Quadra trumped in bid for Equatorial

Losses related to a hedging program and operating challenges at the Robinson copper-gold mine near Ely, Nev., pushed Quadra Mining (QUA-T, QADMF-O) into the red during the latest quarter ended June 30.

The company also faced a challenge in its strategic efforts to grow through acquisition after its recent bid for Aussie miner Equatorial Mining (EQM-A) was trumped by Chilean copper producer Antofagasta (ANTO-L, ANFGY-O).

Equatorial holds a 39% interest in the El Tesoro mine operated and owned 61% by Antofagasta, and also has about US$100 million in its treasury. El Tesoro is a heap-leach mine that produces cathode copper through the solvent extraction-electrowinning (SX-EW) process. The open-pit mine is situated in northern Chile, about 28 km from Quadra’s Sierra Gorda copper project, currently at the prefeasibility stage. Equatorial also holds associated water rights in a region where such rights have been restricted and are highly prized.

Quadra offered to buy all of Equatorial’s 49.9 million shares for A$9.26 in cash, for a 32% premium above the pre-announcement closing price. Antofagasta countered with an offer of A$11.20 for each share of Equatorial and also tied up an option agreement with AMP Life, Equatorial’s major shareholder, for 19.9% of its shareholdings at A$8.00 per share.

Quadra said it would evaluate the competing offer, but remained “committed to a disciplined approach to any transaction.” The company intends to continue pursuing growth through a strategic plan that includes growth by optimizing operations, developing projects and pursuing merger and acquisition opportunities.

Robinson, currently the company’s sole producer, was acquired in 2004 for about US$14.8 million. The mine was previously operated by a major company that built the mine for an estimated US$480 million.

Robinson produced 27.8 million lbs. copper, 12,532 oz. gold, and 70,000 lbs. molybdenum in the second quarter, allowing Quadra to report record revenues of US$142.2 million for the period, up 153% from a year earlier. Operating income rose to US$83.2 million from US$11 million in the comparable quarter in 2005. The revenue increase was offset by the settlement of forward hedge contracts of US$64.8 million, which resulted in a net loss of US$14.9 million, or US40 per share, compared with earnings of US$2.8 million a year earlier.

At the end of the quarter, only 25 million lbs. of copper related to the hedging program remains to be produced. All further production covering the balance of the third and fourth quarters is un-hedged.

While the company is satisfied with the average daily mining rate of 220,000 tonnes, copper recoveries have been lower than expected, at an average of 70%, because of the presence of high iron levels in the ore. Blending has mitigated this somewhat, however, copper recoveries are projected to be lower than forecast for the balance of the year. Accordingly, the company has revised its 2006 copper guidance downward by about 15% to about 125-130 million lbs.

Gold recoveries averaged 47.5% in the latest quarter. While gold production remains on target, the company doesn’t expect to reach “or come close” to its original production guidance of 1-1.6 million lbs. for molybdenum, and cost pressures are expected to continue.

Quadra is also developing the Carlota project in an active mining region of Arizona. An open-pit SX-EW operation is proposed that would produce about 66 million lbs. of cathode copper annually.

Another important asset is Sierra Gorda, which hosts an oxide resource of 181 million tonnes grading 0.37% copper, plus an inferred resource of 36 million tonnes grading 0.29% copper, both at a 0.2% cutoff grade.

Sierra Gorda also hosts an indicated sulphide resource of 215 million tonnes of 0.38% copper and 0.066% molybdenum, and an inferred sulphide resource of 182 million tonnes grading 0.38% copper and 0.02% moly, both at a 0.34% copper-equivalent grade.