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First Quantum closes in on Inmet Mining takeover

The Cobre Panama mine site in Panama.

Inmet Mining

A hostile takeover bid for Inmet Mining Corp. is looking ever more likely to succeed as the deadline approaches for shareholders to vote on the $5.1-billion offer, as the odds of a counter-bid ebb along with softening copper prices.

With just a few days to go before the First Quantum Minerals Ltd. bid expires on Feb. 27, and two months after the $72-per-share was made, there are no signs of a rival offer emerging.

Vancouver-based First Quantum began courting Inmet well before that, proposing bids at $62.50 a share and $70 a share in October and November as it pursued Inmet's massive Cobre Panama project, one of the world's largest undeveloped copper deposits, amid buoyant prices for the metal.

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But copper prices have since retreated along with a less optimistic outlook for demand and big base metals companies appear to have lost their appetite for deal-making amid massive cost overruns.

"I'm still hoping the deal goes through with a premium to the current offer, but it's looking in this current environment that it might just go through as it is,"said Terry Thib, a portfolio manager with Norrep Funds in Toronto, which holds Inmet shares.

Inmet Mining shares closed trading at $67.41 on Friday, more than 6-per-cent below the cash and stock offer price – suggesting the market is not expecting a higher bid to emerge for Inmet. At the same time, there has been substantial shorting of First Quantum stock.

"We are increasingly of the view that the current First Quantum offer will be the final one, and that a competing bid will not emerge," Alex Terentiew, an analyst with Raymond James Ltd. in Toronto, wrote in a research note last week.

He said First Quantum may be facing investor pressure not to increase its offer after other miners announced a string of multibillion-dollar writedowns in recent weeks on assets acquired in recent years.

Analysts and investors are speculating that a friendly deal could now emerge between the parties, with several saying the First Quantum and Inmet boards have met.

Neither Inmet nor First Quantum were available to comment, but the view they could be in talks gained credence in recent days as Inmet waived a shareholder rights plan, saying it had had had enough time to review and execute all strategic alternatives being considered, but did not present a rival bid.

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Inmet chief executive officer Jochen Tilk did not address the First Quantum bid in discussing quarterly results on Friday. But on its website, the company had a red banner advertisement still telling shareholders to reject the First Quantum offer and not tender their shares.

"I don't think they would do that if they had a white knight of some type," said John Hughes, an analyst with Desjardins Securities in Toronto.

"It all points, to me, to the fact that Inmet and First Quantum are actually talking, and that they've come to some conclusion. It could come out formally any time from now through Wednesday to say they've gone friendly … Now, how much the deal may change in the event that that transpires becomes the question."

To be sure, the company might just as easily go public in coming days with an announcement that it has found another buyer for Cobre Panama.

It may just be confident its shareholder base will vote against the First Quantum offer, although that might be difficult because the bid already has the support of Inmet's largest shareholder, Leucadia National Corp., with about 16 per cent of the stock. About 15 per cent is estimated to be in the hands of arbitrage traders.

The truth may not come out until the bid expires on Wednesday at 5 p.m. ET, as shareholders wait to tender shares in the hopes of a higher offer.

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"They've gone very quiet on the subject," Mr. Thib said.

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