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Tenke Mining: Lundin Merger Offer Could Spike Bidding War

Apr. 18, 2007 4:51 AM ETLMC, TNKDF
Sufiy profile picture

It's all happening so fast. On April 4th, Lundin Mining (LMC) announced an all cash offer at CAD 5.0 per share of Rio Narcea (RNO) for all shares outstanding; it is now only a couple weeks later and we have news of a new deal to buy out Tenke Mining (OTC:TNKDF), with their major asset of 24.75% in Tenke Fungurume copper/cobalt mine in Congo.

As per the announcement, all shareholders of Tenke Mining are being offered 1.73 shares of Lundin Mining for each Tenke share, but I will be surprised if Lundin will get Tenke at the first price offer. Lundin's motivation is clear: such an asset is still under the radar of the investment crowd with almost no one following it. With construction of the mine at full speed, and expected first production in 2008, the price for Tenke will increase dramatically as soon as the story hits newsletters and analysts start to follow the stock. The Lundin family definitely would like to keep the Tenke Congo assets inside the family line of business for as long as it is possible.

Now, the Lundin family holds around 14% in their mining company and almost 20% in Tenke. It will be much harder to buy out Lundin Mining than Tenke Mining, even at the recent price, due to much higher capitalization. After the merger, Lundin Mining will have approximately 389.9 million shares. Based on a 20 day average price before the deal announcement on April 15th, the Lundin mining market cap will be CAD 5.3 billion after the merger, not a change even for industry heavyweights like BHP (BHP), RIO Tinto (RTP) or Companhia Vale do Rio Doce (RIO).)

But what is the fair price for Tenke shareholders? Tenke Fungurume's 24.75% stake was valued at CAD 1.4 billion at the moment of

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Sufiy is a Seeking Alpha contributor.

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