Equinox turns to Saudi Arabia

Equinox Minerals (EQN-T, EQN-A) wants to cement its position as a leading independent pure-play copper producer and it believes its $1.25-billion friendly takeover offer of Citadel Resource Group (CGG-A) will do just that.

Citadel owns the Jabal Sayid copper-gold development project, in western Saudi Arabia — a project that, once in production, would make the acquisition accretive to Equinox on a cash-flow basis.

When combined with Equinox’s Lumwana copper mine in Zambia, the merged company would have a growth pipeline that could deliver 260,000 tonnes per year of copper within four years,

The deal that Citadel shareholders are set to vote on would see them get one Equinox share for every 14.3 Citadel shares, plus 10.5¢ in cash for each Citadel share. That works out to Equinox paying 52¢ per share, which is a 21% premium to Citadel’s volume-weighted average price over the 10 days before the offer was announced.

Equinox shareholders would hold roughly 81% of the combined company, while Citadel shareholders would hold the remainder.

Citadel’s board and some key Citadel shareholders have entered into pre-bid acceptance agreements with Equinox. Those interests represent 19.9% of Citadel’s outstanding shares.

“Equinox has been following Citadel’s progress in Saudi Arabia for some time,” Equinox’s chairman Peter Tomsett said in a statement. “Citadel also holds an exciting portfolio of exploration properties in Saudi Arabia, having established itself as a ‘first mover’ in this under-explored region.”

Jabal Sayid hosts a volcanogenic massive sulphide deposit with a measured and indicated resource of 37.5 million tonnes grading 2.2% copper for 827,000 tonnes copper.

Citadel completed a feasibility study in December 2009, and then received a mining licence for the project in May of this year, which allowed it to begin construction.

The mine is expected to go into production in late 2011, with an average life of mine copper production target of 57,000 tonnes per year over 10 years. Capex is estimated at US$305 million, and once copper production begins, cash costs are expected to come in at US91¢ per lb. That figure is similar to the Lumwana project and is roughly half the industry’s average cost.