HudBay Low Bid for Arizona Copper Invites Rival Offer: Real M&A – by Tara Lachapelle (Bloomberg News – February 11, 2014)

The prospect of mining copper in Arizona has traders lining up bets that Augusta Resource Corp. (AZC), the target of an unsolicited bid by HudBay Minerals Inc. (HBM), will win a higher offer.

Shares of Vancouver-based Augusta rose 15 percent above HudBay’s all-stock bid, which was valued yesterday at C$2.78 a share, or about C$440 million ($400 million) including net debt. The gap, one of the widest among pending North American deals in which traders expect bidding wars, indicates investors are anticipating a boost from HudBay or another suitor.

Augusta’s Arizona copper project is in the last stages of attaining necessary permits. Laurentian Bank of Canada said it’s large enough to attract other producers including OZ Minerals Ltd. (OZL) and Teck Resources Ltd. (TCK/B) and estimates the company’s value is at least C$3.89 a share based on similar deals. Freeport-McMoRan (FCX:US) Copper & Gold Inc., based in Arizona, is another possible suitor with the financial (FCX:US) strength to outbid HudBay, according to National Bank Financial.

“The market expects that this may be the initial offer and Augusta could negotiate better terms,” Shane Nagle, a Toronto-based analyst at National Bank, said in a phone interview. “It’s a high-quality asset. There is room certainly to sweeten the offer.”

Letitia Cornacchia, a spokeswoman for Augusta, declined to comment. HudBay’s Scott Brubacher also declined to comment on whether the Toronto-based company would raise its offer.

Offer Terms

HudBay, which already owns 16 percent of Augusta, said Feb. 9 that it will offer 0.315 a share for each Augusta share. Based on HudBay’s closing price Feb. 7, the bid was valued at C$2.96 a share, which it said represented a 62 percent premium to Augusta’s 20-day volume-weighted average price.

HudBay slumped 6.1 percent yesterday after making its proposal public, dragging down the value of its bid. The company previously held takeover talks with Augusta starting in 2010, HudBay said in a statement dated yesterday. Talks continued during 2011 through 2013, before HudBay decided to make an offer directly to Augusta shareholders, it said.

Merger-arbitrage traders pushed Augusta’s stock price up to a close of C$3.20 yesterday, giving the deal a spread that exceeded almost every other pending transaction in North America, according to data compiled by Bloomberg.

Today, Augusta shares gained 2.2 percent to C$3.27, and HudBay rose 1.8 percent to C$8.99.

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