ZCCM invests US$30 million in Equinox

State-owned Zambia Consolidated Copper Mines’ 86.6%-owned subsidiary ZCCM Investments Holdings has agreed to subscribe to US$30 million worth of shares in African copper developer Equinox Minerals (EQN-T, EQXMF-O).

ZCCM will buy its first batch of US$15 million worth of shares by the end of March. The price will ring in at 1.2 times the issue’s volume-weighted average trading price in Toronto during the five preceding business days. The price of the second batch, to be bought by the end of June, will be calculated the same way but at a multiplier of 1.15 times.

Also under the deal, ZCCM will nominate one member to the board of Equinox’s Zambian subsidiary.

The net proceeds of the offering will be used to help fund development of Equinox’s Lumwana copper project in Zambia, and for exploration and general working capital.

“This investment in Equinox by ZCCM facilitates Zambian investment participation in the Lumwana Project, emphasizing the importance of the development of the Project to the Republic of Zambia,” said Equinox chief executive Craig Williams in a prepared statement.

Late last month, Equinox adopted a shareholders’ rights plan designed to thwart any potential hostile takeover offer. The rights become exercisable upon a company or group announcing an unsolicited bid to acquire at least 20% of Equinox. All shareholders — except the hostile bidders — would be entitled to exercise their rights to purchase a common share at a substantial discount to the going market price. Shareholder approval will be sought at the company’s next annual meeting.

The move comes as Equinox nears construction at its Lumwana project, 65 km west of Solwezi. The project is home to reserves totalling 212 million tonnes grading 0.82% copper in two pits: Malundwe, with 95 million tonnes at 0.97% copper, and Chimiwungo, with 117 million tonnes at 0.69%.

A revised feasibility completed late last year envisages a 20-million-tonne-per-year, dual-pit mining operation to produce concentrates. The pits would operate for at least 17 years.

Average life-of-mine copper production would weigh in at 150,000 tonnes per year; during the first five years production would hit 188,000 tonnes as higher-grade zones are mined. At a copper price of US$2,200 per tonne, payback of the US$807-million price tag would come in 4.6 years. Life-of-mine operating costs are estimated at US$1,540 per tonne, before gold and cobalt credits.

In mid-December, Equinox inked a development agreement with Zambia that provides a 10-year stability period during which Equinox will be subject to a corporate tax rate of 25% and a mineral royalty of 0.6% of gross product. The deal also includes deferral of some customs and excise duties and imposts.

More recently, the company stuck a deal that will see Zambia’s electrical utility Zesco design and build a 65-km, high-voltage (330-kV) transmission line from the Kansanshi substation at Solwezi to the Lumwana mine site. The mine will need around 65 MW of power in the early years, climbing to around 150 MW, with the addition of smelting capacity. Zesco will supply most of that power under a 15-year agreement. The line is scheduled for commissioning in the third quarter of 2007.

Equinox has lined up a joint venture of Australia’s Ausenco International and South Africa’s Bateman Minerals and Metals to complete detailed engineering for Lumwana. The pair will submit an engineering, construction and procurement contract by the end of the first quarter. The contract will allow Equinox to finalize the debt-funding portion of the project development capital. Thereafter, a final EPC will be inked in the second Quarter of 2006.

Concentrate offtake deals have already been arranged with Palabora Mining, an affiliate of Rio Tinto (RTP-N, RIO-L), and Ongopolo Mining and Processing. The company is also in negotiations with Mopani Copper Mines, a joint venture between Glencore International, First Quantum Minerals (FM-T) and Zambian Consolidated Copper Mines.

Work at Lumwana is being funded by a recent $144.7-million equity deal that saw the underwriters exercise some 22.2 million over-allotment options. The Canadian portion of the financing involved the issue of 147.7 million shares at 80 apiece, with another 11.1 million shares sold at A92 each in Australia.

Equinox hopes to have financing for Lumwana squared away by mid-2006. Construction would begin quickly thereafter, with commissioning conceivable by late 2007.

The private placement is subject to approval by the Toronto Stock Exchange. The news sent shares in Equinox 14, or 10%, higher to $1.54 in afternoon trading in Toronto on Mar. 22.