Adastra, First Quantum make peace (April 11, 2006)

Months of sniping have come to an end, with Adastra Minerals‘ (AAA-T, AAA-L) board of directors finally agreeing to a twice-improved offer from First Quantum Minerals (FM-T, FMQ-L).

First Quantum has ponied up another $3.7 million to boost the cash portion of its offer to $2.92 per share, to a maximum of $40 million. The share-exchange alternative is unchanged at one First Quantum share for every 14.76 Adastra common shares (up to 4.9 million First Quantum shares), but is fortified by 26.5 in cash (up to $1.3 million) to make up for a First Quantum dividend payable on May 10; Adastra shareholders tendering to the offer would miss the payout.

Assuming full pro ration, the offer boils down to around 47.5 in cash accompanied by 0.057 of a First Quantum share for each share of Adastra. First Quantum will top up the consideration paid to any Adastra shareholders that have already submitted their shares.

The new deal is conditional on at least 50.1% of Adastra’s shares being tendered.

First Quantum launched its hostile bid for Adastra in mid-January, offering up one of its own shares for every 17.5 Adastra shares. Adastra, backed by some major shareholders, quickly shot the offer down calling it inadequate and opportunistic. A cash-sweetened deal including a lower share exchange rate suffered a similar fate a month later.

Under the latest agreement, Adastra would be on the hook for a $4.8-million break fee if it accepts a superior competing offer. First Quantum retains the right to match any such offer.

Key to the deal is Adastra’s 65% stake in the Kolwezi copper-cobalt tailings project in the Democratic Republic of the Congo (DRC).

A recently completed feasibility study there gives the thumbs-up to a 2.3-million-tonne-per-year operation that would focus on two tailings dams containing resources of 112.8 million tonnes of oxide tailings grading 1.49% copper and 0.32% cobalt. Annual production is pegged at 33,200 tonnes copper and 5,900 tonnes cobalt.

Construction of the proposed US$305-million project was scheduled to begin before yearend, with first metal production possible by the second half of 2008. First Quantum previously said it plans to completely re-engineer the project, incorporating expertise gained in operating the Bwana Mkubwa copper mine in Zambia.

The company also said that if it succeeded in taking out Adastra, it would seek to have its shares moved to the London Stock Exchange’s main board from the Alternative Investment Market (AIM).