Frontera Copper adopts shareholder rights plan

Vancouver – The board of Frontera Copper (FCC-T) has adopted a rights plan designed to ensure “fair treatment” of shareholders in the event of a takeover bid, and also to give the board time to “explore other alternatives to maximize shareholder value” should such an offer be made.

The company says it did not adopt the rights plan in response to any particular takeover proposal, however exploration and development companies making the transition to production are frequently vulnerable to takeover bids by larger producers.

Frontera Copper is constructing an open-pit, heap-leach mine at its Piedras Verdes project in southern Sonora State, Mexico. The solvent-extraction-electrowinning (SX-EW) operation is expected to begin production in the second half of this year at an annual rate of 70 million pounds of LME Grade A cathode, with average life-of-mine costs estimated at US$0.79 per pound, including royalties.

Initial capital costs for the mine are estimated at about US$90 million, and existing reserves are sufficient to produce a total of 942 million pounds of copper during the proposed 18-year mine life. Existing resources and exploration targets such as the prospective Cerro Chato prospect situated 1.5 km west of the proposed open pit are viewed as having potential to extend the life of the project and improve its overall economics.

The Piedras Verdes porphyry copper property is situated near Alamos, and was previously worked by various companies, notably Azco Mining (AZMN-O) and Phelps Dodge (PD-N). Frontera Copper acquired Phelps Dodge’s 70% interest in the project in 2002 for a US$0.5-million down payment, and deferred payments capped at US$16 million. Azco’s 30% industry was diluted after it elected not to participate in the project, and as result, Frontera Copper owns 100% of the project.

The net present value and internal rate of return at Piedras Verdes are estimated at US$100.9 million (at an 8% discount rate) and 23.1%, respectively, at a copper price of US$1.31 per pound. With copper at much higher levels, Frontera Copper appears to have attracted the attention of institutional investors, notably Goldman Sachs Group, which announced in mid-April that it had acquired 1 million shares to boost its interest to 4.38 million shares (and related warrants), or about 11.6% of Frontera Copper’s issued and outstanding shares.