First Quantum to buy Lumina Copper for $470M

First Quantum Minerals (TSX: FM; LSE: FQM) has made a friendly $470-million takeover offer for Lumina Copper (TSXV: LCC; US-OTC: LCPRF), ending a sale process for the junior and its Taca Taca copper–gold–molybdenum project in Argentina’s Salta province.

Taca Taca is the last of the 10 large, undeveloped copper projects that Ross Beaty — Lumina’s founder and largest shareholder — gathered in the early 2000s, when copper prices hovered around US60¢ per lb. Beaty and his team planned to delineate promising resources on the projects and sell them for a premium to major mining companies when copper prices improved. By 2008, the Lumina group of companies sold all of the projects for a nice profit, except for Taca Taca, where it had halted exploration efforts until 2010, due to the recession.

In 2012, Lumina tallied a resource at Taca Taca of 28 billion lb. copper  and 7.1 million oz. gold from 2.2 billion indicated sulphidic tonnes at 0.44% copper 0.08 gram gold per tonne and 0.013% molybdenum, plus 921 million inferred sulphidic tonnes at 0.37% copper, 0.05 gram gold and 0.012% moly.

 It signed confidentiality agreements with 25 companies that could develop the project. Of those companies, 11, including First Quantum, conducted site visits and technical due diligence on the project, David Strang, Lumina’s CEO, said on a conference call. “We are seeing the First Quantum transaction today as being the best alternative for our shareholders.”

Beaty is wistful about selling the last of the Lumina copper companies, but pleased about the transaction size and having First Quantum as a buyer.

The cash-and-share offer values Lumina at $10 per share, or a 34% premium to the company’s 20-day, volume-weighted average trading price, and a 28% premium to its June 16 close. Lumina shareholders could exchange each share held for either $5 in cash and 0.2174 of a First Quantum share, 0.4348 of a First Quantum share and 1¢ in cash or $10 in cash. First Quantum will offer a maximum 9.7 million shares and $222.4 million in cash. It already owns 2.5 million Lumina shares.

Strang noted Lumina is impressed by First Quantum’s track record as a mine builder, and believes Taca Taca’s in good hands.

First Quantum operates seven base-metal mines around the globe and is developing five projects, including the Sentinel copper mine in Zambia, and the large Cobre Panama copper mine in Panama.

“We certainly feel and hope that Taca Taca would fit in as the next major project that the company looks to build thereafter,” he said.

A 2013 preliminary economic assessment on the project pegged development costs at US$3 billion and copper production at 244,000 tonnes (538,000 lb.) a year over a 28-year mine life.

“Once the acquisition of Lumina has been completed, we will immediately review the Taca Taca project to determine the most efficient and economical timing for its development in the context of the projects that we are currently developing,” Philip Pascall, First Quantum’s chairman and CEO, said in a statement.

CIBC analyst Tom Meyer expects First Quantum will build the Taca Taca mine after it finishes the Cobre Panama mine. He described the deal as “fantastic, accretive and well-timed” for First Quantum and a “very good outcome” for Lumina shareholders.

All of Lumina’s directors, officers and some of its major shareholders, holding 33.6% of the company, support the transaction.

The acquisition should close by the end of August, and requires approval from at least two-thirds of Lumina shareholders. The deal has a $16.3-million termination fee.

On the friendly bid news, Lumina rose 23% to close June 17 at $9.62, while First Quantum slipped 2% to $21.30.