First Quantum Rises On $260M Offer For Kiwara

VANCOUVER — Dipping into its US$800-million treasury, First Quantum Minerals (FM-T) is buying Zambian base metals explorer Kiwara (KWR-J) in a cash-and-shares deal worth US$260 million. Investors happy with the move lifted First Quantum’s share price more than 6% on the news.

Kiwara shareholders will receive 0.0085 First Quantum shares and 0.375 for every Kiwara share held. The offer implies a purchase price of 0.75 per Kiwara share, based on an agreed market price of 43.68 for each First Quantum share on the London Stock Exchange. The price represents a 41.5% premium over the closing price of Kiwara shares on London’s Alternative Investment Market (AIM) board on Nov. 20th.

In total, the transaction is valued at US$260.2 million. If approved by Kiwara shareholders and by regulators, the deal will require First Quantum to issue 1.9 million shares.

Approval from Kiwara shareholders is essentially in the bag, as First Quantum has already locked up support from directors and major shareholders representing 76% of Kiwara’s issued share count. Kiwara’s board of directors has unanimously recommended shareholders vote in favour of the offer because, as described by Kiwara chairman Colin Bird, the company’s main asset “has potential well in excess of our current resource capability. The transaction with First Quantum puts the project into a management team with a proven track record to implement major projects on time and to specification.”

That major project is Kalumbila, a large land package on the edge of the Kabombo Dome in Zambia’s North Western province. Kiwara started exploring the Zambian Copper Belt project in 2007 and soon identified near-surface copper mineralization.

By early 2009, the company had defined a sizable initial resource: 1.45 billion inferred tonnes grading 0.76% copper and 0.04% nickel, at a 0.3% copper cutoff grade. When no cutoff grade is applied, the resource climbs to 3.76 billion inferred tonnes averaging 0.37% copper.

In October, Kiwara started a prefeasibility study for the Kalumbila deposit. The study is focusing on the economics of developing an open-pit mine in the centre of the mineralized zone, which in total extends over 4 km of strike and to 450 metres depth, starting at surface. The company is also working through an infill-drilling program to increase the resource confidence from inferred to indicated; once the infill program is complete, expansion drilling along strike will resume.

The Kalumbila licence area also includes the Kawako nickel prospect and the Kawanga uranium prospect. Limited exploration efforts at both have returned promising results.

The Kalumbila project fits into the First Quantum fold well, as the company already operates or holds interests in half a dozen Zambian operations, as well as several in the neighbouring Democratic Republic of the Congo.

First Quantum’s assets in Zambia include an 80% stake in the Kansanshi open-pit copper- gold mine and full ownership of the Fishtie copper mine and the Bwana Mkubwa solvent extraction-electrowinning facility and sulphuric acid plant. The major has a 17% stake in privately held Mopani Copper Mines, which operates the Nkana underground copper mine and cobalt refinery, as well as the Mufulira underground copper mine, smelter and refinery. It also owns 16% of Equinox Minerals (EQN-T), which owns and operates the Lumwana copper mine there.

First Quantum shares gained $4.71 or 6.2% on news of the Kiwara deal to reach a new 52-week high of $80.11. A year ago, First Quantum shares could be had for $13.01. The company has 78.5 million shares outstanding.