HudBay stakeholder says reverse takeover in works

ANDY HOFFMAN

From Saturday's Globe and Mail

December 5, 2008 at 9:19 PM EST

A looming proxy battle between HudBay Minerals Inc. and disgruntled shareholder Jaguar Financial Corp. exploded in a war of words Friday, after the tiny merchant bank levelled allegations that HudBay's buyout offer for Lundin Mining Corp. amounts to a reverse takeover.

Jaguar chief executive officer Vic Alboini said the friendly deal should be considered an effective change of control because Lundin shareholders would have a slight majority of shares in the new company. As well, the Lundin family and company insiders would be the largest single shareholder of the new HudBay with a 10.5-per-cent stake, he said.

“[Lundin chairman] Lukas [Lundin] is going to run this show,” he said Friday.

According to outstanding share data provided by Bloomberg, Lundin shareholders would hold a slight majority of stock in the company. HudBay, however, says its shareholders would have a slight majority because it has more shares outstanding than Bloomberg data indicates because of the recent exercise of stock options.

Jaguar, which holds about 1 per cent of HudBay, has attempted a series of failed takeovers of other companies in the past year. It has requisitioned a shareholder meeting to oust the HudBay board in hopes of stopping the all-stock deal. It may also appeal to the TSX or file a lawsuit over the fact that HudBay shareholders won't get a chance to vote on the offer.

Mr. Alboini even suggested that Lundin could be seen to hold the balance of power on the new company's board. Two of the proposed directors – Colin Benner and Donald Charter – serve on both HudBay and Lundin's current boards.

“Depending on how you slice it, the Lundin nominees are five out of nine seats on the board,” he said.

HudBay chief executive officer Allen Palmiere dismissed Mr. Alboini's statements when he was asked about them on a conference call with reporters.

“You can be attacked. You can fabricate and formulate objections to just about anything. In this particular transaction, I find it very difficult to see how this can be construed as a related-party transaction.”

Mr. Benner, a former CEO of Lundin and Mr. Charter, the former head of Dundee Securities, were not involved in the deal discussions, he said.

“What [Mr. Alboini's] allegation is predicated on is the fact that board members do not have independence… . That is completely erroneous,” Mr. Palmiere said.

According to securities rules, HudBay does not have to hold the special meeting requested by Jaguar before the Lundin deal closes. Even if a new board were appointed, HudBay said it is legally bound to follow through on the offer.

In a recent interview, Lukas Lundin said the deal will strengthen HudBay and Lundin to “survive” the market meltdown. Lundin will better its cash position while HudBay gains solid assets and an improved development pipeline. Mr. Lundin said HudBay won't be considered to be among the Lundin group of companies. “I'll be there helping it out as much I can,” he said.

HudBay Minerals (HBM)

Close: $3.55, up 15¢

Lundin Mining (LUN)

Close: $1.05, up 7¢