HudBay Minerals (HBM.TO: Quote) said on Monday it had terminated its agreement to acquire Lundin Mining (LUN.TO: Quote), currently valued at about C$731.6 million ($585.3 million), as it believes its shareholders would not approve the deal given current market conditions.

The Canadian companies had hoped to close the takeover by Jan. 28, but an Ontario Securities Commission (OSC) ruling last month that HudBay must allow its shareholders to vote on the plan made it increasingly unlikely the deal would go through.

HudBay's shares fell sharply after the takeover was announced in November. Some stakeholders, including major shareholder SRM Global Master Fund, had voiced opposition.

SRM and Corriente Master Fund launched a proxy battle to replace HudBay's board, while another shareholder Jaguar Financial (JFC.TO: Quote) launched the OSC challenge that led to the ruling that HudBay must hold a shareholder meeting.

HudBay said it would retain the 19.9 percent ownership stake in Lundin, which it acquired in December 2008.

After hearing from many of our shareholders over the last three months and considering the market reaction to the OSC decision, we believe this is in the best interests of the company and its stakeholders in the current circumstances, HudBay's Chief Executive Allen Palmiere, in a statement.

Both Canadian companies mine copper and zinc -- prices of both metals have plunged in the global economic slowdown. However, HudBay had previously argued the deal would give it access to Lundin's European mines, as well as a stake in the massive Tenke-Fungurume copper deposit that is being developed in the Democratic Republic of Congo.

HudBay had planned to issue 153 million shares to pay for Lundin -- this had become a bone of contention with HudBay's shareholders as it would have doubled HudBay's issued shares.

Shareholders of Lundin had voted 99.7 percent in favor of the friendly all-stock takeover, which at Monday's closing price valued Lundin at about C$731.6 million.

However, Lundin's market capitalization plunged to well below the implied value of the HudBay offer after the OSC ruling, indicating that Lundin's shareholders did not see the deal getting approved by HudBay's shareholders. HudBay's shares rose sharply after the ruling.

HudBay shall have a right of first offer in the event of any proposed sale or transfer of material assets of Lundin during the six month period following the termination date of the merger agreement.

The companies said neither party shall have to pay termination fees to the other, in connection with the terminated agreement.

HudBay had offered 0.3919 of a HudBay share per Lundin share, or C$1.87 per Lundin share based on Monday's closing price. Lundin shares closed down 1 cent at 80 Canadian cents on the Toronto Stock Exchange, while HudBay closed up 11 Canadian cents at C$4.78.

HudBay said it will not ask its shareholders to approve the deal at the previously announced special meeting of shareholders scheduled for March 25.

However, the shareholders at the meeting will consider the removal of HudBay's existing board of directors, in favor of the slate proposed by SRM Global and Corriente Master Fund. ($1= $1.25 Canadian) (Reporting by Euan Rocha; Editing by Anshuman Daga)

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