Lundin Mining forges forward with another merger to get into Tenke Fungurume

April has so far been a very acquistive month for Lundin Mining, and we are not even halfway through yet. Its latest big news is a move to get a share in Tenke Fungurume. On April 4 the company announced a definitive support agreement under which it is offering to acquire all of the outstanding common shares of Rio Narcea. Today Lundin Mining and Tenke Mining announced today that they have entered into a definitive agreement to combine the two companies. 

The Lundin/Tenke transaction will be completed by way of a Plan of Arrangement. At closing, all Tenke common shares will be automatically exchanged on the basis of 1.73 Lundin Mining common shares for each Tenke common share. The consideration to Tenke shareholders pursuant to the Arrangement represents a 31.2% premium over Tenke’s 20 day volume weighted average trading price as at April 10, 2007 based on Lundin Mining’s 20 day volume weighted average trading price on the TSX of $13.51 per share. Lundin Mining shareholders will continue to hold their existing number of common shares.

Tenke holds an interest in the Tenke Fungurume copper/cobalt deposits under development in the DRC as well as extensive copper/gold exploration properties in South America. Pursuant to the Arrangement Tenke will convey its South American assets and cash in the amount of $5 million to a newly-incorporated, wholly-owned subsidiary. The shares of the newly-incorporated company will be distributed to Tenke shareholders pursuant to the Arrangement. Application will be made to list the common shares of the newly incorporated company on the appropriate exchange.

The transaction is conditional upon the Tenke shareholders approving the Arrangement by a 66.7% majority via special resolution as well as other customary conditions and regulatory approvals. Lundin Mining has elected to hold a special shareholders meeting to approve the issue of Lundin Mining common shares pursuant to the Arrangement by a 50.1% majority via ordinary resolution. The special shareholder meetings of Tenke and Lundin Mining to vote on the transaction are expected to be held in mid-June 2007.

The definitive agreement includes a commitment by Tenke not to solicit alternative transactions to the Arrangement. Tenke has agreed to pay a break fee of Cdn $30 million to Lundin Mining in certain circumstances and has granted Lundin Mining the right to match competing offers. Tenke is entitled to a payment of a termination fee in the amount of Cdn $3 million in the event that Lundin Mining’s shareholders do not approve the issue of Lundin Mining common shares pursuant to the Arrangement.

Paul Conibear, currently President and CEO of Tenke Mining, will join Lundin Mining in a senior management position responsible for development of the Tenke Fungurume project. He will also be President and CEO of the newly incorporated company which will hold Tenke’s South American assets.

Karl-Axel Waplan, President and CEO of Lundin Mining: “The Tenke Fungurume project will add enormous value to the company and both Tenke and Lundin Mining shareholders. The mineralization is so extensive, with multiple high-grade copper/cobalt deposits throughout a 1,500 km2 area, that it is virtually an entire mining district unto itself. Lundin Mining is a dynamic, rapidly growing company with an exceptionally strong balance sheet and the addition of one quarter of the world’s richest and largest new copper development creates a powerful player in the mining industry. This deal represents another important step in our plans to develop Lundin Mining into a major global mining house.”

Conibear: “Tenke Fungurume is slated to become ‘the next Grasberg’ or beyond. Combining Tenke’s DRC assets into Lundin Mining will leverage the financial and operating depth of Lundin Mining into the Tenke Fungurume partnership to further strengthen the project. Lundin Mining acquiring an important stake in Tenke Fungurume – one of world’s largest undeveloped copper assets – further advances Lundin Mining as a leading mid-tier player with excellent long life assets. Tenke shareholders will benefit from becoming shareholders of one of the fastest growing base metals companies in the industry, and the spinout of our South American exploration assets is intended to unlock the value of those properties to give them the market exposure they deserve.”

Tenke holds a 24.75% interest in the Tenke Fungurume copper/cobalt deposits located in Katanga Province in the DRC. Tenke’s operating partner, Freeport-McMoRan Copper & Gold (formerly Phelps Dodge), holds a 57.75% interest and La Generale des Carrieres et des Mines, the DRC state mining company, holds the remaining 17.5% interest. Construction is in progress on the project, which entails an open pit mining operation producing initially 115,000 t/y of LME Grade A quality copper cathode and 8,000 t/y of cobalt in any combination of cobalt metal or intermediate cobalt hydroxide. Site infrastructure and process facility layouts have been designed for significant future potential expansions. A 40-year mine plan has been developed. During the first 10 years, 25.5 Mt of leachable oxide ore are expected to be processed grading 4.57% Cu and 0.37% Co. The overall strip ratio is 3.1:1. Drilling continues across the concession, and it is expected that the mine plan will evolve significantly as additional material is brought into the proven/probable category.

The Tenke Fungurume concessions have extensive exploration potential across the project area and a significant drilling programme is in progress to potentially add further proven/probable, high-grade ore reserves to the mine plan and for a potential major plant expansion in the early years of the project.

Capital costs for the initial production facilities are estimated at $650 million, including escalation and other contingencies. Life of Mine cash operating costs are estimated as negative ($0.19)/lb of copper produced, including a $10.00/lb cobalt credit. The feasibility study supports Tenke Fungurume advancing into production within the lowest quartile of unit operating costs for world copper producers, thereby achieving strong project economics with a study base of $1.05/lb copper long term and a $8-12/lb range for cobalt depending on the year under consideration. Construction of the mine is well underway and first copper production is anticipated in late 2008/early 2009.

Lundin Mining is rapidly growing into a major force. Aside from the potential acquisitions through Rio Narcea, the company currently owns four operating mines: Neves-Corvo in Portugal, the Zinkgruvan and Storliden mines in Sweden, and the Galmoy mine in Ireland. A fifth mine under development, Aljustrel in Portugal, will be brought into production in the third quarter of 2007 (IM Januray 2007). Rio Narcea Gold Mines holds a 100% interest in the producing Aguablanca nickel mine in Spain. Lundin Mining also holds a 49% stake in one of the world’s largest zinc projects – Ozernoe, located in the Republic of Buryatia in the Russian Federation. In 2006 Lundin Mining mined 3.9 Mt of ore producing 89,218 t of copper, 171,293 t of zinc, 45,106 t of lead and 2,538,225 oz of silver.