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Cobre Panama project

Investors are betting on a battle for Inmet Mining Corp. to control the coveted Cobre Panama project in Central America, one of the world's largest undeveloped copper plays.

Inmet shares have catapulted 23 per cent in the two tradings sessions since the company disclosed it received and promptly rejected two takeover offers in the past month from First Quantum Minerals Ltd., one of Canada's largest copper miners.

Inmet also said it adopted a shareholder rights plan, known as a poison pill, but said that was not meant to prevent takeovers so much as give it time to consider options in the event of a hostile bid.

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"I think they are effectively saying we're probably for sale at the right price," said Terry Thib, a portfolio manager with Norrep Funds in Toronto that holds Inmet shares. "From my perspective, I'm kind of thinking something north of $80 might get it done; shareholders might be happy with that."

First Quantum's latest cash-and-stock bid valued Inmet at $4.9-billion, or $70 a share. Its shares traded up nearly 6 per cent on Thursday to $65.50. Before the bids were made public, Inmet was trading at $52.80.

Stephen Bonnyman, an analyst with BMO Nesbitt Burns Inc., said in a report that he sees Inmet as being in play, and raised his target price on the stock to $82.

First Quantum has given no hint of its next move, if any.

"I can only reiterate our disappointment that the Inmet board chose to forgo this significant opportunity without engaging us in discussions," First Quantum president Clive Newall told the Scotiabank GBM Mining Conference in Toronto on Thursday. He declined to comment further.

First Quantum and Inmet are not engaged in continuing talks, said a person familiar with the situation.

Inmet's $6.2-billion (U.S.) Cobre Panama project is expected to produce some 300,000 tonnes of copper a year for 30 years, making it one of the largest undeveloped copper resources in the world. It will be Central America's only large-scale copper mine and the largest development project in Panama since the Panama Canal was built nearly 100 years ago.

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Cobre Panama could be a prize worth scrapping over as rivals scour the globe for new sources of copper, the reddish metal that helped feed development in China over the past decade and is used in everything from electrical wires to roofing, plumbing and industrial machinery.

The project is in a good jurisdiction, is fully funded and has low projected cash costs, characteristics important to an industry whose biggest challenges are resource nationalism and some of the steepest cost inflation in decades.

"We believe we could see further bids for Inmet in the near term given the scarcity of large, quality copper assets," analyst Fraser Phillips wrote in a report for RBC Dominion Securities Inc.

"Cobre Panama is a large project with an attractive cash cost profile and opportunities for expansion that is fully permitted and essentially fully funded. It is well known to many senior mining companies worldwide," he said.

The bids for Inmet underscore growing concerns about scarce new copper supplies as the global economy recovers and China resumes aggressive development.

Even with Europe in recession and many other economies still struggling, the world is seen consuming more copper this year than miners can produce.

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Inmet was singled out by analysts over a year ago as a possible takeover target.

First Quantum has itself been the subject of takeover rumours this year. Reports in April said it was in the cross-hairs of such global giants as Glencore and Xstrata – now merged – BHP Billiton Ltd., Rio Tinto PLC and Anglo American PLC.

With files from reporter Shirley Won

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