Teck Cominco to buy Global Copper

Vancouver — In a deal valued at $425 million, Teck Cominco (TCK. B-T, TCK-n) is buying out Global Copper (GLQ-T, GOCPF-o) to get its hands on the Relincho project — an Andean porphyry-style copper-molybdenum deposit in Chile’s Region III that, part-way through exploration, already hosts almost 10 billion lbs. of copper.

And while the acquisition boosts Teck’s measured and indicated copper resources by 25%, the real story is the successful strategy of Global Copper chairman and director Ross Beaty, who founded Lumina Copper in 2003.

“The strategy was to acquire, when copper prices were low, large copper properties in mining-friendly countries,” Beaty said in a conference call. “Properties that could, as prices rose, be advanced through exploration and, at the appropriate time, divested to larger companies that could build them into large mines.

“Our strategy has always been a buy low, sell high strategy,” he said.

Lumina did just that, picking up 10 copper properties for a mere $16 million. In 2005, Lumina split into four public companies, one bearing its name and each focused on one major project. Three of those companies have already been snapped up: a Japanese consortium bought Regalito Copper in early 2006, Western Copper (WRN-T, WCPCF-o) bought Lumina in late 2006, and a Chinese group snagged Northern Peru Copper in January.

Those sales generated more than $1 billion.

Global was the last Lumina child left standing. Its flagship project is Relincho, a 200-sq.-km property 660 km north of Santiago and 50 km northeast of the port town of Vallenar. With the stated goal of proving up a large resource in order to divest the project in 2008, Global began drilling Relincho in mid-2006 and by last month had completed 65,000 metres in 231 holes.

An interim resource estimate late last year confirmed Relincho’s potential as a world-class copper deposit. The new estimate put indicated sulphide resources at 498 million tonnes grading 0.47% copper and 0.023% molybdenum for 5.14 billion contained pounds copper and 250 million lbs. molybdenum. Inferred sulphide resources add 378 million tonnes grading 0.43% copper and 0.023% molybdenum.

In addition, indicated oxide resources stand at 114 million tonnes grading 0.32% copper and 0.009% molybdenum; 11 million inferred tonnes grading 0.27% copper and 0.008% molybdenum add to the oxide count.

That adds up to 9.6 billion lbs. copper and 465 million lbs. molybdenum.

“Our game plan for Relincho was to keep exploring it until we attracted a premium offer from a major mining company,” Beaty said. “And Teck Cominco approached us a while ago with an excellent, unsolicited offer.”

The offer provides Global shareholders with cash and Teck stock worth between $12 and $14 for each Global share. They will also receive stock in a new public company to be named Lumina Copper, in honour of the company that started it all. The new Lumina will hold all of Global’s assets outside of Relincho, $10 million of Global’s current $18 million cash, and a 1.5% net smelter return royalty for Relincho.

“We are very pleased with this transaction,” he said. “The principal reason is that we’re very pleased with the buyer — we know Teck well and we like them.”

Teck will pay $12 cash or 0.26667 of a Teck class B share for each Global share, subject to a limit on the cash portion. At full pro-ration, shareholders would get $3 cash and 0.2 of a Teck share for each Global share. The $12 minimum represents a 29% premium to the 20-day volume- weighted average Global share price. Effectively, the deal values Relincho at a minimum of $415 million.

Beaty addressed the question of why Global would sell Relincho at such an early stage, before an economic study has really shown the value of the project, by saying the deal represents good value for the project while eliminating the potential for negative surprises in the coming months. Copper prices hit an all-time high recently and could well decline and Relincho is a deep, variable deposit that will require significant additional drilling to bring it to feasibility stage.

“We’ve only been exploring for 19 months — just a year ago our share price was one-fifth of where it is today,” he said. “We’ve had a great run and now it’s time to turn the project over to a fine technical team at a major mining company, which can do the hard work and spend the big money to advance Relincho further.”

If Teck shares are worth less than $45 at close, it will pay extra cash or shares to make each Global share worth $12. If Teck shares are worth more than $55, the Teck share portion of the deal will be reduced to value Global stock at no more than $14.

News of the deal propelled Global’s share price up $2.78 or 25% to close at a new high of $13.91 on 4.4 million shares traded, three times the previous volume record. The company had a 52-week trading range of $2.15-11.13 and has 32.9 million shares issued.

The agreement carries a $12.5- million break fee should an outside offer prevail. The directors of both companies have unanimously approved the deal. Teck said it expects to issue 6.9 million class B shares and pay $104 million in cash to cover the transaction.

In taking over Global’s other assets, the new Lumina will have an interest in three properties. It will own the Taca Taca copper-gold project in northern Argentina, for which Rio Tinto (RTP-N, RIO-L) recently signed a 75% option agreement, and the San Jorge copper-gold project in central Argentina, of which Coro Mining (COP-T, CROJF-O) is working to earn 100%. It will also own 6.3 million shares and 3.9 million warrants of Los Andes Copper (LA-V, LSANF-O), an exploration company developing the Vizcachitas copper-molybdenum project in Chile, as well as a 2% net smelter open-pit mining royalty and a 1% net smelter underground mining royalty on certain Vizcachitas claims.

Beaty and his team, who are all moving over to the new Lumina, are excited to be starting out again, he says.

“Who knows what mischief we’ll get up to in the new company?”