Editorial: Bidding wars heat up

The talk of the North American mining scene in mid-March was the ratcheting up of two high-profile bidding wars.

• A wrinkle developed in the hostile, $4.8-billion, cash-and-share bid by Australia’s Equinox Minerals for Vancouver’s Lundin Mining, which if successful would end Lundin’s $9-billion proposed merger of equals with Inmet Mining to create a substantial Canadian-based global copper miner named Symterra.

Despite the Equinox bid being a 26% premium (at the time it was announced) versus the no-premium Inmet arrangement, Lundin’s board has come out strongly against the Equinox offer.

The Lundin board’s argument is that Equinox’s over-dependence on a $3.2-billion bridge loan, its Zambian and Saudi Arabian geopolitical risk, and its relative inexperience as a mine operator make the deal unattractive compared to the Inmet tie-up. Unstated is that a lot of Lundin management would lose their jobs as head office is consolidated in Perth, and Inmet’s big growth project, Cobre Panama in Panama, has its own substantive technical and political risks that have delayed its development for many years.

Equinox counters that Lundin management could not dispute that the Equinox bid is superior financially, and that its large bridge loan can be repaid in time, and has been stress-tested in the event of copper prices tanking.

Clearly, the Equinox offer looks better for any Lundin shareholders looking to cash out, while the merger with such a high-quality miner as Inmet looks more attractive for anyone wanting to build a substantial copper player for the long term.

It’s hard to call this one. The outcome depends on what the different investment goals are for the various Lundin shareholders, which we won’t know for sure until the votes are tallied on April 4, when both Lundin and Inmet shareholders will hold meetings to vote on their merger.

• The battle for control of Capital Gold has evolved into an old-fashioned auction, with Timmins Gold and Gammon Gold each upping their respective bids in mid-March.

All three junior companies have successfully opened and operated gold mines in Mexico in recent years, so the potential synergies of any mergers are fairly straightforward.

At presstime, Timmins’ offer is hostile and Gammon’s is friendly, and the Timmins offer is superior in value, but the Gammon offer has a larger cash component.

With the upped bids newly on the table, Capital Gold has delayed its shareholder vote till April 1.

As with Lundin, the situation is fluid, and a lot depends on the investment goals of Capital Gold’s shareholders. Capital Gold also argues that Timmins is borrowing too much money from Sprott Resource Lending Partnership to finance its offer.

We say bury the hatchets and carve out a three-way merger.

• The mood is entirely different over in the uranium subsector. Share prices have plummeted across the board by 16-40% in the wake of the 10% drop in uranium oxide prices to US$60 per lb. in response to the acute problems at Japan’s earthquake- and tsunami-damaged Fukushima Daiichi nuclear power plant.

Showing just how quickly uranium investors have absorbed the newly diminished outlook for uranium demand, Russia’s ARMZ shaved A98¢, or 12%, off its original A$8-per-share, mostly-cash offer for Australia’s Mantra Resources, launched in mid-December.

The Mantra board’s reaction to its bad luck was swift and humble: we’ll happily take the A$7.02 per share, and thank you, thank you, thank you…

• Canada’s Conservative federal government moved to extend for another year the 15% Mineral Exploration Tax Credit – more commonly known as the “super flow-through” tax break – in its budget tabled on March 22.

The flow-through scheme, which allows investors to immediately write off a portion of exploration expenses on projects on Canadian soil, is highly popular with the country’s mineral explorers and has been widely credited, in conjunction with similar tax breaks at the provincial level, with making Canada a world leader in mineral exploration. Canada’s mining industry associations continually lobby to make the tax break permanent instead of yearly with extensions.

However, the point may be moot, as the government looks set to fall at presstime, as opposition parties team up to defeat the budget and launch Canada into its first federal election since 2008, when the Conservative party won another minority government.