Credit Suisse has a Neutral rating and $85 target price on Inmet
Mining Corp (IMN.TO) on its proposed merger with Lundin Mining
(LUN.TO) and plans to create a $9Bln Symterra Corp. IMN is up 5.5%
at $78.90 having earlier equalled a year high of $82.00.
Event: "IMN and Lundin have announced an agreement to merge,
creating a new entity to be named Symterra Corp. Under the terms,
each IMN share will be exchanged for 3.4918 Symterra shares and
each LUN share will be exchanged for 0.3333 Symterra shares. If
approved, the combination creates a $9Bln Canadian base metals
producer able to rival First Quantum (FM.TO) in terms of market
capitalization and liquidity and offers investors high leverage to
copper and zinc prices. The transaction reflects no premium merger
over IMN's and LUN's 30-day VWAP."
View: Positive; combined entity attractively valued at 0.86x on
P/NAV and better able to fund growth projects. "In our view,
primary rationale for the deal was the need for a large balance
sheet to fund projects such as Cobre-Panama and Tenke Fungurume
expansion. We estimate an NAV for Symterra of $26.28/share,
implying an attractive valuation vs the peer group of Canadian
copper plays, including First Quantum (0.93x) and Quadra-FNX Mining
(QUX.TO at 0.71x)."
Catalyst: "Tenke Fungurume and Cobre Panama form the building
blocks for significant growth in copper production. With
development of Cobre Panama and attributable copper from possible
expansions at Tenke Fungurume, Symterra will produce ~500Kt of
copper annually by 2017 at costs within the lower half of the
global copper cost curve. The transaction is not without its risks
though, as we are concerned that management's focus turns away from
the ramp-up challenges at IMN's Las Cruces mine, a continued
discount in the market for IMN's Cobre-Panama project due to large
capital costs, execution risks and challenging economics, and
capital requirement for LUN's portion (30%) of expansions at Tenke
Fungurume."
Valuation: "Maintain Neutral; our TP of C$85 is based on a 60/40
weighting of 1x our NAV estimate of C$85/share and 6x FY11/12
EV/EBITDA."