Thursday, April 12, 2007

Lundin mining merger with Tenke mining could spike the bidding war

It is all happening so fast, but I will be surprised if Lundin mining will get Tenke at first price offer. Lunding mining motivation is clear: such asset is still under radar of investment crowd and almost not followed by anyone. With construction of mine at full speed and production in 2008 price for Tenke mining must increase dramatically as soon as it will be covered by analysts. Definitely Lundins would like to keep Tenke Congo assets inside the family line of business as long as it is possible. It will be much harder to buy out Lunding mining then Tenke mining even at recent price due to much higher capitalisation. But what is the fair price for Tenke shareholders? After conference call a lot of question need to be addressed. Tenke Fungurume was always portrayed as one of the largest Copper deposits in the world. Assessment of price was done on "flat" production of 115000 t of Cu per year without any consideration for premium for increase to 200000 t and later for 400000 annual production. New resource estimate was supposed to be published by mid 2007 which will incorporate all drilling in 2006 year done by Phelps Dodge. Feasibility study was never published in full details and total price assessment process does not look transparent. Companies have Directors which are sitting on the Boards of both Companies and conflict of interest must be definitely addressed. Now Freeport-McMoRan Copper & Gold Inc move will be very interesting: from Phelps Dodge perspective it will be much cheaper now to bid for outstanding 24.75% of Tenke Fungurume - who could better know the value then the Operator of the property. Will they allow Lundins to keep it or they will try to bid now? In the end shareholders of Tenke mining will be in good hands with Lundins, but I would prefer better price and if more bidders will come we can get easily ratio of 2.5 - 3.0 of Lunding mining share for 1 Tenke mining share. With proposed 73/27 ration for Lunding mining and Tenke mining shareholders respectively Lundins will have 14%*73%+20%*27%=15.62% not a lot to defend against unfriendly offer, but size of the Company will help to prevent losing assets before their full pricing potential. What will be the best for Tenke shareholders:
1. Clear explanation of price decision on Tenke mining side and conflict of interest must be addressed from Lundins for their integrity.
2. Bidding war with FCX or Newcomer, but stay with Lundins at higher ratio of exchange.
2. Fast development of Russian wild card - Ozernoe zinc deposit, with Tenke Fungurume in production it could bring Company fast to 10 billion mark.
3. South American spin off - will allow to concentrate on exploration and acquisition of promising gold prospects, with Lundins back up financing will be not a problem and Paul Conibear's grip will help second success like Tenke in the making.
http://cnrp.ccnmatthews.com/client/tenke_mining/release.jsp?year=2007&actionFor=644917&releaseSeq=0
Author is long Tenke mining shares

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