Cash-rich Teck, one of the world's top zinc producers, has been reviewing ways to spend its stockpile of cash over the last nine months. The Aur deal will boost current copper production and new operations under development, balancing its strength in zinc and coal production, Teck said.
"(It) not only gives us immediate growth of 43 percent in our current copper production, but further it also gives us long term growth through project development and expansion and in a country that we believe is one of the very best countries in the world in which to operate in mining, and that is Chile," Teck's Chief Executive Don Lindsay said during a conference call.
The C$41-a-share offer is a 29 percent premium to Aur's closing price on Friday of C$31.70 on the Toronto Stock Exchange.
Just after the open on Tuesday, the stock jumped C$10.28, or 34.6 percent, to C$41.98, suggesting some shareholders saw the possibility of outside bids.
The transaction is expected to be immediately accretive to Teck Cominco's earnings and cash flow per share, it said.
Teck's annual copper output will jump by 342 million pounds, or 72 percent, by 2010, while reserves and resources will jump by 15 billion pounds, or 136 percent.
Teck will pay a maximum of C$3.1 billion in cash and issue a maximum of about 22 million shares. At full pro-ration, Aur shareholders would receive C$30.75 in cash and 0.2187 of a Teck Cominco share per Aur common share.
Teck will finance the deal entirely with cash, and will still have about C$2 billion in cash at the close of the transaction to finance further acquisitions.
"This is certainly not the last step in the transformation of Teck to a high growth company," said Lindsay.
With the transaction, Teck is on pace to triple both its copper and gold production over the next five years, he said.
The company also has assets in the Alberta oilsands, and plans to expand its presence there as it aims for 30-35 percent of its revenue to come from non-London Metal Exchange-traded metals.
For Aur, the share component of the offer will allow shareholders to continue to participate in the future growth of the combined company, said Aur CEO Jim Gill.
Aur's directors have recommended that shareholders accept the offer. The companies have entered a support agreement that says Aur will not solicit any new offers, and that Teck Cominco will have the right to match any bids.
The agreement also includes a break fee of C$140 million to be paid to Teck if Aur accepts a better offer.
Aur's core assets are its 76.5-percent stake in the Quebrada Blanca copper mine in Chile, a 90-percent interest in the Andacollo copper mine and copper-gold deposit being developed in Chile, and 100 percent ownership of the Duck Pond copper-zinc mine in Newfoundland, Canada.
Teck's shares were up 54 Canadian cents at C$45.74