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The heads of Lundin Mining Corp. and Inmet Mining Corp. call their deal a "merger of equals," but it's also one of necessity.

Lundin chairman Lukas Lundin and Inmet CEO Jochen Tilk knew when they began talks two months ago that they had only one option to stay competitive as commodity prices soar and industry consolidation ramps up: get bigger. Despite their respective market values around $4.5-billion each, the two companies were dwarfed by rival base metal heavyweights like Teck Resources and First Quantum Minerals.

The merger, announced on Wednesday, will create "the new Canadian large-cap growth story that the market has been looking for since the losses of major Canadian companies such as Falconbridge and Inco," said Mr. Tilk, who will head the newly formed Symterra Corp.

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Together, the two companies expect to produce 500,000 tonnes of copper annually by 2017, fuelled by Lundin's 24 per cent ownership of the Tenke Fungurume mine in the Democratic Republic of Congo and Inmet's 80 per cent stake in the $5-billion Corbe Panama project in Central America.

The Panama project has been a thorn in Inmet's side. It is expected to cost $5-billion to develop, a hefty price tag that forced the miner to reach out to Singaporean sovereign wealth fund Temasek Holdings for $500-million in 2010. With the support of Lundin's balance sheet, Symterra will have about $1.3-billion in cash on hand. Add in Temasek's investment, and the miner is close to the $2-billion in cash it must put up to develop the Panama project.

Before inking the deal, Lundin had been actively pursuing transactions for about 12 months, but couldn't find anything compelling, Mr. Lundin said. When Inmet entered the picture, he said he soon understood the two companies had the resources necessary to fund big projects "without the immediate pressure of partnerships."

While the deal has the blessing of both companies' biggest shareholders, some analysts say the announcement could kick off a bidding war. "In our view, there is a risk of other suitors, given the attractiveness of the Tenke and Cobre Panama assets," Raymond James analyst Tom Meyer said.

Phoenix-based Freeport-McMoRan Copper & Gold Inc., which is Lundin's partner and the operator of the Tenke project in the DRC, is seen by some as a possible buyer for Lundin. Freeport spokesman Eric Kinneberg said the company had no comment on the proposed merger.

The deal is not the first time Mr. Lundin has attempted to merge his base metals firm with another Canadian miner. In 2008, a then cash-strapped Lundin Mining agreed to combine with rival HudBay Minerals. But the deal died when HudBay shareholders threatened to strike it down. Since then, Mr. Lundin, the scion of a family business empire, has wanted to fulfill his late father Adolf's dream of building a major resource company.

The search may be over. A shareholder vote is expected to be held in March and if approved, each Lundin share will be worth 0.33 Symterra shares, and each Inmet share will be worth 3.49 Symterra shares. No premium was assigned to either company's shares.

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About the Authors
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

Asia-Pacific Reporter

An award-winning journalist, Andy Hoffman is the Asia-Pacific Reporter for Canada's national newspaper, The Globe and Mail. More

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