LONDON Miner First Quantum (FM.TO) launched a sweetened offer for Canadian rival Inmet Mining IMN.TO, taking to shareholders a deal that values the owner of the giant Cobre Panama copper project at about C$5.1 billion ($5.2 billion).
The offer of an improved C$72 per share, compares with two previous approaches that valued Inmet at C$70 and C$62.50 per share - both rejected by the miner's board.
The deal would create what First Quantum says would be one of the world's top copper producers.
Inmet's shares rose 5.58 percent to C$73.73 on Monday shortly after markets opened on the Toronto Stock Exchange. First Quantum's shares were down 3.2 percent at C$20.28.
First Quantum said in a statement on Sunday that its vision of a combined group was shared by Inmet's "key shareholders" - potentially crucial support, given the top four investors own almost 40 percent of Inmet shares.
Its bid for Inmet led some analysts and investors to question whether First Quantum was moving away from a strategy that has relied on its engineering and construction expertise to deliver mid-sized projects at below-average cost. But like others in the sector, the miner has battled a dearth of high-quality copper deposits needed to fuel growth.
Inmet owns Cobre Panama, one of the world's largest untapped deposits and one of the last not already in the hands of a major miner. But the project is also one of the world's most expensive - a cost First Quantum believes it could considerably reduce.
On current guidance, the cost of developing the $6.2 billion Cobre Panama project stands at $23,000 per tonne, according to analysts at Nomura, compared with an average capital intensity for the sector of $18,500 per tonne - and around $6,000 per tonne for First Quantum's greenfield Sentinel project in Zambia.
First Quantum is one of the few global miners primarily focused on copper, with operations in Zambia's copper belt, as well as in Australia, Finland and Mauritania.
Inmet, whose board has already adopted a rights plan it says would give it more time to evaluate bids, last week raised proven and probable reserves at Cobre Panama 27 percent.
"While the switch to a hostile approach may increase the chances of success, in our view execution risks also rise," Citi analysts said in a note.
"Without prior access to conduct due diligence, the ability of First Quantum to exploit its competitive advantage in capital cost management is likely to be reduced, increasing the risk of overpayment."
First Quantum left the door open for Inmet's board.
"Our clear preference remains to engage with Inmet, as we believe strongly in the compelling strategic and financial merit of the transaction," Philip Pascall, chairman and CEO of First Quantum, said.
Inmet said in a statement on Monday that it had not yet received the formal offer from First Quantum and advised its shareholders to take no action at this time.
First Quantum said the combined company would be one of the world's fastest-growing copper producers, with the potential to produce more than 1.3 million tonnes per year by 2018.
According to details of the offer, Inmet shareholders can opt to receive either C$72 per share in cash, or 3.2962 First Quantum shares plus 1 Canadian cent. Inmet stockholders also have an option to go for a mix of C$36 cash plus 1.6484 First Quantum shares.
The offer value of C$72 per share is based on First Quantum's share price as of November 23, before its earlier formal proposal was made public. On current prices, it is worth C$70.5 per share.
The cash component of the deal will be financed through a combination of First Quantum's existing cash resources and a $2.5 billion facility that is being arranged specifically to implement the offer, the company said.
(Reporting by Clara Ferreira-Marques in London, Julie Gordon in Toronto and Sakthi Prasad in Bangalore; Editing by Mike Nesbit and Maureen Bavdek)