First Quantum installs defence mechanism in the event of “hostile takeover bid”

First Quantum's Kansanshi mine in Zambia

TORONTO-listed copper miner First Quantum Minerals (First Quantum) has put in place a scheme to protect its shareholders’ interests in the event of a hostile takeover bid “… with immediate effect”.

The move follows market speculation in September last year that the company might be the target of a takeover bid which was denied at the time by the firm’s president, Clive Newall.

The “rights plan” scheme now introduced allows shareholders to double their holdings in the company in the event of a such a bid by allocating them the right to buy an additional share at a “substantial discount” to then ruling market prices for every share they hold.

According to a First Quantum statement the rights plan is intended to ensure “… that all shareholders of the company are treated fairly in connection with any takeover bid for the company”.

Bloomberg news agency described the new scheme as “a poison pill” and quoted Newall as saying in a December interview that First Quantum was caught off guard by Jiangxi Copper Company’s move to acquire an 18% stake in First Quantum.

The rights become exercisable if any person “… becomes a beneficial holder of 20% or more of First Quantum’s outstanding common shares without complying with the ‘permitted bid’ provisions pursuant to the rights plan”.

Newall stated on September 23 that: “First Quantum has not engaged in any discussion regarding a takeover bid or other change of control transaction and has no knowledge of potential take-over bid, change of control transactions or proposals”.

Newall confirmed reports that there were discussions under way between First Quantum and Jiangxi Copper regarding “… a potential sale of a minority interest in First Quantum’s Zambian copper assets”. He added at the time “… no transaction has been agreed upon and there is no guarantee that a transaction will be achieved”.

Bloomberg reported in September that First Quantum’s low share price had made it a takeover target and that the company was working with “defence advisers”.

First Quantum shares hit a 12-month low of around C$8 at the end of August last year from where they recovered to nearly C$14 in early December before pulling back to current levels around C$12.

While speculation over a possible takeover could have driven up the price, the rise in First Quantum stock has also followed the start of commercial production at the group’s new Cobre Panama copper mine in Panama which has been described by First Quantum CEO Philip Pascall as a “cornerstone asset”.

Once it has fully ramped-up output, Cobre Panama will push First Quantum’s total annual copper production from 606,000 tons in 2018 to more than 850,000 tons by 2021. The new mine also provides a large measure of diversification from the group’s dependence on its two Zambian copper mines.

Operating conditions in Zambia have been become difficult because of the Zambian government’s hard-line approach in attempts to boost tax revenues from the country’s mining industry while the country also faces a power supply crisis caused by dropping water levels in Lake Kariba.