Inmet, Petaquilla continue to play tug of war

VANCOUVER — In what is becoming an increasingly frosty situation,Canadian-based companies Inmet Mining (IMN-T) and Petaquilla Minerals (PTQ-T) continue to squabble over a potential take-over bid that would see the larger Inmet absorb its Panamanian neighbour. Petaquilla runs the Molejon gold mine next to Inmet’s US$6.2-billion, development-stage Cobre Panama copper-gold project.

The proceedings were kick-started on Sept. 5 when Inmet tabled a 37%-premium offer for Petaquilla that valued the gold producer at roughly US$113 million. Since then the companies have been lobbing information grenades back and forth in an attempt to win a public relations battle and garner shareholder support.

When The Northern Miner initiated coverage of the take-over proposal on Sept. 6, speculation had Inmet attempting to acquire Petaquilla in order to “manage risk surrounding [the company’s] social license to operate in Panama.”

In a take-over circular dated Sept. 27 Inmet outlined its reasoning for the bid, stating it required Molejon in order to simplify development and coordinate activities between operations at Molejon and construction and start-up activities at Cobre Panama. Inmet also cited Petaquilla’s pending US$210-million high-yield debt financing, and reasoned the company was in financial difficulty.

Under terms of the offer, Petaquilla shareholders were asked to choose between 48¢ in cash, or 0.0109 of an Inmet share for each share held. During a conference call to discuss the transaction on Sept. 16, Inmet’s president and CEO Jochen Tilk mentioned that one of the preconditions for the offer was that Petaquilla did not go forward with its debt financing.

“You know, their cash balance is very low, they’re not financially strong, and we are concerned about that,” Tilk commented, citing Petaquilla’s public financial filings. “In our business if you operate and you’re financially distressed or not in a strong position then there is a potential of not being able to put all the capital in, making sure that all the upgrades are done, and that could potentially lead to upset conditions. And as neighbours, that is our concern, no question.”

Petaquilla released an official response on Oct. 15 in which its board of directors unanimously recommended that the company’s shareholders reject Inmet’s “hostile offer.”

As part of a Directors’ circular filed with its rejection, Petaquilla stated it believed that Inmet’s offer equated to a land play designed to acquire concessions it required to construct Cobre Panama’s tailings facility.

In order to understand the root of the claim it is necessary to dive into a bit of history surrounding the Cerro Petaquilla concessions.

According to Petaquilla’s circular, Inmet’s Panamanian subsidiary, Minera Panama, and Petaquilla’s predecessor, Adrian Resources, were granted the Cerro Petaquilla concession in 1997. Teck Resources (TCK.A-T, TCK-N) subsequently swooped in and signed an earn-in deal with Minera Panama to act as operator.

In 2005, Teck and Inmet agreed to separate the gold and precious metal deposits from the copper mineral deposits in a bid to develop Cobre Panama. During negotiations Petaquilla was assigned the right to explore and develop gold deposits on the concession — which included Molejon. Teck sold its stake to Inmet in 2008.

The base of the dispute originated from subsequent applications Petaquilla made to acquire three concessions in areas surrounding Cerro Petaquilla, including: the 11.4-sq.km Rio San Juan property, 3.6-sq.km Rio Belencillo area, and 12-sq.km La Esperanza property.

Inmet has apparently been fighting for ownership of the Rio San Juan, La Esperanza, and Rio Belencillo concessions since Feb. 2010, when the company filed an objection, which stated: “The concession areas requested by Petaquilla Minerals will interfere and impede development of the [Cobre Panama] project covered by the agreement established between Minera Panama and the State for the extraction of metallic minerals, given the requested areas are critical areas for the development of the [Cobre Panama] project.”

On Sept. 25 Panama’s Department of Mineral Resources rejected Inmet’s claim on the Rio San Juan concession, stating it was “not presented in the appropriate time and was without merit.” Decisions are pending on the La Esperanza and Rio Belencillo concessions.

Petaquilla sited Inmet’s May 2010 technical report on Cobre Panama, which it said indicates that a planned tailing facility and a minor portion of the southwest waste rock storage facility were slated to be located on portions of the Rio San Juan, La Esperanza, and Rio Belencillo areas.

Inmet responded to the claims on Oct. 16, stating that Petaquilla was spreading misinformation. Cobre Panama has been under full construction since May 2011, and Inmet reports it requires no additional permitting or agreements.

“During the limited interaction between Petaquilla and Inmet, Petaquilla management showed no interest in pursuing [our] offer on a friendly basis,” Tilk commented. “Given the status of these interactions and the absence of a viable alternative, shareholders should consider the impact on the Petaquilla share price in the event the Inmet offer does not proceed.”

In a bid to complete the deal by the Nov. 5 cut-off date, Inmet submitted what it labelled a “final offer” for Petaquilla on Oct. 26.

The new offer boosted considerations by roughly 25% over Inmet’s previous bid. Petaquilla shareholders can elect to receive 0.0118 of a share of Inmet plus 0.001¢ in cash; or a cash amount that is greater than 0.001¢ but not more than 60¢. If the cash amount in the election is less than 60¢, the shareholder would receive that number of Inmet shares equal to the excess of 60¢ over the elected cash amount, divided by $50.82.

Inmet has also requested that the British Columbia Securities Commission immediately cease trading on Petaquilla’s shareholders rights plan or “poison pill”. A hearing will take place on Oct. 30.

Petaquilla stated it was reviewing the upgraded offer, but recommended its shareholders take no action considering the Nov. 5 expiration date. The company also noted it is pursuing alternative partnerships through UBS Securities Canada in a bid to secure a richer return for its assets.

“There will be no further adjustment to Inmet’s offer,” Tilk concluded.