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New bid for Lundin sets stage for three-way copper fight

Copper miner Equinox Minerals Ltd. is making a hostile bid for Lundin Mining Corp. valued at $4.8-billion in cash and shares, a move that threatens to thwart the proposed friendly merger of Lundin and Inmet Mining Corp.

Equinox, which has offices in Toronto and Perth, Australia, said its offer values Lundin at $8.10 per share, which is a 26-per-cent premium to Lundin's closing price of $6.45 on the Toronto Stock Exchange on Friday.

Craig Williams, Equinox's chief executive officer, said his company has been looking at Vancouver-based Lundin's assets for years, but decided to get serious after hearing about its proposed merger with Toronto's Inmet in mid-January.

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"We didn't see the logic in that merger of equals so we decided we needed to act," Mr. Williams said in an interview on Monday, adding a combination of the three companies is not under consideration.

"We like the Lundin assets," he said, citing in particular Lundin's stake in the promising Tenke Fungurume copper/cobalt project in the Democratic Republic of Congo.

Combining Equinox and Lundin would create one of the world's top 10 copper companies within five years with an annual production growth target of 500,000 tonnes amid strengthening demand for the widely used metal, Mr. Williams said.

"Our view on copper is obviously pretty positive and I think we all need to take advantage of that. That is the technical fit between the two groups. The blindingly obvious one is that we are offering a 26-per-cent premium to Lundin shareholders, whereas the merger of equals is a zero premium," he said.

Lundin said in a statement Monday that its board is "reviewing and evaluating" the proposal with its financial and legal advisers" and will communicate a recommendation to Lundin Mining shareholders as soon as possible." It asked shareholders to take no action until the board makes a recommendation. "The arrangement agreement between Lundin Mining and Inmet Mining Corporation will remain in effect unless terminated by either party in accordance with its terms," Lundin stated. Inmet chief executive officer Jochen Tilk has yet to comment on the competing offer.

UBS Securities analyst Onno Rutten said in a note to clients on Monday that he expects the Equinox bid has a "high probability of success as Inmet appears to have a limited ability to exercise its right-to-match Equinox's offer for Lundin."

As part of the Lundin-Inmet merger deal struck in mid-January, each party agreed not to solicit any alternative transactions. That deal includes a right to match clause should other offers come up, as well as a $120-million break fee.

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Equinox's rival bid comes just two weeks before Lundin and Inmet shareholders are set to vote on the proposed merger at meetings set for March 14. The so-called "merger of equals," to form a company called Symterra Corp., is being touted as a new Canadian-based copper powerhouse with a combined market capitalization of more than $9-billion. Equinox has a market capitalization of about $5.5-billion, while Lundin's is now about $3.7-billion. Lundin shares have fallen about 17 per cent since the merger with Inmet was announced after markets closed on Jan. 12.

Equinox's rival bid puts both Lundin and Inmet in play and has the potential to create another frenzied takeover battle not seen since the breakup of the friendly all-Canadian Inco and Falconbridge deal five years ago, which led to a reshaping of the country's mining industry. Anglo-Swiss Xstrata PLC and Brazil's Vale SA were the victors in that year-long fight. Vale won Inco with an all cash $19-billion offer, beating out U.S. copper producer Phelps Dodge Corp. as well as Canada's Teck Cominco Ltd. Xstrata seized control of Falconbridge for $24-billion, scuttling a three-way proposal to combine Inco and Falconbridge with U.S.-based Phelps Dodge.

The Equinox takeover battle is also the latest in a series of mergers and acquisitions in the mining sector over the past several months. Companies flush with cash from surging commodity prices are pushing to expand their operations as part of a global scramble to secure attractive mineral reserves. Copper producers are particularly hungry to grow their operations as tight supply and strong demand help send prices to record levels. On Friday, copper was trading slightly below of its recent high of $4.65 (U.S.) per pound. The metal, used in everything from power to construction, is sought by rapidly industrializing countries such as China and India as they build out their infrastructure.

Equinox's pitch for Lundin comes weeks after it closed a $1.26-billion deal to buy Australian base metals developer Citadel Resource Group Ltd., giving it access to development and exploration assets in Saudi Arabia, including the Jabal Sayid copper-gold project scheduled to begin production late next year. Equinox owns the Lumwana copper mine in Zambia, which it acquired in 1999.

Lundin has operations in Portugal, Spain and Sweden that produce copper, nickel, lead and zinc. It also has expansion projects at its Zinkgruvan operation in Sweden and its Neves Corvo mine in Portugal, along with its 24.75-per-cent interest in Tenke Fungurume. Operating partner Freeport- McMoRan Copper & Gold Inc. has a 57.75-per-cent stake in the project, while the rest is owned by a Congolese state mining company.

The Equinox offer allows Lundin shareholders to receive either $8.10 in cash or 1.2903 Equinox shares plus one cent for each Lundin share, subject to a pro-ration based on a maximum cash consideration of approximately $2.4-billion and maximum number of Equinox shares issued of approximately 380 million. Equinox said cash consideration of its offer will be financed through a $3.2-billion (U.S.) bridge facility.

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"Lundin offers the potential to strengthen Equinox's copper business primarily through Tenke," BMO Nesbitt Burns analysts said in a note Sunday, "while also representing the addition of a European zinc-copper business."

That said, Lundin will also increase sovereign risk and operational leverage for Equinox, analysts David Radclyffe and David Cotterell wrote.

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About the Author

Brenda Bouw is a freelance writer and editor based in Vancouver. She has more than 20 years of experience as a business reporter, including at The Globe and Mail, The Canadian Press, the Financial Post and was executive producer at BNN (formerly ROBTv). Brenda was also part of the Globe and Mail reporting team that won the 2010 National Newspaper Award for business journalism. More

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