Adastra ponders First Quantum takeover bid

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Adastra ponders First Quantum takeover bid
Allan Seccombe
Posted: Wed, 18 Jan 2006

[miningmx.com] -- Toronto-listed Adastra Minerals has set up a special committee to consider an unsolicited C$189m takeover bid launched by copper miner First Quantum on Wednesday.

A spokeswoman for Adastra, which has the Kolwezi copper and cobalt tailings project in the Democratic Republic of Congo (DRC), said the company had nothing more to add at this stage.

Kolwezi is one of the world�s largest cobalt projects.

Adastra has said it will spend $300m to bring the project into production. It said it will initially produce 30,000 tonnes of copper and 5,000 to 5,500 tonnes of cobalt a year, giving the project a 50-year life.

Philip Pascall, First Quantum CEO, said First Quantum would look at increasing those figures, potentially doubling them. "It would be beneficial to exploit a tailings project of this sort over a shorter life."

First Quantum was using a long-term copper price of $1 a pound for the Kolwezi project, he said. He declined to be drawn on what long-term cobalt price it was looking at. The price of cobalt has doubled over the past couple of years to $13.60 a pound.

He said there would potentially be more users of the metal if there was a steady supply of it into the market. If First Quantum doubled the cobalt output at Kolwezi, it would supply 20% of the world market.

Adastra, which is also considering the rehabilitation of the Kipushi copper and zinc mine in the DRC, told shareholders to take no action until the committee had reviewed the offer and made a recommendation.

South Africa's diversified miner Kumba Resources, which has a joint venture agreement with Adastra on the Kipushi project, said it had not been notified of First Quantum's intentions and it had no comment to make on the transaction and would await the outcome before saying any more.

Toronto and LSE-listed First Quantum said it was offering one of its shares for every 17.5 Adastra shares, which values Adastra at C$189.3m. The offer price of C$2.23 a share represents a 24% premium over Adastra�s closing price of C$.180 on Tuesday. Two thirds of Adastra shareholders need to accept the offer for the transaction to go ahead.

It will allow First Quantum to apply its skills to Adastra's projects

�The proposal to merge First Quantum and Adastra will allow the management of First Quantum to apply its skills to the projects owned by Adastra,� said Pascall.

�First Quantum�s shares provide a significantly lower risk profile and better liquidity for Adastra shareholders,� he said.

The bid turned hostile after Adastra rebuffed First Quantum's advances in November. Adastra was unhappy about the value of the offer.

Adastra raised C$10.2m last month through the placement of six million shares at C$1.70 each.

The money was raised to fund the completion of the Kolwezi feasibility study and environmental and social impact assessment by March this year.

�The (shareholder rights) plan was adopted in order to provide the board of directors with sufficient time to assess and evaluate any takeover bid or other potential change of control transaction, and to explore and develop alternatives that maximize shareholder value and to give shareholders adequate time to consider any such transaction,� Adastra said in Wednesday�s statement.

First Quantum has projects in the DRC and Zambian copperbelts. It is finalising plans for its Frontier copper/cobalt mine in DRC, where it also owns the Lonshi copper mine.

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In Zambia, it has an 80% stake in the Kanshanshi copper/gold mine, which produces 120,000 tonnes/year of copper.

It also owns the Bwana Mkubwa solvent extraction and electro-winning plant in Zambia, which treats ore from Lonshi.

�Through these operations, First Quantum has acquired considerable practical experience in working in the DRC and with the DRC government,� Pascall said.

Clive Newall, First Quantum president, told a conference call with analysts that Kolwezi was 13 times the size and twice the grade of its Bwana Mkubwa tailings reclamation project.

"We have particular skills and experience of exploring, developing and operating a tailings pond project of this nature. We also have the financial strength to develop this project along a very short time line," he said. First Quantum will finance the project internally, he added.

The Lonshi project has another two years to run before it is exhausted. Kolwezi will fit nicely with Frontier, which will begin construction in April, he said.

The Lonshi plant and equipment might well be used at Kolwezi.

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