Editorial: First Quantum goes hostile with Inmet

The surprise $4.9-billion hostile bid by First Quantum Minerals for Inmet Mining in the last week of November sent minor shockwaves around the base metals world.

Coming out of the gates, First Quantum bid a nominal $70 in cash and shares per Inmet share, an offer Inmet management promptly turned down. With First Quantum’s share price in decline as a result of the bid, traders have taken Inmet up from the low $50s to above $66 at press time. Most expect First Quantum to return with a sweetener, as is typical in so many hostile bids, but First Quantum is also reaching the limit of its financial abilities in the current offer, so we’ll see how much the bid can be raised in the weeks ahead.

The surprise wasn’t so much that Inmet is in play, with its partially built Cobre Panama copper-gold megaproject in Panama being an obvious attraction for any large company. Rather it’s a bit out of character for First Quantum management, which has grown the company at an impressive pace for more than a decade on the back of internal growth, opportunistic asset purchases and friendly takeovers (never mind its recent near-death experience in the DRC).

But perhaps more importantly, the bid shows, with all the mergers and acquisitions in the base metals space over the last few years, that the herd of Canadian mid-tier base metals miners has been severely thinned to a handful of names: First Quantum, Inmet, Lundin Mining and Hudbay Minerals.

The most recent Canadian-listed mid-tiers to disappear include Equinox Minerals (acquired by Barrick Gold), Quadra FNX (bought by Poland’s KGHM), Anvil Mining (China’s Minmetals, a.k.a. MMG) and Breakwater Resources (Belgium’s Nyrstar).

There is another counter trend looming, though, that may lead to assets finding their way into the hands of the next generation of mid-tier players: consolidation and restructuring among the base metals giants, whose shareholders are demanding increased liquidity. The imminent Glencore-Xstrata merger is likely to result in several smaller assets being shaken off, as will continued restructuring by BHP Billiton, Rio Tinto and others in the face of major project delays and runaway capital costs on new developments worldwide.

With so many base metal majors pulling in their horns, it makes it less likely a hot bidding war will erupt for Inmet. On the other hand, the easy shipping of Panamanian concentrate to Asian smelters would make the asset particularly attractive to Asian metal giants anxious to lock up a long-term source of feed.

• To get an idea of just how uninterested base metals majors in acquiring more base metals assets these days, look no further than Freeport-McMoRan Copper & Gold’s decision in early December to buy two (gasp!) oil and gas companies.

The world’s largest publicly traded copper company is buying Plains Exploration & Production, which has oil and gas interests in California, Texas, Louisiana and the deepwater Gulf of Mexico for US$6.9 billion in cash and stock, and is spending US$3.4 billion in cash on McMoRan Exploration, with its natural gas and oil assets in the Gulf of Mexico shelf and onshore in the Gulf Coast area.

Base metals-focused analysts weren’t the only ones unhappy with the deal: FCX shares closed down US$6.11, or 16%, on the day of the announcement to US$32.17 on a trading volume of 15.4 million shares.

• The urge to merge has a different source among North America’s gold juniors. Hundreds have teeth clenched these days as they face dwindling working capital and stocks trading at levels that might be half what they were under equivalent circumstances a few years ago, even with today’s strong gold prices.

As we go to press, West Ghana-focused Canadian gold juniors PMI Gold and Keegan Resources are bunking up to create a $700-million merged company to be named “Asanko Gold,” run by a management team blended from both companies.

Asanko would have a combined $340 million in cash-on-hand for the companies’ respective flagship projects Obotan and Esaase, which are 15 km apart, and could be smartly developed in tandem.