The Rush to Acquire Copper Resources: Should Lundin Prepare for a Bidding War?

By Leia Michele Toovey—Exclusive to Copper Investing News

The copper market is already in a deficit and this situation is expected to continue, at least for the near-term, until new supply comes online. Most of the world’s major copper mines are currently coping with falling ore grades and heightened costs of production as miners are forced to dig to greater depths to extract the last of a valuable resource. In the long-term, growth in the emerging economies is projected to require a great deal of copper. As these countries grow, they will need copper to build infrastructure, housing and manufacture electronics.  With prices near record-highs, there is extra incentive for companies to secure future supplies of the red metal.

The best way for a company to gain quick access to minerals is to acquire, or merge with, a company that already has assets. Equinox Mineral’s (TSX:EQN, ASX:EQN) recent bid for Lundin Mining Corporation (TSX:LUN) has sparked rumors that there will be a bidding war for the base metals miner, and may even set the stage for a blitz in merger and acquisition activity across the sector. Adding further support to the rumor mill, shortly after Equinox’s offer for Lundin, Equinox found itself at the other end of the acquisition deal as Minmetals Resources (HKG:1208) announced its interest in acquiring Equinox.

Equinox, made an unsolicited bid on Lundin March 20^th for C$7.75 per share that many analysts, and Lundin itself, immediately called “too low.” Shortly after Equinox’s offer, Minmetals Resources revealed plans for a C$6.3 billion offer for Equinox Minerals.* When they announced their interest, Minmetals also added that they were interested in Equinox due to their copper mines; the same reason why Equinox is apparently interested in Lundin. While the timing of this bid may seem strategic, according to Minmetals CEO Andrew Michelmore, Equinox has been on his radar screen for almost two years. Minmetals has not yet tabled a bid; so far it has only announced its intent, so Equinox has not yet formally advised shareholders on how they should react.

On Monday, after Minmetals’ announcement, Equinox said that it was postponing to April 26 the shareholder meeting it had originally scheduled for April 11. The main agenda item shareholders are to consider is the Lundin acquisition.  Also, Phil Wright, the CEO of Lundin Mining Corp. maintains that the sudden Chinese takeover bid for Equinox Minerals “makes no difference” to his company.  Some mining insiders suggested that the sudden increase in the bid may encourage Lundin to negotiate with Equinox; however, Wright said that is not the case. He pointed out that Lundin had a lot of concerns about the Equinox bid beyond just the price, including the high level of debt Equinox planned to take on.

The Minmetals bid is contingent on Equinox dropping its offer for Lundin. However, the Minmetals bid for Equinox seems to be falling in the back-drop with analysts focused on who will make a counter-bid to Lundin. Lundin’s assets, particularly its exposure to copper, would make a great addition to many of the major miners, and these miners have the cash to place an offer higher than Equinox’s.

Lundin Mining Corporation is a diversified base metals mining company with operations in Portugal, Sweden, Spain, Ireland and the DRC. Mineral assets in its projects include copper, zinc, lead and nickel. In addition, Lundin Mining holds a development project pipeline, which includes expansion projects at its Zinkgruvan and Neves-Corvo mines along with its equity stake in the Tenke Fungurume copper-cobalt mine in the Democratic Republic of Congo.

The Tenke Project is what analysts speculate other miners would be most interested in acquiring. Keith Moore, a strategist at MKM Partners LP thinks that the Tenke Fungurume copper and cobalt project in the DRC is the “star of the show” and the asset that will draw the most attention by potential suitors. Lundin holds approximately a 24 percent stake in the Tenke, and the other major shareholder is Freeport McMoran.

With the price of copper poised to rally for the next few years, analysts predict that  Lundin may attract more offers in the months to come. While the companies who are rumored to be interested in acquiring Lundin are refusing to answer the speculative rumors, analysts are quick to point out who the potential suitors may be. The potential players include Freeport (NYSE:FCX), Teck Resources (NYSE:TCK), Xstrata (LON:XTA), Vedanta (LON:VED), Rio Tinto (NYSE:RIO), First Quantum (TSX:FM) and HudBay Minerals (TSX:HBM).

Freeport McMoran is at the top of that speculative list. The company owns  a 56 percent stake in Tenke, and therefore may jump on the opportunity to increase its ownership in the world-class copper project.  Adding fuel to the rumors, CEO Richard Adkerson recently admitted that his company was “well-funded” with money to support acquisitions, and if they were to make an acquisition it would most likely be for a “major player.”

*CORRECTION: Copper Investing News had previously reported the offer was valued at $6.5 billion and that Minmetals Resources is a Chinese state-owned enterprise. This information was incorrect and we regret the error. China Minmetals, the majority owner of MMR, is a state-owned enterprise; however, MMR is a publically-owned company listed on the Hong Kong exchange and is based in Australia.