qualified financial adviser before making any investment decisions.

JAN 12, 2011 - 17:49 ET
Inmet and Lundin Announce Merger of Equals to Create Symterra Corporation

Symterra to Become Canada's Newest Senior Copper Producer With Financial Strength and Track Record to Execute Leading Copper-Growth Strategy

TORONTO, CANADA--(Marketwire - Jan. 12, 2011) - Inmet Mining Corporation ("Inmet") (TSX:IMN) and Lundin Mining Corporation ("Lundin") (TSX:LUN)(OMX:LUMI) today announced that they have entered into an arrangement agreement (the "Arrangement Agreement") to merge, and create Symterra Corporation ("Symterra"), a leading international copper producer. The transaction is valued at approximately C$9 billion.

Under the terms of the Arrangement Agreement, each Inmet shareholder will receive 3.4918 shares of Symterra, and each Lundin shareholder will receive 0.3333 shares of Symterra for each share held. The number of issued and outstanding shares of each party that will be exchanged for common shares of Symterra at closing is expected to be 61,549,172 for Inmet and 580,745,911 for Lundin. The exchange ratio represents no premium to either party based on the 30 day volume weighted average price (VWAP) on the Toronto Stock Exchange ("TSX") for each of Inmet and Lundin to January 11, 2011.

All dollar figures are in US$, unless otherwise specified.


Solid base of low cost, long life mines: Five low-cost, long-life mines located in Europe. Substantial pro forma cash flow generation ensures future growth is financed.
Two world class copper development projects: With development of Cobre Panama and attributable copper from possible expansions at Tenke Fungurume, Symterra will have the potential to produce over 500,000 tonnes of copper annually1 by 2017 at costs within the lowest quartile.
Robust cash flow generation in a company with substantial opening cash: Symterra will have a pro forma cash balance of $1.3 billion2, substantial cash flow generation, and no debt.
Diversified metal production: with the added attraction of exposure to zinc and other base metal markets from existing operations and through the existing asset expansions.
Shared commitment to corporate responsibility: Both Inmet and Lundin recognize the ability to develop the necessary social license to operate through a commitment to social responsibility and sustainable development as a key to success. The shared values, systems and experience in this area will be a competitive advantage in creating long term value for shareholders.
Doubling of market capitalization to C$9 billion: should enhance trading liquidity, supported by listings on both the TSX and the OMX Nordic exchange.
Complementary management: Inmet and Lundin have respected and successful management teams. This will enable Symterra to select a very strong team with an excellent track record of acquiring, developing and operating mines.
Lukas Lundin, Chairman of Lundin commented "The long-term fundamentals for copper are compelling. With solid operating assets and the ability to fund its world class growth projects, Symterra provides one of the best growth profiles for copper amongst major mining companies, combined with attractive exposure to zinc and other metals. I am excited about the value that will be generated for our collective stakeholders."

Jochen Tilk, President and CEO of Inmet stated "By merging Lundin and Inmet, we diversify our production base, and significantly strengthen earnings and our capital base, enabling us to grow the business."

"Symterra will have a series of long-life, low cost mines in favourable mining jurisdictions and two world class growth projects in Cobre Panama and the expanded Tenke Fungurume. The increased critical mass enables us to not only develop our current projects, but also to compete for future opportunities as they arise.

"I am proud to say that, by merging these two great companies, we're up to the challenge of being a leader in the copper business in the next decade," Mr. Tilk said.


Mr. Lukas Lundin will become non-executive Chairman and Mr. Jochen Tilk will be the President and CEO of Symterra.

The Board will initially comprise ten directors, who are nominated as follows:

Lukas H. Lundin, Chair
Jochen Tilk, President and CEO
David R. Beatty, Vice Chair
Donald Charter
Paul Conibear
Paul E. Gagné
Thomas E. Mara
William A. Rand
Douglas Whitehead
Phil Wright

The proposed merger will be effected by way of a Plan of Arrangement completed under the Canada Business Corporations Act. It will feature a common share exchange through which Inmet common shareholders will receive 3.4918 common shares of the merged company for each common share of Inmet they own and each Lundin common shareholder will receive 0.3333 common shares of the merged company for each common share of Lundin they own. The exchange ratio represents no premium to either party based on the 30 day volume weighted average price (VWAP) on the TSX for each of Inmet and Lundin to January 11, 2011.

There is significant overlap between shareholders of Inmet and shareholders of Lundin so that continuing shareholders of both companies represent well in excess of 50% of the merged entity.

Completion of the proposed merger is conditional on approval of Inmet and Lundin shareholders, and satisfaction of other customary approvals including regulatory, stock exchange, and court approvals. The required shareholder approval will be two thirds of the votes cast by each of the holders of Inmet and Lundin common shares at shareholder meetings held to consider the proposed merger. Shareholder meetings for Inmet and Lundin are expected to be held on or about March 14, 2011.

The Arrangement Agreement includes customary reciprocal deal protections. Each party has agreed not to solicit any alternative transactions. Each company has agreed to pay the other a break fee of C$120 million in certain circumstances. In addition, each company has granted the other a right to match any competing offer.

Both Boards of Directors have determined that the proposed merger is in the best interest of their respective companies based on a number of factors, including fairness opinions received from their financial advisors, and have unanimously approved the terms of the proposed merger and recommend that their respective shareholders vote in favour of the proposed merger.

The largest shareholder of each of Inmet (Leucadia, representing 17.94% of Inmet) and Lundin (Lukas Lundin and Lundin family trusts, representing 12.32% of Lundin) has executed an agreement to vote their shares in favour of the proposed merger subject to customary fiduciary waivers in the case of a superior offer. The directors of each company have agreed to vote their shares in favour of the merger.

Full details of the proposed transaction will be included in the Arrangement Agreement and joint management information circular to be filed with the regulatory authorities and mailed to Inmet and Lundin shareholders in accordance with applicable securities laws.


Inmet's financial advisors are CIBC World Markets Inc. and Rothschild Inc. and its legal counsel is Torys LLP. CIBC provided an opinion to Inmet's Board of Directors and Dundee Securities Corporation provided an opinion to the Special Committee of Inmet's Board of Directors that, as of the date thereof and subject to the assumptions, limitations and qualifications set out therein, the exchange ratio is fair, from a financial point of view, to the shareholders of Inmet.

Lundin's financial advisor to management is Scotia Capital Inc. and it legal counsel is Cassels Brock and Blackwell LLP. Scotia provided an opinion to Lundin's Board and Haywood Securities Inc. provided an opinion to Lundin's Special Committee of the Board of Directors that, as of the date thereof and subject to the assumptions, limitations and qualifications set out therein, the exchange ratio is fair, from a financial point of view, to the shareholders of Lundin.


Inmet and Lundin will host a joint conference call and webcast tomorrow, January 13, 2011, at 8:00 am EST, for members of the investment community to discuss the merger. Details are as follows:

Dial-in numbers
+1 416-340-2216, Toll Free (North America) 1-866-226-1792

Replay Access
+1 905-694-9451, Toll Free (North America) 1-800-408-3053
Pass code: # 7608600
Webcasts will be available at and on both the Inmet and Lundin websites ( and with the presentation to be posted immediately before the webcast. Webcasts will be archived on the websites consistent with company disclosure policy.


1 Production estimates include Lundin 24% equity interest in Tenke Fungurume, and are based on Lundin forecast expansion; Inmet production estimates assume 80% of Cobre Panama production, as per the Front End Engineering and Design (FEED) study (AMEC Americas Limited, March 2010).
2 Pro-forma cash based on financial statements dated September 30th, 2010, does not include any assumption of Temasek private placement. Other adjustments were made to reflect publicly disclosed transactions involving Las Cruces, Ok Tedi and the sale of shares in Premier Gold.

Inmet is a Canadian-based global mining company that produces copper, zinc and gold. Inmet has interests in four mining operations in locations around the world: Çayeli, Las Cruces, Pyhäsalmi and Ok Tedi. Inmet also has a 100 percent interest in Cobre Panama, a development property in Panama.


Lundin is a diversified base metals mining company with operations in Portugal, Spain and Sweden, producing copper, nickel, lead and zinc. In addition, Lundin holds a development project pipeline which includes expansion projects at its Zinkgruvan and Neves Corvo mines along with its equity stake in the world class Tenke Fungurume copper/cobalt project in the Democratic Republic of Congo.


Securities regulators encourage companies to disclose forward-looking information to help investors understand a company's future prospects. This press release contains forward-looking information. These are "forward-looking" because we have used what we know and expect today to make a statement about the future. Forward-looking statements usually include words such as may, expect, anticipate, and believe or other similar words. Capital and operating cost estimates, production estimates, and other estimates are forward-looking statements, and are based on assumptions that we believe to be reasonable. However, actual events and results could be substantially different because of the risks and uncertainties associated with our respective business or events that happen after the date of this press release. You should not place undue reliance on forward-looking statements.

Inmet Lundin

Jochen Tilk Phil Wright, President and CEO
President and Chief Executive Officer
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