Teck buys Aur with friendly $4.1B bid

Jim Gill knows Teck Cominco Ltd. as well as almost anyone.

Mr. Gill, the founder and chief executive of copper producer Aur Resources Inc., brought Teck Corp. and Cominco Ltd. in as partners after discovering the Louvicourt metal deposit in Quebec in 1989.

Aur bought the Quebrada Blanca mine in Chile from Teck in 2000, and Mr. Gill sat on Teck's board from 1990 to 2004. Teck chairman Norm Keevil was a director of Aur over the same period.

"When Aur was evolving from a junior exploration company up to where it is today, we looked at the way Teck had grown from when it started out as a very small entity, and we kind of patterned ourselves as a younger version," Mr. Gill, 58, said in an interview yesterday.

So when Don Lindsay, Teck's chief executive, approached him about a potential acquisition, Mr. Gill knew he had a partner he was comfortable with.

The talks led to yesterday's announcement that Teck is buying Aur for a hefty $4.1-billion, or $41 a share.

"Teck Cominco is probably the leading integrated mining company [in Canada] right now," Mr. Gill said. "And it has the added benefit of being Canadian, and it will become a bigger Canadian company after the acquisition of Aur. So there's a bit of patriotism there."

The $41-a-share bid surprised analysts yesterday, who said it was generous even after the recent premiums paid for LionOre Mining International Ltd. and Dynatec Corp.

The offer is 29% above Aur's closing price on Friday.

"It looks like about 5.5 times enterprise value to EBITDA, which is a pretty rich multiple for a mid-tier mining company," said one analyst. "I struggle to see how they arrived at $41 a share, frankly."

Nonetheless, Aur shares closed yesterday at $41.59, as some investors continue to hope for a higher bid.

On a conference call with analysts yesterday, Mr. Lindsay sent an apparent warning to potential bidders by pointing out Teck's massive cash reserves, even though the offer for Aur is both cash and stock. "If there was ever a need to go all-cash, we have the capability," he said.

"This is friendly and Teck does have adequate cash and good paper, so anyone coming in would have to be pretty serious," said Dave Davidson, an analyst at Paradigm Capital.

If any rival bidder emerges, experts said yesterday it would likely be Xstrata PLC. Xstrata already has neighbouring operations in Chile, and is flush with cash after failing to buy LionOre.

The Aur deal raised speculation that the rest of Canada's mid-tier metal producers will eventually be snapped up. Shares of Inmet Mining Corp., HudBay Minerals Inc, FNX Mining Company Inc. and Fording Canadian Coal Trust all leapt following Aur's announcement.

One possible consolidator could be Teck, which is hungry for more. On yesterday's conference call, Mr. Lindsay made it clear that buying Aur is "certainly not the last step in this transformation of Teck to a high-growth company."

He also repeated a previous assertion that he would like as much as 35% of Teck's revenue to come from commodities that do not trade on the London Metals Exchange. The purchase of Aur, which produces LME-traded metals like copper and zinc, means Teck would have to be more aggressive on acquisitions to reach that goal.

"They've talked a lot about iron ore and thermal coal," said an analyst. "To me, the next transaction would come in one of those areas."