Adastra soars on First Quantum bid

Shares in London-based Adastra Minerals (AAA-T, AAA-L) jumped as much as 89, or 49%, to $2.69 in Toronto on Jan. 18, after copper producer First Quantum Minerals (FM-T, FQM-L) unveiled an unsolicited all-share takeover bid valued at $189.3 million.

First Quantum is offering Adastra shareholders one of its own shares in exchange for every 17.5 Adastra shares tendered. The exchange ratio represents a 24% premium over Adastra’s closing share price in Toronto on Jan. 17 — the day before the deal’s announcement.

The scheme would see Vancouver-based First Quantum issue around 4.9 million shares, brining the company’s total share count to around 66.6 million. When the dust settles, existing First Quantum shareholders would own around 93% of the enlarged company.

The offer will remain open for 35 days, and is conditional on at least two-thirds of Adastra’s shares being tendered. If it reaches that acceptance level, First Quantum plans to acquire the balance of Adastra’s outstanding shares. The plan is also subject to regulatory approvals.

Adastra has advised its shareholders to take no action until its special committee has had time to consider the bid and formulate a response. The committee will do so under a shareholder-rights plan adopted in early December. The plan is designed to give the company sufficient time to evaluate takeover bids and explore alternatives.

“We believe our offer represents full and fair value and reflects the benefits of expected synergies from the deal,” said First Quantum’s chief executive Philip Pascall in a prepared statement. “First Quantum’s shares provide a significantly lower risk profile and better liquidity for Adastra shareholders.”

Adastra’s key asset is the Kolwezi copper-cobalt tailings project in the Democratic Republic of the Congo. The project centres on two tailings dams containing a resource of 112.8 million tonnes of oxide tailings grading 1.49% copper and 0.32% cobalt. The dams are left over from the mineral concentrator facility in Kolwezi, which processed high-grade ore from the Kov and other nearby mines from 1952 onward.

Adastra initially envisages annual production of 5,500 tonnes cobalt and 30,000 tonnes copper over a 53-year mine life. Cash costs are expected to be among the lowest in the world. The plan carries a price tag of around $300 million. Alternatively, Adastra says the resource is also capable of supporting double that annual production rate for 29 years.

Murray & Roberts and GRD Minproc Minerals are expected to deliver a definitive feasibility study in the first quarter of 2006. The company also plans to finalize an environmental and social impact assessment (ESIA) compliant with World Bank standards by year-end. The DRC’s Ministry of Mines approved an existing ESIA in August.

The feasibility study and ESIA are slated for completion in March 2006. Both are being funded via a $10.2-million private placement involving 6 million class A shares at $1.70 apiece in late December.

The company is also in advanced talks aimed at lining up a power contract; work on a long-term offtake deal for the project’s cobalt and copper continue. If all goes to plan, construction would begin in the second half of 2006, with first production conceivable by mid-2008.

Adastra also recently secured subsurface exploration rights at Kolwezi. The 5-year, renewable licence covers the entire 62-sq.-km project area, including the formerly producing Kingamyambo, Kananga West, Kananga East and Clippe Nord deposits.

Adastra is planning an exploration campaign on several copper and cobalt targets.

Adastra owns a 65% stake in Kingamyambo Musonoi Tailings (KMT), which owns the Kolwezi project. International Financial Corp. (IFC), the financing arm of the World Bank, and Industrial Development Corp. of South Africa (IDC) recently exercised KMT warrants good for 7.5% and 10% interests, respectively. The government of DRC holds a 5% stake, while state-owned Gecamines retains a 12.5% interest. Adastra received US$12 million via the IFC and IDC investment.

Pascall said his company’s extensive experience in developing, financing and operating mines and tailings projects in the DRC’s Copperbelt region would enable it to develop Adastra’s projects, especially Kolwezi, in an “economical and expeditious manner”.

Adastra is also developing the Kipushi copper-zinc project elsewhere in the DRC. The mine operated from 1925 until 1993. It is home to a National Instrument 43-101-compliant measured and indicated resource of 16.9 million tonnes averaging 16.7% zinc and 2.3% copper. The resource remains open along strike and downdip.

In September, Adastra renewed its joint venture agreement with Kumba Base Metals for the potential redevelopment of Kipushi. The partners are in the midst of a technical and economic review in anticipation of a feasibility study and environmental and social impact assessment. The reassessment was to have been completed in November.

Bigger footprint

First Quantum already owns the Lonshi open-pit copper mine in the DRC. The operation provides oxide copper feed for its Bwana Mkubwa solvent extraction-electrowinning (SX-EW) plant in Zambia. Its DRC assets also include the newly discovered Frontier copper-cobalt deposit, and 11,000 sq. km worth of exploration rights.

Elsewhere in Zambia, the company holds an 80% interest in the Kansanshi open-pit copper-gold deposit. It holds a similar stake in the developing Guelb Moghrein copper-gold deposit in Mauritania.

Shares in First Quantum ended $1.29, or 3.3%, lower at $37.65 in Toronto following the news on Jan. 18. The shares trade in a 52-week range of $17.49-$39.24. For their part, Adastra shares eased slightly to finish 79, or 44%, better at $2.59. That’s still better than the implied value of the proposed deal at $2.23, suggesting investors may anticipate a richer bid.