Alpayana poised to let Sierra takeover bid die

Peru’s Alpayana said it’s prepared to let its revised bid for Sierra Metals (TSX: SMT) expire in two weeks after the Canadian miner urged shareholders to turn down the takeover.

Toronto-based Sierra said Wednesday that its board had unanimously recommended shareholders reject Alpayana’s C$1.11 a share offer by not tendering their shares. It called the bid “opportunistic,” saying it undervalues the company and remains “significantly below” the valuations seen in comparable transactions. BMO Capital Markets, Sierra’s financial adviser, deemed the proposal to be “inadequate.”

Family-controlled Alpayana last week raised its unsolicited offer for Sierra by 31%, saying it was “uniquely positioned” to cut costs at the Canadian miner and “eliminate” its debt. Sierra – which operates two copper mines, Peru’s Yauricocha and Bolivar in Mexico – has cut costs by boosting mill capacity while benefiting from higher copper and gold prices.

“We recognize that shareholders rely on the recommendations of boards and financial advisors particularly in vulnerable situations in highly volatile environments regardless if competing offers are absent,” Alpayana said Thursday in a statement.

The bid, which is set to expire April 25, was designed to “provide an opportunity for Sierra shareholders to exit their investment at a significant premium in very uncertain times and despite Sierra’s vulnerable situation,” Alpayana CEO Fernando Arrieta said in the statement. “Regardless of the outcome, Alpayana wishes the employees and shareholders of Sierra Metals all the best.”

‘Best and final’

The Peruvian miner stressed it has no intention of bidding more than C$1.11, calling the offer “best and final.” Alpayana plans to focus instead on “actionable inorganic opportunities that are currently available in this volatile global environment,” it said without providing specifics.

Sierra shares rose 1.2% to C$0.87 in early afternoon Toronto trading Thursday, giving the company a market value of about C$184 million. The stock has ranged between C$0.62 and C$1.05 during the past year.

Selling out to Alpayana is not in the best interests of the company or its shareholders, Sierra chairman Miguel Aramburu said.

“Alpayana continues to offer an inadequate price that undervalues Sierra Metals and does not reflect full and fair value,” Aramburu said in a statement. “The board believes there is far greater value inherent in the company’s assets, particularly in light of our strong financial and operating performance.”

Earnings target

The improved proposal indicates a “lack of success in persuading shareholders to tender their common shares to the initial offer price of C$0.85 a share,” Sierra said. None of Sierra’s directors or officers intend to tender their shares, the company added.

Sierra also reaffirmed a previously disclosed goal of boosting earnings before interest, taxes, depreciation and amortization by 75% to about $130 million this year.

Attempts by Alpayana to cast doubt on Sierra’s financial outlook are “misleading and fail to recognize the significant operational and financial turnaround delivered by the company over the past two years,” Sierra said.

In the meantime, Sierra said its special committee is working with external financial and legal advisors to evaluate “a range of strategic options” for the company. The “robust” process aims to maximize long-term value for all shareholders and stakeholders, Sierra said. Recommendations will be announced at a later date.

Alpayana, which has been operating mines in Peru for over 38 years, has no debt and more than $500 million in annual revenue. Its controlling shareholders are minority investors in Minera Corona, Sierra’s Peruvian unit.