Quadra tables bid for Equatorial

Vancouver — Upstart copper producer Quadra Mining (QUA-T, QADMF-O) has launched a takeover offer for Australian-based Equatorial Mining (EQM-A).

Quadra will offer A$9.26 apiece for all 49.9 million shares of Equatorial to value the deal at A$449 million ($389 million). The tabled bid is at a 32% premium over the Aussie company’s closing price prior to the offer.

Equatorial’s primary asset is a 39% interest in the open-pit El Tesoro copper mine located in Region II of northern Chile. Having begun operations in mid-2001, the mine produced 98,121 tonnes (216 million lbs.) of copper cathode in 2005 from its solvent extraction-electrowinning plant at operating costs of US66 per lb. The deposit hosts proven and probable reserves of 139.1 million tonnes grading 0.75% copper plus additional resources of about 178 million tonnes at 0.73% copper. Antofagasta (ANTO-L) holds a 61% stake in El Tesoro.

Another aspect to the bid is that Equatorial holds significant water rights (529 litres per second) in the Sierra Gorda district where Quadra optioned four contiguous copper projects in 2004. One of the projects, Santa Catalina, has a historic resource of 110 million tonnes at 0.6% copper and 0.1% molybdenum. Water rights in the arid Atacama Desert region are a very strategic and valuable commodity, especially for any planned mineral development projects.

“The potential acquisition of Equatorial Mining is an excellent fit for us,” said Quadra president and CEO Paul Blythe. “As well as increasing our production profile, the acquisition reduces the risk profile of Quadra, providing lower average cash costs, diversification of production and, as an established operation, fewer technical risks.”

Equatorial also holds a couple of exploration projects in the El Tesoro area.

As part of its takeover plans, Quadra entered into a call option agreement with Australian insurance company AMP Life, a major shareholder in Equatorial. The deal gives the company an immediate deliverable interest of 19.99% in the Aussie-listed company. Quadra has secured a US$350-million loan for the proposed takeover.

Given its current cash holdings (over A$100 million [$86.7 million]), low-cost copper-producing asset and water rights, it is likely other bidders for Equatorial will emerge.

Quadra’s flagship project is its Robinson copper mine near Ely, Nev., which it purchased from BHP Billiton (BHP-N) in 2004. The operation produced over 57,000 tonnes (126 million lbs.) copper and 80,000 oz. gold in 2005 at a unit cash cost of US$1.16 per lb. copper.

The company, which aspires to become a mid-tier base metals producer, is also developing its Carlota copper project in central Arizona. Acquired in late 2005 from Cambior (CBJ-T, CBJ-X) for US$37.5 million, the deposit hosts reserves of over 90 million tonnes grading 0.39% copper that are amenable to open-pit mining. It is expected to produce an average of 66 million lbs. copper annually over 11 years.

Shares in Quadra rallied nearly 50 following the announcement of its takeover plans, closing at $11.12 apiece on high volume. The company has a $415-million market capitalization based on its 37.3 million shares outstanding. The stock is trading near the top of its 52-week range of $4.50-$11.86.