HudBay-Lundin Deal Wins Little Support from Market

Shares of Lundin Mining have fallen significantly below the price of an all-stock takeover offer by HudBay Minerals, suggesting investors see a high probability that the deal will not go through, analysts said on Monday.

The offer, which values Lundin's shares at 0.3919 of a HudBay share, prompted heavy selling of HudBay's stock when it was announced on Friday, as investors worried that HudBay's cash-rich balance sheet would be eroded by Lundin's less profitable assets.

Analyst George Topping of Blackmont Securities called the bid an "awful deal" that overvalued Lundin's shares.

"(HudBay's) shareholders currently are low risk conservative investors that thought they would be in a company with very little downside because of its cash position," he said in an interview.

"This very low risk company is now acquiring a very high risk company."

HudBay's shares, which dropped 40% on Friday, rose 15 Canadian cents, or 4.7%, to C$3.31 on the Toronto Stock Exchange on Monday, bringing the value of the offer to C$1.30 a share, or about C$510m ($414m).

Lundin's stock fell 10 Canadian cents to 95 Canadian cents, trailing both the offer and Lundin's price ahead of the bid.

Bid for Hudbay

Dissatisfaction with the deal prompted HudBay shareholder Jaguar Financial to announce on Friday that it plans to make an offer for HudBay that will see the company broken up and sold, and its cash distributed to shareholders.

In a statement, Jaguar chief executive Vic Alboini called the proposed HudBay-Lundin combination an "embarrassing value destructive transaction".

Late on Monday, Jaguar said that it, along with other shareholders holding more than 5% of HudBay's shares, have requisitioned a special meeting of shareholders with the purpose of replacing HudBay's board of directors before the Lundin takeover closes.

In a statement, Jaguar complained, as others have, that HudBay shareholders will not be given a chance to vote for or against the offer for Lundin.

Catherine Gignac, an analyst at Wellington West Capital Markets, predicted other base metal players could take a run at HudBay, which has low-cost operations and about C$850m on its balance sheet.

With a market cap of about C$500m at Monday's prices, the miner is trading well below its cash value.

HudBay has defended the Lundin deal as a quick way to expand its copper production and its pipeline of future projects.

For Lundin, the key to the deal was a C$136m loan from HudBay that will allow it to address solvency concerns ahead of the deal closing.

Lundin, which grew rapidly through three acquisitions in 2006 and 2007, has seen it shares drop nearly 95% since July 2007, as falling nickel and zinc prices have made some of its assets uneconomical.

($1=$1.23 Canadian)

By Cameron French; editing by Rob Wilson, Reuters.