Sudbury miner FNX Mining Company Inc. (TSX:FNX) and Vancouver-based Quadra Mining Inc. (TSX:QUA) have agreed to a merger of equals, creating an intermediate copper producer to be named Quadra FNX Mining Ltd.
"Anything that we ever contemplated doing, we have more ability to do so now," said FNX Chairman and CEO Terry MacGibbon in a conference call with investors.
"This bulked-up Quadra FNX company provides a fabulous combined skill set to be able to do any operation just about anywhere in the world, including Sudbury."
With a combined market capitalization of $3.5 billion and $550 million in cash, the new company will draw on the specialized abilities of both firms, said MacGibbon. This includes the open mining and metallurgical expertise of Quadra, and the underground mining and exploration talent of FNX.
Following the merger, the new company will be owned 48 per cent by FNX shareholders and 52 per cent by shareholders of Quadra, whose assets include the copper-gold producing Robinson Mine in Nevada and the producing copper cathode Carlota Mine in Arizona.
"This bulked-up Quadra FNX company provides a fabulous combined skill set to be able to do any operation just about anywhere in the world, including Sudbury."
Terry MacGibbon,
CEO, FNX Mining
Quadra also holds a copper cathode Franke Mine in northern Chile. It also holds the Chile-based Sierra Gorda advanced exploration copper-molybdenum project where a scoping study has outlined 25-year mine life and 18-billion pounds of copper resources.
The merger also provides the new company with FNX's Sudbury-area Podolsky, Levack and McCreedy mines.
By 2011, the first year of combined production, the new company will have $1.5 billion in revenue, with an estimated annual production of 300-million pounds of copper and 150,000 ounces of precious metals.
With "one of the highest-grade copper orebodies in the world" in the Levack Footwall Deposit, the Sudbury operations will be considered one of the core assets of Quadra FNX, said Paul Blythe, Quadra president and CEO.
"This is a seat at the trillion-dollar table and we intend to capitalize on that," said Blythe, referring to the exploration potential and long history of production in the Sudbury Basin.
Given the value inherent in the Levack Footwall Deposit and the benefit to be gained from Quadra's existing projects, there was no interest in simply selling FNX outright, said MacGibbon.
In fact, with Quadra FNX's heartier bottom line, further mergers and acquisitions may be in the future "if the value is right."
Despite the focus on copper, Blythe said any question about selling the Sudbury nickel assets is moot, given that "FNX and its operators in Sudbury are the only people who are going to extract serious value from the assets."
Currently, 80 per cent of FNX's revenues come from copper mining, said Blythe.
Indeed, the beefed-up balance sheet will not only allow local work to continue as planned, but may also provide a greater ability to eventually look at returning to primary nickel mining, said MacGibbon.
There are no immediate plans to consider doing so, however, as the current eight-month strike underway at Vale Inco may be artificially skewing the price of nickel, he said. As such, officials will wait to see how prices stand following the resumption of production before making any decisions.
The new company's board will be made up of five directors from each of the board of directors of FNX and Quadra. It will also include a representative of China's State Grid International Development Limited (SGID), following the completion of a joint venture signed between Quadra and the company.
MacGibbon will become non-executive chairman of Quadra FNX while Blythe will serve as president and CEO.
The company will continue to maintain separate offices in Toronto and Vancouver.
The agreement also prevents either Quadra or FNX from soliciting other offers, and a break fee of $40 million is in place. Both companies have given the other the right to match competing offers, though both companies' directors and officers have locked up their shares in support of the merger.
The move must be approved at shareholder meetings by both companies, which will be held in May. The merger is expected to close shortly thereafter.
www.fnxmining.com
www.quadramining.com
