Following a day of examination,
Adastra is sticking to its previous assertion that the bid “significantly undervalues the company.” This time, the rejection is backed up by M&G Investment Management, the company’s largest shareholder at 14.8%, company founder Jean-Raymond Boulle, with a 7.7% stake, and Merrill Lynch Investment Managers, which holds a 5.2% interest. Adastra says it also has the support of other major shareholders that together own more than half of its issued share capital.
N.M. Rothschild & Sons is acting as Adastra’s financial advisor on the takeover offer.
Originally launched on Jan. 18, 2006, First Quantum’s bid remains unchanged at one of its own shares in exchange for every 17.5 Adastra shares tendered. It will remain open until Mar. 10, 2006. Adastra plans to mail its formal recommendation, along with its reasons, to shareholders by Feb. 17.
First Quantum’s bid represents a 24% premium over Adastra’s closing share price in Toronto on Jan. 17 — the day before the offer. The implied offer price also represents a 31% premium over the $1.70-per-share equity financing completed by Adastra in December. In all, the bid is valued at $189 million.
First Quantum chief executive Philip Pascall says Adastra’s financing was priced well below the offer level suggested in failed merger talks held between the two sides in November. He also says that his company will petition securities regulators to set aside Adastra’s recently adopted shareholders’ rights plan, calling it “an unnecessary delaying tactic.”
Pascall concludes: “Ours is a compelling offer at full and fair value, and we will be asking securities regulators to set aside the shareholders’ rights plan.”
Key to the deal is Adastra’s 65% stake in the Kolwezi copper-cobalt tailings project in the Democratic Republic of the Congo (DRC). 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. A definitive feasibility study is slated for delivery in the first quarter of 2006.
Adastra recently mandated South African state-owned Industrial Development Corp. and Investec Bank to arrange US$80 million to US$120 million in financing for the Kolwezi.
“This is another major contribution to the project financing of Kolwezi,” says Adastra’s chief executive Tim Read. “As this shows, we are not allowing the recent opportunistic bid made for Adastra to deflect us.”
Read says the South Africa export credit tranche to be arranged by IDC and Investec will cover around 30% of the project’s total capital requirements in addition to the 20% previously arranged.
A definitive feasibility study by Murray & Roberts and GRD Minproc Minerals is expected in the first quarter of 2006. Pending a positive outcome, construction could begin before the end of 2006, with first production by mid-2008.
Adastra recently posted a net loss of US$2.6 million (or US4 per share) for the year ended Oct. 31, 2005, compared with a year-ago loss of US$4.2 million (US6 per share). At the end of October 2005, it had cash and equivalents totalling US$5.6 million, down from the year-ago US$16.3 million.
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 the DRC holds a 5% stake, while state-owned Gcamines retains a 12.5% interest. Adastra received US$12 million via the IFC and IDC investment.
Adastra shares finished 21 better at $2.80 in Toronto following its formal rejection on Feb. 3; First Quantum was off $1.76 at $40.24, making its bid worth $2.30 per Adastra share.
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