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Message: Hudbay to purchase Skye Resources

Hudbay to purchase Skye Resources

posted on Jul 13, 2008 01:12PM
HudBay To Buy Fenix Nickel Proj Owner Skye Resources >HBM.T
8:01am ET (Dow Jones Newswires)


HudBay Minerals Inc. (HBM.T) is expanding its base-metals portfolio to include nickel through the acquistion of Skye Resources Inc. (SKR.T), owner of the Fenix Nickel project in Guatemala.

Under the definitive agreement, Skye shareholders will get 0.61 of a HudBay share for each share held. The deal represents a premium of about 17% over Skye's Friday close and about 35% over its 20-day average trading price.

In TSX trading Friday, Winnipeg miner HudBay closed at C$14.79 while shares of Vancouver-based Skye closed at C$7.72.

On closing of the deal, which has the support of both boards, HudBay will have about 160.9 million shares outstanding, of which current HudBay shareholders will own 79.7% and former Skye shareholders will own 20.3%.

Skye's principal asset is the Fenix nickel project, which hosts 41.4 million metric tons of reserves. It's located in eastern Guatemala and is 98.2%-owned by subsidiaries of Skye and 1.8% by the Government of Guatemala.

Skye had started the initial phase of equipment procurement and site preparation for the project and has been exploring alternatives to finance the development of Fenix.

Skye's vice-chairman and chief executive, Colin Benner, said "this agreement merges the world class ferro-nickel Fenix Project with a company with the financial the technical capacity to move it forward rapidly." Benner will become a director of HudBay.

Skye has agreed not to solicit alternative offers and will pay a break-up fee of C$14 million under circumstances should the deal with HudBay not close. Holders of about 27.0% of Skye's outstanding shares have agreed to vote in favor of the transaction.

As part of the transaction, HudBay will acquire about 12,679,266 shares of Skye at C$7.51 each by way of a private placement, for gross proceeds to Skye of about C$95.2 million. The shares represent about 19.9% of Skye's outstanding shares on a pro-forma basis. The financing isn't conditional on completion of the merger.

GMP Securities L.P. and CIBC World Markets Inc. are acting as financial advisers to HudBay, while TD Securities Inc. and Morgan Stanley & Co. are acting as financial advisers to Skye.

Closing is expected in late August.

As reported, UBS Securities Canada Inc. recently cut its rating on Skye to sell, warning that Sky's choice of an energy-intensive smelting process for producing nickel at Fenix was clouding its outlook. UBS analyst Onno Rutten said that, given difficult financing conditions for large-scale mining projects, Skye was most likely to pursue a joint venture with a well-funded partner to develop the project.

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