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Inmet's Cobre Panama project

Equinox Minerals Ltd. , pouncing on rival Inmet Mining Corp.'s problems at a key $4.3-billion copper project in Panama, says a planned merger between Inmet and Lundin Mining Corp. is falling apart.

Equinox, seeking to acquire Lundin with a hostile $4.8-billion takeover offer, says a setback for Inmet's power-supply plan at the Cobre Panama project derails Inmet's plan to join forces with Lundin Mining in a friendly deal to create a major copper producer valued at $9-billion.

"I can't see anything but that the bid is dead," Equinox chief executive officer Craig Williams said in an interview Tuesday. "There are some real serious issues in relation to the proposed merger there … If that deal collapses, where does that leave [Lundin] They have gone pretty hard to criticize our deal, but we are the only deal on the table."

Executives at both Lundin and Inmet were not available for comment on Tuesday.

Lundin has rejected Equinox's offer as too heavily leveraged with $3.2-billion (U.S.) of debt, arguing the financial structure would carry risks for the combined company in an industry downturn.

At Cobre Panama, the Panama government wants Inmet to use cleaner-burning natural gas power instead of coal. That threatens to delay construction of the 250,000 tonne-per-year project set to start production in 2016, a key part of the Lundin-Inmet agreement. Lundin on Monday characterized the issue as a "material departure" from the original development plan its merger agreement is based on and is now reviewing the change.

Inmet, on the other hand, denies that a change to natural gas power from coal at its Cobre Panama project will materially impact its timing or economics.

Lundin also blasted Equinox's $8.10 (Canadian) cash-and-share offer as too low, while exposing the company to increased geopolitical risk, with mines across Africa and Saudi Arabia. It also said Equinox, which has one operating mine in Zambia, doesn't have the management experience to run a larger company.

Despite the "bluff and bluster" from the Lundin camp, Mr. Williams said Lundin's board hasn't disputed that Equinox's offer is superior to a proposed merger with Inmet. Equinox maintains the debt to buy Lundin can be paid off in four years even if there is a collapse in commodities markets.

As of Monday, Lundin continued to recommend the Inmet merger despite concerns about the change to the Cobre Panama project. Lundin promised to provide more information after its review of the new information about the project.

There is a possibility that Lundin could view the project change as having a material adverse impact on the original deal it struck in January, which could allow it to back out of the merger without having to pay a $120-million breakup fee in the deal.

Lundin and Inmet shareholders are scheduled to vote on the proposed merger April 4.

The battle for copper-focused Lundin comes as miners scour the globe for a diminishing supply of known resources, amid a return to record-setting prices not seen since the commodities run-up in early 2008. It's also the latest in a flurry of mining deals announced in recent months as miners, cashed up from higher prices, look for future growth.

The fight over Lundin could draw out other bidders for all three companies. Lundin is considered the most likely target for its copper, nickel and zinc assets in Europe and in particular its near 25-per-cent stake in the promising Tenke Fungurume copper and cobalt project in the Democratic Republic of Congo. Apart from its Zambian copper mine, Equinox is nearing production at a project in Saudi Arabia it recently acquired. Companies said to be interested in beefing up their copper assets include Freeport-McMoRan Copper & Gold Inc., which is a partner with Lundin in Tenke, as well as state-owned entities in China, the world's largest consumer of copper.

A clause in the Lundin-Inmet merger agreement prevents Lundin from soliciting other offers and the Equinox offer can only proceed if the Lundin-Inmet merger fails. Equinox said it isn't interested in a three-way merger between the companies.

Inmet also maintains there is no impact from the Panama government's plan to repeal part its mining code allowing investments from foreign governments. That change announced recently raises questions about Cobre Panama's investments from sovereign wealth funds in South Korea and Singapore.

Equinox (EQN)

Close: $5, down 28¢

Inmet (IMN)

Close: $63.20, down $2.80

Lundin (LUN)

Close: $7.10, down 21¢