A merger-of-equals deal struck at the beginning of May will see
The agreement would see Aur shareholders receive 0.386 of a share in the merged company for each Aur share, while Inmet shareholders receive a share for a share. The new company, called Aur Mining, would be owned 55% by Inmet shareholders and 45% by Aur shareholders.
The deal, which requires the approval of shareholders and the Competition Bureau, could close at the end of June. The companies plan to call shareholder meetings in late June to put the plan to a vote; both Aur and Inmet will require approval from a two-thirds majority of shareholders to go ahead with the merger.
Management from both companies said the capacity to take on new projects was the principal rationale for the deal. “We’re combining to do something a lot bigger and better,” said Richard Ross, Inmet’s president and chief executive officer. Similarly, James Gill, Aur’s president, said his company was “a size where we feel we needed to do something to give us much better growth opportunities and increase the spectrum of assets we could [acquire].”
The new company would have a large cash reserve for acquisitions in base metal mining, as well as low-cost production. Based on figures for the end of the first quarter of 2004, the combination would have US$323 million in cash.
Both companies have no long-term debt obligations before 2007, and they expect to have a strong enough balance sheet to consider acquisitions up to US$1 billion without diluting existing shareholders.
Aur has copper production from the Andacollo and Quebrada Blanca mines in Chile with minority Chilean partners. It also holds a 30% interest in the Louvicourt copper-zinc mine in northwestern Quebec, which it operates for
Inmet has ownership positions in four major operations: two wholly-owned mines, the Pyhasalmi copper-zinc mine in Finland and the Troilus gold mine in Quebec; the 55%-owned Cayeli base metal mine in Turkey; and an 18% interest in the Ok Tedi copper-gold mine in Papua New Guinea.
The merged company would produce about 173,000 tonnes copper and 68,000 tonnes zinc annually, along with 260,000 oz. gold. Most of the mines are low-cost; Louvicourt is nearing the end of its life.
During conference calls with analysts and press, Ross and Gill were prodded to name potential acquisitions. The one acquisition they were prepared to admit to wanting was the minority interest in Cayeli, currently held by the government of Turkey. “If you had to pick the one transaction to look at, we’re very hopeful that [Cayeli] in fact will come about this year, if in fact we’re competitive for it,” said Ross.
Each company has two major development projects it brings to the table. Aur acquired the Duck Pond copper-zinc deposit in Newfoundland from
Aur’s Andacollo mine, originally developed as an open pit exploiting leachable ore, has undeveloped primary sulphide resources of 311 million tonnes grading 0.46% copper and 0.15 gram gold per tonne. A 1998 prefeasibility study put the capital cost of a mine at US$280 million, and updated mineral resource estimates (to meet National Instrument 43-101 standards) and feasibility studies are planned.
Inmet has feasibility and environmental work under way at the Cerattepe base metal deposit, about 200 km east of Cayeli, where it holds a 55% interest. Cerattepe has a probable reserve of 1.3 million tonnes grading 10% copper, 0.5% zinc, 1.3 grams gold and 29 grams silver per tonne.
Inmet’s Izok Lake base metal deposit in Nunavut, discovered in 1975, has a resource of 16.5 million tonnes grading 2.2% copper, 11.4% zinc and 60 grams silver per tonne but has remained undeveloped, owing to a lack of infrastructure. A feasibility study for a road and port, commissioned by the Canadian government, was completed in 2002.
The new company’s initial board of directors will consist of four Aur and four Inmet appointees; six of these will be independents. Aur Pesident James Gill will be chairman of the board, and Inmet’s president, Richard Ross, will be chief executive of the new company.
Top management will include two Aur executives, David Brace as executive vice-president for business development, and Peter McCarter as executive vice-president and general counsel. Jochen Tilk of Inmet will be executive vice-president of operations.
There is some further work planned by the managers of both companies, including final site visits, but each group believes it knows the other’s assets well enough to go ahead with the merger. The boards of both companies have had positive fairness opinions on the merger — Inmet’s, from GMP Securities, and Aur’s, from Canadian Imperial Bank of Commerce.
The usual consolidator’s promise of “synergies” was conspicuously absent from discussion of the deal. To an analyst’s question about possible costs, Inmet’s Ross said “from a people standpoint, if anything, maybe over time, we’ll be growing the organization rather than shrinking it; we’ve got a lot to accomplish and that’s where we see we’re going to add a lot more value over time.”
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