Adastra, First Quantum make peace (May 01, 2006)

Months of sniping have come to an end, with Adastra Minerals’ (AAA-T, AMZIF-O, AAA-L) board of directors finally agreeing to a twice-sweetened takeover offer from First Quantum Minerals (FM-T, FQVLF-O, 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 with 26.5 in cash (up to $1.3 million). That little bonus is to make up for a First Quantum dividend that tendering shareholders would miss on May 10.

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. Based on First Quantum’s closing share price in Toronto on April 10 — the day before the deal’s announcement — the offer values Adastra shares at $3.33 apiece.

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

First Quantum originally launched its hostile bid for Adastra in mid-January, offering up one of its own shares for every 17.5 Adastra shares. The offer rang in at $2.23 per Adastra share at the time. Adastra, backed by some of its major shareholders, quickly shot the offer down, calling it inadequate and opportunistic. A cash-sweetened deal including $2.65 in cash and the surviving 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 has 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. The material represents the remnants of mining operations in the 1950s. Annual production is pegged at 33,200 tonnes copper and 5,900 tonnes cobalt.

Adastra had planned to begin construction of the proposed US$305-million project before the end of the year, with first metal production possible by the second half of 2008. First Quantum previously said it would completely re-engineer the project, incorporating expertise gained by 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).

The remainder of Kolwezi is held by International Financial Corp., the financing arm of the World Bank, with a 7.5% stake, the Industrial Development Corp. of South Africa owning 10%, the government of the DRC with 5%, and state-owned Gcamines retaining a 12.5% interest.

Shares in Adastra shot up 32 or 10.5% to $3.36 in Toronto, following the news. For its part, First Quantum slipped $2.66, or 5.3%, to $47.30. Soaring copper prices have pushed shares in First Quantum up 28% so far this year to $51.10.