Lundin Mining (TSX: T.LUN, Stock Forum) was surging in early afternoon trading Tuesday. Shortly after 1:30 p.m. the stock was up 22 cents to $1.03 cents on volume of more than 10 million. Lundin had opened the day at 82 cents, after falling to a new low of 77 cents in Stockholm on Tuesday.
Last Friday, Toronto-based Lundin and HudBay Minerals (TSX: T.HBM, Stock Forum) announced a friendly business combination that would see Lundin become a wholly-owned subsidiary of HudBay. The deal calls for each Lundin common share to be automatically exchanged for 0.3919 HudBay common shares.
However, the deal is being challenged by North American institutional stockholder Jaguar Financial (TSX: T.JAG, Stock Forum), which on Monday announced that it, along with other Hudbay shareholders, had requisitioned a special shareholder meeting to replace the company’s Hudbay’s board of directors.
Hudbay is recommending that its shareholders ignore the Jaguar proposal.
The shareholder response to the situation has been mixed. Last Friday, they showed their displeasure with HudBay's plan to buy Lundin by driving HudBay shares down 40%. They have since rebounded, rising 14%, or 46 cents, in mid-afternoon trading Wednesday to $3.74 on volume of almost 4.5 million.
HudBay wants debt-heavy Lundin to gain control of its copper mines. However, it would also inherit marginal zinc mines and $470-million in Lundin debt.
On the Lundin Bull Board, paljoey said the situation created an interesting choice.
In RE: Buy LUN or buy HBM?, he or she said, “The hard book value of LUN, exclusive of good will and mineral reserves , is $2.85 billion or about $7.25/share.
“Right now, LUN has a net debt less than $150 million and is at no risk of bankruptcy.
“With HBM trading at $3.60, LUN should be trading at $1.40, so buying now is very cheap way to play HBM.”
“Hold your breath,” advised robbie80, adding, “Shorts smelt blood yesterday and pushed LUN down to < 80 cents in huge volume (10M shares). China announced big interest cut and metal price is up now. It seems there is no way to cancel the deal between LUN and HBM now. In a day or two, Shorts will have to cover and will easily push LUN price to over 1.50.”
Quoting Motley Fool, raknrev said: "As the full value of this acquisition by Canada's HudBay Minerals comes to light in time, however, I believe that investors' hearts may yet grow larger. Announced at a value of C$800 million ($630 million), HudBay's acquisition of Lundin Mining (NYSE: LMC) -- which creates Canada's second-largest base metal miner after Teck Cominco(NYSE: TCK) -- was reduced to an effective purchase price of just around C$500 million ($400 million) after investors tore into HudBay's shares on Friday."
On the Hudbay BullBoard, Ogre2 said: “Essentially, the stock price has already factored in the dilution of the shares, and HBM is above that price by approximately 25%. I was quick, so was able to sell immediately on the obvious dilution, and repurchase more at a lower price near the bottom without any added capitol, adding more shares and considering that I will continue to add to my holdings in this company. It is fairly easy to calculate future earnings of HBM on reasonable prices in the next several years of its pre-Skye resources. Using conservative prices for Nickel into the future, it is apparent how very valuable Fenix will be for the price paid.
“Lundin will not drag HBM into bankruptcy. It has some dog mines, and some very low cost producers. It is not difficult to suspend operations in high cost mines and continue to produce profit from mines such as Zincgruvan. Fungurume has some risk associated, but nothing to run scared from. The potential of this mine is ridiculous. Whoever owns it when it comes into production will be very happy indeed. Its yearly production estimate is $400M Cu and $400M Co per annum at today’s prices with a 40 year mine life, and certainly higher in the future. A nice tidy little sum. And foreign companies have been doing business in the big bad Congo for a long time.
“With regards to HBM's main diet, and a large portion of Lundins, zinc has been trending nicely upwards in the past month. With regards to Jaguar's takeover and selloff, what an incredibly idiotic concept. Looks like some players over there had their fingers in some cookie jars but got their fingers cut off when the lid fell down. God forbid they have any effect on HBM's future.
“So relax and grab a scotch, its just a recession, and if you do no more than to hold on to HBM for a couple of years, you will be rewarded for your patience far more than cutting the board that produced the cash cushion to allow them to purchase these assets. The sky has fallen before, and there is no better time to load up.”
