Inmet bids for Petaquilla

In what looks like a move to tidy up the neighbourhood, Inmet Mining (IMN-T) is offering to buy Petaquilla Minerals (PTQ-T) for $112 million in cash or equity. Petaquilla operates the Molejon gold mine in Panama, adjacent to Inmet’s Cobre Panama development-stage mega-project.

The proposed takeover could give Inmet a better handle on any social and environmental risks related to its US$6.2-billion Cobre Panama project, Scotiabank analyst Tom Meyer says in a note.

“Inmet appears to be opportunistically managing a potential future liability with its offer for Petaquilla, which recently has had some financial difficulty, and, in our view, an operating ramp-up that has taken longer than planned,” he writes. “The successful closing of the transaction would make for a much cleaner mine site, in the sense of having one large operator manage and take responsibility for all aspects of mining on the large property.”

Under the transaction, Petaquilla could receive either 48¢ in cash, or 0.0109 of an Inmet share for each share held, representing a 37% premium to its last trading price before the global base metals miner announced its intentions on Sept. 5 after market close. This would be a 30% premium to the 20-day, volume-weighted average price.

If all Petaquilla shareholders opt to receive shares, Inmet would issue 2.5 million shares.

Inmet believes the offer provides for Petaquilla shareholders a substantial premium and a better alternative to a US$210-million high-yield debt financing the junior had proposed.

In return, Inmet would gain control of Petaquilla’s Molejon mine, the Lomero-Poyatos exploration property in Spain near its Las Cruces copper mine and a Panamanian infrastructure and mining service business.

While Vancouver-based Petaquilla had intended to spin out its Lomero-Poyatos assets, the Panamanian mining service business is too small to add value to Inmet, and so the Molejon mine is the prime motivator behind the acquisition.

BMO analyst Stephen Bonnyman agrees that the bid is all about risk management surrounding Inmet’s social licence in Panama.

Inmet — which acquired its interest in Cobre Panama from Petaquilla Minerals’ sibling company Petaquilla Copper — may see the Molejon mine as a future concern, Bonnyman argues, because the Molejon and Cobre Panama deposits were under the same mining rights. While they were later separated, Petaquilla Minerals has kept its right to mine any precious metal deposits found on the larger concession.

The proposed acquisition allows Inmet to consolidate the mineral titles for the entire concession, and also oversee any mining activities that are close to its multi-billion dollar development project.

“Having invested substantial resources in establishing its social licence to operate in this new mining district, Inmet is investing to ensure that all operations conform to top-level standards, and reduce the risk of being impacted by issues outside of its control,” Bonnyman comments.  

If the bid is accepted, Inmet plans to continue operating the Molejon mine, and, if necessary, invest capital to bring it up to its standards. Once the gold mine is exhausted, Molejon’s workers could join the miner’s copper operation.

The offer, which Inmet expects to internally fund without approval of its shareholders, comes on the heels of it closing a US$1-billion financing with Franco-Nevada (FNV-T, FNV-N) to help fund its 80%-held Cobre Panama project. Korean Panama Mining holds the remainder of the project, which is expected to come online in 2016.

For the bid to go through, Inmet needs at least 50.1% of support from Petaquilla’s shareholders.

The transaction is also conditional on a few more terms, including receipt of all regulatory approvals, Petaquilla dropping the proposed financing and no material adverse changes.

Petaquilla shareholders will have at least 35 days after a takeover bid circular is mailed to vote on the deal. The junior urged its shareholders not to take action while it evaluates the offer, and waits for a formal bid.

In the two days following the proposed bid, Petaquilla shares soared 77%, or 27¢, to close Sept. 7 at 62¢, on a combined volume of 27 million shares traded.