Inmet Mining (TSX:IMN) shareholders might want to hold out for a better offer than the $5.2 billion that First Quantum Minerals (TSX:FM) has put on the table. Alternatively, they could wait for Cobre Panama, the second-largest undeveloped copper deposit in the world, to start production in 2016 in the hope that the payoff will be equal to or greater than what they would get in a takeover.
Inmet owns 80 percent of the open-pit copper development project Cobre Panama, and in the midst of First Quantum's bids for the company, Inmet has raised the mine's estimated life to 40 years from 31 years on higher proven and probable mineral reserves, including a 27-percent boost to estimated copper reserves. The mine is now expected to produce about 300,000 tonnes of copper, worth about $1.1 billion, each year.
Since the bid, Inmet's share price has consistently traded well above the C$72 per share offer, suggesting that investors expect a higher offer, either from First Quantum or from a rival bidder. On January 3, the stock was trading between C$74 and C$75.First Quantum's interest in Inmet comes a year and a half after Inmet and Lundin Mining (TSX:LUN) decided to cancel a merger plan that was not only marred by political and financial uncertainty for the Cobre Panama mine, but also by Equinox Minerals' (OTC Pink:EQNMF) hostile takeover offer for Lundin. In the first couple of weeks after that merger was announced, Inmet was trading as high as C$79 per share. Immediately following the termination, it traded at C$70. “The market is clearly saying that we are going to need a higher price to push this through,” Barry Schwartz, a Baskin Financial Services fund manager in Toronto, told Bloomberg. Bloomberg's report also notes that First Quantum's bid values Inmet at 7.6 times its earnings before interest, taxes, depreciation and amortization (EBIDTA) in the last 12 months — the lowest EBIDTA multiple among copper-industry deals of $500 million or more since 2007.