Lundin Mining Corp.'s failure to secure a buyer for all or parts of the company signals mining companies are starting to exercise caution after a string of high-priced deals in the sector fuelled by record-setting commodity prices.
Lundin, a major copper producer, had high hopes it could attract a rich premium. But potential bidders, including deep-pocketed Chinese companies and some of the world's largest miners, weren't willing to meet its expectations.
The Toronto-based company said late Wednesday it ended efforts to sell itself after determining proposals it had received were inadequate.
The abandoned sale process comes amid signs the current commodities cycle may have peaked for now as prices for metals soften. Prices for copper and other key industrial metals have dropped from record highs reached earlier this year on concerns of slowing demand from key nations such as China, the world's largest metals consumer.
Investors were caught off guard by Lundin's inability to find a suitable buyer. The company's shares plunged 17 per cent Thursday on almost four times the average volume of shares traded.
Lundin was looking for a price between $10 and $11 a share, not far off from where the stock was trading in late April when it hit $9.31 on the Toronto Stock Exchange, according to people familiar with the situation.
Lundin's expectations of its value were based in part on the rich premium Barrick Gold Corp., the world's largest gold producer, recently offered to pay for rival copper producer Equinox Minerals Ltd. Barrick's $7.3-billion offer for Equinox topped a $6.3-billion hostile bid for the Toronto-based copper miner from China's Minmetals Resources Ltd. Minmetals pulled out of the race within hours, saying the price was too rich to match.
Chinese mining firm Jinchuan Group Ltd. as well as sovereign wealth fund China Investment Corp. (CIC) were among the suitors eyeing a possible acquisition of Lundin, sources said.
That no deal was reached suggests that China, despite its deep financial resources, is not willing to pay more for assets than it believes they are worth.
Some of the world's largest mining companies also took a look at Lundin's assets, but no agreement was struck. Some potential bidders were considering paying around $8 a share for Lundin, close to the price Equinox offered for the company in late February, a 26 per cent overnight premium at the time, sources said. Lundin rejected the Equinox bid as too cheap and fraught with financial risk.
Despite being flush with cash from rising prices for their products, miners are being careful not to overpay for assets today, in particular after a few were burned in the 2008 global market meltdown.
"They are taking a more disciplined approach," BMO Nesbitt Burns analyst David Cotterell said. "2008 was definitely a lesson."
Lundin's assets include copper, zinc, lead and nickel mines in Europe and a coveted 24-per-cent interest in the Tenke Fungurume copper mine in the Democratic Republic of the Congo.
Lundin's move may be a risky tactic to try to force a bidder to come forward with a higher price at a later date. Lundin chairman Lukas Lundin said the company remains open to further discussions.
"If someone calls me up and gives a good price, we'll talk," he said on an investor call Thursday. "We are transaction-oriented people ... If it creates shareholder value, we are open."
But Lundin said it would rather grow as a standalone company than take a lowball offer.
"We've gone through this whole strategic process and the board did not come up with the numbers we expected, so right now we're going to knuckle down and build the company," Mr. Lundin said.
Lundin said it was Equinox's hostile bid that thrust it into the process of seeking potential bidders. The $4.8-billion Equinox bid, which valued Lundin at $8.10 a share, came weeks after Lundin proposed a friendly merger with Inmet Mining Corp. That merger fell apart as a result of Equinox's bid and due to some concerns around Inmet's flagship project in Panama.
Stifel Nicolaus analyst George Topping said it hasn't been a great sequence of events for Lundin.
"I think the expectations were high given that Lukas Lundin has sold several companies at a premium," Mr. Topping said.
He believes Lundin is waiting it out for a higher price down the road.