By taking out Petaquilla for C$2.20 a share, Inmet will boost its ownership of the Petaquilla project in Panama from 48% to 74%. Mr. Meyer wrote that the move greatly enhances the value of the project for Inmet while reducing the risk.
Just as important, he noted that the acquisition could create two other major opportunities.
One would be for Inmet to buy out Teck Cominco Ltd.'s (TCK) 26% stake in the project to move its ownership level up to 100%. In that instance, Inmet could then sell a chunk of the project to a copper smelting or metals trading group and get financing to build the mine in exchange for off-take rights. If Teck does not want to sell its interest, another possibility would be for the two companies to jointly reduce their stake in the project and pass it over to an offtaker that can provide financing.
Either way, Mr. Meyer does not expect Inmet to lower its position in the project below 40%. He also said that the market is too pessimistic on Inmet's ability to finance the project, especially since the Petaquilla Copper acquisition provides more flexibility.
In a note, he wrote:
In our view, Inmet and Teck have a currency which is worth far more to the copper industry than the capital markets currently gives credit to.
He has an "outperform" rating on the stock and a price target of $87.00 a share.