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Monday, May 27 2019 @ 11:09 AM UTC

Inmet faces hard sell in snubbing First Quantum’s $5.1B hostile bid

Gold & MiningBY PETER KOVEN, FINANCIAL POST - With First Quantum Minerals Ltd. expected to file its takeover circular imminently, the pressure will be on Inmet chief executive Jochen Tilk to explain why the $5.1-billion hostile offer for his company is inadequate. Inmet shares have jumped nearly 40% since news of a bid surfaced in November, and are trading roughly in line with the offer price of $72 a share.

It is understood Inmet hired CIBC World Markets as a financial advisor, and the Toronto-based miner is likely to argue the bid is far below fair value for Cobre Panama, one of the world’s largest copper deposits.

Analysts and investors generally agree the offer is low. However, they said Mr. Tilk could have a tough time fighting off First Quantum.

The central issue boils down to a question: Which company is better suited to build Cobre Panama? First Quantum has an outstanding track record of building large projects at lower cost than competitors, and has claimed it can do the same with this one. Mr. Tilk will try to prove Inmet can build the US$6.2-billion mine just as quickly and efficiently, and with no more of the cost inflation that has plagued this project and many others.

“I think it’s going to be a tough sell for Inmet, given that First Quantum has such a proven history of project development,” said John Hughes, an analyst at Desjardins Securities. John Stephenson, senior vice-president of First Asset Investment Management, praised Inmet’s management, but said it would be “virtually impossible” to argue Inmet’s project team is better than First Quantum’s. (more)

Inmet will likely point out that has been involved with Cobre Panama for more than two decades, and has successfully moved it through permitting and into construction, proving itself to be a good custodian.

Inmet has locked in contracts worth US$4.1-billion related to Cobre Panama development, which shields the company from future cost inflation. And it has provided extensive disclosure to investors to prove the project is on time and on budget.

At the same time, Mr. Tilk can point out that First Quantum has been very vague about its plans to lower capital costs at Cobre Panama.

Part of that is Inmet’s doing, as it denied First Quantum’s request to look at contracts that have been signed. Without seeing them, First Quantum has no way to know what contracts can be altered or scrapped.

Another issue for Inmet is that the takeover bid has highlighted the risks of Cobre Panama in addition to the value. Even after the recent run-up of Inmet’s stock, the capital cost of Cobre Panama (US$6.2-billion) is well above Inmet’s market value ($5-billion).

It is an enormous project for a company of Inmet’s size to take on, and Mr. Tilk is going to have to convince investors it is worth the risk, even though he could negotiate with First Quantum instead and potentially fetch a higher bid.

“Cobre Panama is such a big mouthful for these guys,” Mr. Stephenson said.

While analysts believe a rival offer is possible, they have noted that there are few logical bidders that would be eager to do a deal at this point in time. They also doubt that First Quantum would make a monster offer above $80 a share. (

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