Equinox advances Lumwana, adopts poison pill

Red-hot copper prices, a consolidating industry, and a developing copper project in Zambia, have prompted Australia’s Equinox Minerals (EQN-T, EQXMF-O) to adopt 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 copper project, 65 km west of Solwezi, Zambia. Lumwana 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 late last year envisaged 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 180,000 tonnes as higher-grade zones are mined. At a copper price of US$2,200 per tonne of copper, pay back 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 the 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.