Proposed Merger Announced
HudBay Minerals and Lundin Mining have announced their intent to combine their business to create a new major Canadian company in the global mining industry.
We believe completion of the transaction will result in the following benefits to shareholders:
- We will have created a Canadian-based, globally diversified mining company.
- We will have excellent producing assets by combining two high quality asset portfolios
- We believe we will be able to exploit excellent near-term development opportunities and a growing exploration pipeline more effectively.
- We expect we will have superior balance sheet strength and strong cash flow; and
- We will be able to leverage the international experience of a combined management team to deliver enhanced value to our shareholders.
Strong Cash Position
In addition, the transaction structure is designed to ensure the cash of both HudBay and Lundin remain inside the combined company; on a pro-forma basis new HudBay will have cash on hand of approximately $900 million and total debt and capital leases of approximately $300 million. As a result, we believe new HudBay will continue to have the financial strength to weather a turbulent market, as well as the financial resources to operate and develop its tremendous suite of assets.
Enhanced Stature
At the conclusion of the transaction, HudBay shareholders will have an ownership stake in the third largest diversified mining company listed on the Toronto Stock Exchange. With a pro-forma market capitalization of approximately $1 billion, the new HudBay will be among the top ten of its global mining peers.
We believe new HudBay will have a very strong net cash position compared to TSX listed companies in its peer group. The combined EBITDA of the two companies for the first nine months of 2008 was $575 million, with combined cash flow of more than $367 million.
The new HudBay will be the third largest base metals company in Canada, with a global portfolio of producing assets on two continents, as well as a strong growth pipeline that includes a share in the world-class Tenke Fungurume project in the Democratic Republic of Congo and the equally promising Fenix project in Guatemala.
Most of new company’s near-term production will come from Canada, Portugal and Sweden – all jurisdictions demonstrating low political risk.
Increased Operating Scale
Also with the merger comes a major increase in operating scale—now at 170,000 tonnes of copper production on a pro forma basis and growing, with the development of our Tenke Fungurume project and other sites in our pipeline.
Tenke is a near-term world-class project with extraordinary upside potential of more than 400,000 tonnes per annum of copper production within seven years of startup.
Strengthened Resource Base
At the conclusion of the transaction, we will see a major strengthening of HudBay’s resource base, with contained reserves for zinc more than tripling, and contained reserves for copper roughly doubling, on a pro forma basis. With respect to contained measured and indicated resources, we will see a four-times increase in our zinc and an eight-times increase in our copper resources.
The asset mix of the combined company will be relatively unchanged: roughly 60% copper, close to 30% zinc, and the balance spread among gold, silver, nickel and lead.
As a result of this proposed merger, HudBay will become a stronger company, with great financial strength and global reach.
Transaction Details
Upon completion, each Lundin common share will be automatically exchanged for 0.3919 HudBay common shares, and Lundin will become a wholly-owned subsidiary of HudBay.
In connection with the transaction, HudBay and Lundin have entered into a letter agreement through which HudBay has agreed to lend Lundin approximately $136 million on a subordinated basis, which Lundin will use for general corporate purposes. Completion of the loan is subject to satisfaction of certain customary conditions.
HudBay and Lundin have also entered into a subscription agreement that calls for HudBay to acquire approximately 97 million common shares of Lundin, representing about 19.9% of Lundin's outstanding common shares, at a price of $1.40 per share for gross proceeds of approximately $136 million to Lundin. The proceeds from the private placement will be used to repay the loan to Lundin, so HudBay’s total investment in Lundin prior to completing the arrangement will not exceed $136 million.
On completion of the transaction, HudBay will have approximately 306 million common shares outstanding. Current HudBay and Lundin shareholders will each hold an approximate 50% ownership of the new HudBay.
Transaction Summary
Through this proposed merger, we are creating a globally diversified mining company based in Canada, that
- Owns excellent producing assets in stable jurisdictions
- Has combined two high quality asset portfolios
- Can more effectively exploit excellent near-term development opportunities and a growing exploration pipeline
- Demonstrates superior balance sheet strength and strong cash flow; and
- Can leverage the international experience of a combined management team to deliver enhanced value to its shareholders.
In addition, the transaction structure is designed to ensure the cash of both HudBay and Lundin remains inside the combined company.
We believe the new company will become a Canadian leader in the global mining sector, with the management team, financial resources and international expertise in place to build long-term shareholder value.