Jaguar Financial, Corriente Master Fund vow to block HudBay-Lundin takeover deal

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HudBay Minerals’ friendly all-cash bid for Lundin Mining is generating an uproar among some of its shareholders.

Author: Dorothy Kosich
Posted: Tuesday , 25 Nov 2008

RENO, NV -

Opposition continues to mount to a proposed $623.4 million deal whereby HudBay Minerals would take over Lundin Mining creating Canada's second-largest base metals miner.

Fort Worth, Texas-based Corriente Master Fund Monday has demanded that the HudBay board of directors investigate the business deal, accusing the HudBay board of committing "an act of gross mismanagement by approving the transaction."

Also on Monday Toronto's Jaguar Financial Corporation announced that the company, along with other HudBay Minerals shareholders holding in aggregate more than 5% of HudBay shares, has requested a special meeting of shareholders to replace the existing HudBay board with nominees proposed by these shareholders.

"In Jaguar's view, such a combination would dilute HudBay's shareholders by 50%, provide Lundin, a nearly insolvent company, with a cash bailout of $136 million, and force HudBay to take on debt of US$240 million," Jaguar said in a statement Monday.

Last Friday, Jaguar announced it intends to make an offer for HudBay and sell off its assets.

Corriente Objections

In a letter sent to HudBay's board, Corriente asserted "the transaction has no possible beneficial effect for HudBay or its shareholders. " Corriente accused HudBay management and its financial advisers "to further their ‘empire building' goals with the company's cash, to the detriment of HudBay's shareholders. " The company also noted that "neither management nor its advisers own any significant equity stakes in the company."

Corriente raised objections to the involvement of GMP Securities relationship as a financial adviser on two separate acquisitions involving HudBay and Lundin. GMP was the financial advisor on HudBay's acquisition of Sky Resources in May. Since that acquisition, Corriente claimed HudBay's stock has fallen 67%.

The fund also noted that since Lundin's acquisition of Tenke Mining in 2007, Lundin's stock has dropped 92%. Both deals were handled by GMP, which is now acting as financial advisor to HudBay on the current deal with Lundin. According to HudBay's agreement with Lundin, each Lundin share will be exchanged for 0.3919 of a HudBay share.

In a statement, Mark L. Hart III, chairman and chief investment officer for Corriente, said, "In this environment, management should preserve capital. Inheriting potentially uncapped, additional capital expenditure commitments is not the best way to do this."

"Many analysts agree with Corriente's sentiments. In today's National Post, analysts at Canaccord Adams, UBS Securities, Blackmount Capital and Wellington West Capital Markets all voiced concerns about the deal and all agreed that it makes little sense for HudBay and its shareholders," the fund said.

In an interview with Bloomberg, David Taylor, a fund manager at Goodman & Co. Investment Counsel in Toronto which holds 9 million HudBay shares, called the HudBay-Lundin deal "absolute shareholder value destruction. ...We're going to do everything in our power to get proper value for our shares."