Inmet, Petaquilla’s tug-of-war continues

In what’s become an increasingly frosty relationship, Canadian-based companies Inmet Mining (IMN-T) and Petaquilla Minerals (PTQ-T) continue to squabble over a takeover bid that would see the larger Inmet absorb Petaquilla, which runs the Molejon gold mine next to Inmet’s development-stage Cobre Panama mega-copper project.

On Sept. 5 Inmet tabled a hostile offer with a 37% premium for Petaquilla that valued the gold producer at US$113 million. Since then, the companies have been lobbing information grenades back and forth in an attempt to win a public relations battle and garner shareholder support.

When The Northern Miner first covered the takeover bid, there was broad speculation that Inmet was trying to buy Petaquilla to manage risk surrounding the company’s social licence to operate in Panama. 

In a Sept. 27 takeover circular, Inmet outlined its reasoning for the bid, stating it required Molejon to simplify development and co-ordinate activities between operations at Molejon, and construction and start-up activities at Cobre Panama. Inmet also cited Petaquilla’s pending US$210-million, high-yield debt financing, and reasoned the company was in financial difficulty.

Under terms of the offer, Petaquilla shareholders were asked to choose between 48¢ in cash, or 0.0109 of an Inmet share for each share held. During a conference call discussing the transaction on Sept. 16, Inmet’s president and CEO Jochen Tilk mentioned that one of the preconditions for the offer was that Petaquilla did not go forward with its debt financing.

“You know, their cash balance is very low. They’re not financially strong, and we are concerned about that,” Tilk commented, citing Petaquilla’s public financial filings. “In our business if you operate and you’re financially distressed, or not in a strong position, there is a [possibility] of not being able to put all the capital in [and] make sure that all the upgrades are done, and that could potentially lead to upset conditions. And as neighbours, that is our concern, no question.”

On Oct. 15, Petaquilla’s board officially and unanimously recommended that shareholders reject Inmet’s hostile offer. 
As part of a directors’ circular filed with its rejection, Petaquilla stated that Inmet’s offer equated to a land play designed to acquire concessions to build Cobre Panama’s tailings facility.

To understand the claim’s origins, we need to dive into a bit of history surrounding the Cerro Petaquilla concessions.

According to Petaquilla’s circular, Inmet’s Panamanian subsidiary Minera Panama and Petaquilla’s predecessor Adriana Resources were granted the Cerro Petaquilla concession in 1997. Teck Resources (TCK-T, TCK-N) subsequently swooped in and signed an earn-in deal with Minera Panama to act as operator.

In 2005, Teck and Inmet agreed to separate the gold and precious metal deposits from the copper mineral deposits in a bid to develop Cerro Petaquilla’s copper-gold project. During negotiations Petaquilla was assigned the right to explore and develop gold deposits on the concession — which included Molejon. Teck sold its stake to Inmet in 2008.

The dispute originated from applications Petaquilla made to acquire concessions in areas surrounding Cerro Petaquilla, including the 11.4 sq. km Rio San Juan property, 3.6 sq. km Rio Belencillo area and 12 sq. km La Esperanza property.

Inmet has apparently been fighting for ownership of the Rio San Juan, La Esperanza and Rio Belencillo concessions since February 2010, when the company filed an objection, which stated that “the concession areas requested by Petaquilla Minerals will interfere and impede development of the [Cobre Panama] project covered by the agreement established between Minera Panama and the state for the extraction of metallic minerals, given the requested areas are critical areas for the development of the [Cobre Panama] project.”

On Sept. 25, Panama’s Department of Mineral Resources rejected Inmet’s claim on the Rio San Juan concession, stating it was “not presented in the appropriate time and was without merit.” Decisions are pending on the La Esperanza and Rio Belencillo concessions.

Petaquilla cited Inmet’s May 2010 technical report on Cobre Panama, which it said indicates that a planned tailing facility and a minor portion of the southwest waste-rock storage facility were planned on portions of the Rio San Juan, La Esperanza and Rio Belencillo concessions.

Inmet responded to the claims on Oct. 16, stating that Petaquilla was incorrect in its assertions. Cobre Panama has been under full construction since May 2011, and Inmet reports it requires no additional permitting or agreements.

“During the limited interaction between Petaquilla and Inmet, Petaquilla management showed no interest in pursuing [our] offer on a friendly basis,” Tilk said. “Given the status of these interactions and the absence of a viable alternative, shareholders should consider the impact on the Petaquilla share price in the event that the Inmet offer does not proceed.” 
In a bid to complete the deal by the Nov. 5 cut-off date, Inmet submitted its “final offer” for Petaquilla on Oct. 26.

The new offer boosts considerations by 25% over Inmet’s previous bid. Petaquilla shareholders can elect to receive 0.0118 of a share of Inmet, plus 0.001¢ in cash, or a cash amount that is greater than 0.001¢, but not more than 60¢. If the cash amount in the election is less than 60¢, the shareholder would receive that number of Inmet shares equal to the excess of 60¢ over the elected cash amount, divided by $50.82.

Petaquilla stated it was reviewing the upgraded offer, but recommended its shareholders take no action considering the offer’s Nov. 5 expiration date. The company also noted it is pursuing alternative partnerships through UBS Securities Canada, in a bid to secure a richer return for its assets.