Teck Cominco to absorb Aur in $4.1B cash-and-stock offer

Vancouver — Looking to boost its copper production and reserves, Teck Cominco (TCK.B-T, TCK-N) has tabled a friendly $41.00-per-share bid for fellow Canadian base metals miner Aur Resources (AUR-T, AURRF-O).

Teck Cominco’s offer of $41.00 in cash or 0.8749 of a Class B share for each Aur Resources common share comes at a 29% premium to Aur’s 20-day volume-weighted average closing price and represents a valuation of about $4.1 billion.

The move comes in the midst of a strong industry trend of mergers and acquisitions that has seen several major Canadian mining companies disappear.

The merger will immediately add more than 200 million lbs. (90,000 tonnes) of annual copper production to Teck Cominco’s operations, boosting its yearly output by 43%. The Vancouver-based miner will see its copper reserves and resources swell by about 15 billion contained pounds (6.8 million tonnes), or about 136%, in taking on Aur’s project portfolio.

Teck Cominco anticipates its annual copper production will grow 72% by 2010 to reach 342 million lbs. (155,000 tonnes) as a result of the Aur takeover.

Aur’s board of directors has thrown its full support behind the offer, which will see Teck pay out a maximum of $3.1 billion in cash and issue up to 22 million Class B shares. Teck Cominco will have a right to match any better offer that comes along and will receive a $140-million break fee if the takeover is not completed due to a superior offer.

“The acquisition will immediately increase our cash flow and add substantially to our long-term growth in copper production,” said Teck Cominco president and CEO Don Lindsay.

“We are pleased to re-establish our operating presence in Chile,” Lindsay added, calling it “one of the very best countries in the world in which to operate in mining.”

During a conference call, Lindsay said Aur’s team would complement Teck Cominco’s. He also praised the company’s founders, specifically Aur president and CEO James Gill, who grew the company from “seed capital” of just $250,000 in 1981, when it was formed, to its current value of $4 billion.

Subject to regulatory filings and approvals, Teck Cominco’s offer is subject to acceptance by at least 66.67% of Aur shareholders.

Aur’s project portfolio consists of:

* 76.5% of the Quebrada Blanca open-pit copper mine in northern Chile — a solvent extraction-electrowinning (SX-EW) processing operation forecast to produce 177.5 million lbs. (80,510 tonnes) of cathode copper in 2007 at total operating costs of 86 per lb.;

* 90% of the Andacollo open-pit copper mine in central Chile, also an SX-EW processing operation, forecast to produce 42.7 million lbs. (19,351 tonnes) of cathode copper in 2007 at total operating costs of 83 per lb.;

* the Duck Pond underground copper-zinc mine in central Newfoundland, which began operations early this year and is forecast to produce 28.4 million lbs. (12,882 tonnes) copper, 52.8 million lbs. (23,950 tonnes) zinc, 377,600 oz. silver and 2,700 oz. gold in concentrates for 2007; copper cash costs of 15 per lb. net of other metal credits;

* the Andacollo hypogene deposit, underlying current mining operations, which has proven and probable reserves of 434 million tonnes grading 0.39% copper and 0.13 gram gold per tonne; forecast to produce about 156 million lbs. (71,000 tonnes) copper and 59,000 oz. gold annually over modelled mine life of 21 years; and

* advanced-stage exploration projects in southern Argentina, Ecuador and Chile.

Interestingly, Aur initially purchased its 76.5% interest in Quebrada Blanca from Teck Cominco predecessor companies in late 2000 for US$180.6 million. Under the agreement, Teck was also to receive contingent payments, up to US$40 million, should yearly average copper prices equal or exceed US$1.10 per lb.

Following the takeover announcement, shares of Aur Resources soared 31% to close up $9.86 at $41.56 apiece. Teck Cominco Class B shares notched up 60 to close at $45.80.