Lundin Breaks Off Deal With Inmet, Prepares Defense Vs Equinox

Lundin Mining Corp. (LUN.T) and Inmet Mining Corp. (IMN.T) broke off their planned merger of equals Tuesday, after a rival hostile takeover offer for Lundin increased the pressure on Inmet to raise its offer.

At the same time, Toronto-based Lundin Mining prepared to defend itself from the hostile takeover offer made last month by Equinox Minerals Ltd. (EQN.T), another Toronto-based copper miner with operations near Lundin's in central Africa.

Lundin will pay a fee of C$120 million to Inmet Mining for breaking off the merger deal reached in January. In a joint statement, Lundin and Inmet said they "agreed to mutually terminate the agreement on the grounds that we could not reach a position that we thought would be supported by both companies' shareholders."

The merger with Inmet would have created a C$9 billion copper giant focused on developing Inmet Mining's giant Cobre Panama project in Panama. Inmet needs a partner to help finance the development of the roughly $5.5 billion project.

Lundin's shareholder rights plan gives each Lundin shareholder the right to buy an additional share at a low price if any group buys more than 20% of Lundin's stock, making it substantially more difficult and costly for the company to be acquired. The rights plan expires on May 31, but can be cancelled earlier by Lundin's board if it reaches an agreement with a potential acquirer.

"Our hands have been completely tied in defending against the low-ball, risky Equinox bid because of the Inmet agreement," Lundin Chairman Lukas Lundin said in a statement. "Having agreed to terminate with Inmet, we can now pursue new alternatives to significantly improve shareholder value and get a proper premium if we do a change-of-control transaction."

Lundin said a merger with Equinox is undesirable because the C$3.2 billion in debt Equinox would take on would burden the combined company with too much debt. It also said the deal would increase the company's exposure to geopolitical risks of Equinox's assets in Zambia and Saudi Arabia, and that Equinox's offer was opportunistic and undervalued Lundin.

An Equinox spokesman wasn't immediately available to comment.

One of Lundin's most attractive assets is its 30% stake in the Tenke Fungurume copper cobalt mine in the Democratic Republic of the Congo, majority owned by Freeport-McMoRan Copper and Gold Inc. (FCX). It also has copper, zinc, lead and nickel mines in Portugal, Sweden, Spain and Ireland.

On the Toronto Stock Exchange, Lundin shares closed Tuesday at C$7.59; Equinox shares closed at C$5.48.

-By Edward Welsch, Dow Jones Newswires; 403-229-9095; [e-mail]