Hudbay makes friendly bid for Copper Mountain amid M&A flurry

Hudbay Minerals (TSX: HBM; NYSE: HBM) and Copper Mountain Mining (TSX: CMMC; ASX: C6C) have agreed to merge, creating a copper producing powerhouse with projects across the Americas, and Canada’s third largest copper miner producer 330.7 million lb. of copper annually. 

The all-share deal values Copper Mountain at US$439 million, or $2.67 per share. That represents a 23% premium to its shareholders based on both companies’ 10-day volume-weighted average share prices on Apr. 12. Hudbay and Copper Mountain shareholders  will own about 76% and 24% of the combined company, respectively. 

After the transaction, Hudbay will have three long-life operating mines with exploration upside, three large-scale development projects, and one of the largest resource bases among intermediate copper producers. The portfolio will have balanced exposure to North America (Canada and United States) representing 55% of net value, and South America (Peru) 45% of net value.  

“This transaction represents a unique opportunity to combine complementary assets and leverage our technical expertise to create value for the shareholders of both Hudbay and Copper Mountain,” said Peter Kukielski, Hudbay’s president and CEO in a release.

The merger comes just a week after Glencore‘s (LSE: GLEN) unsolicited bid for Teck Resources (TSX: TCK.A/TCK.B; NYSE: TECK), and just a couple of days after Newmont (TSX: NGT; NYSE: NEM) sweetened its bid for fellow gold miner Newcrest Mining (TSX: NCM; ASX: NCM)

In a note to clients, BMO Capital Markets analyst Jackie Przybylowski put her stamp of approval on the deal. “Acquisition of Copper Mountain will improve Hudbay‘s portfolio,” she wrote. “It rebalances geographic exposure, somewhat diluting the Peru risk that has depressed Hudbay‘s valuation.”

Przybylowski noted that adding Copper Mountain’s cash flows to its balance sheet would help Hudbay fund and build its Copper World project in Arizona.

After the arrangement closes, the Hudbay board will include two seats for Copper Mountain representatives, and the Hudbay executive team will include select members from the Copper Mountain team. In light of the transaction, Copper Mountain president and CEO Gil Clausen has postponed his retirement until the deal closes. Both companies’ officers and directors have entered into voting support agreements and will be voting their shares in favour of the merger. 

The companies expect an estimated US$30 million annual operating savings at Copper Mountain’s eponymous mine in B.C., including US$20 million from applying Hudbay’s efficiencies at the Copper Mountain mine.