UPDATE:Equinox strikes back

Equinox Minerals (EQN-T) continues to rebound.

After nearly 11% was shaved off its share price following the June 28 news of a 39% increase in capital costs for its Lumwana copper project in Zambia, the company has regained 8% of its share price over the course of July 5 and 6.

In Toronto on July 6 Equinox shares closed at $1.31, up almost 2% or 2, on another heavy day of trading with a volume of nearly 5.5 million shares.

Analysts say the upswing came as the market had more time to digest the revised capital costs.

The new estimates for pre-production capital costs at Lumwana came in at US$762 million — up US$213 million from its prior estimate of US$549 million.

Equinox’s vice president of investor relations, Kevin van Niekerk, explains the increased costs by way of the company’s securing a maximum price guarantee on the construction of the project, the up- front financing for the entire mining fleet, and the gains that the Zambian currency the kwacha has made against the U.S. dollar — it is up roughly 35% against the greenback over the past year.

In his report, Raymond James analyst Tom Meyer, also points to the “significant” contingency of US$95 million included in the capital costs as a factor.

The most striking detail about the revised costs, however, is the guaranteed maximum price.

On June 29th, Equinox and the joint venture of Ausenco-Bateman agreed on the terms of the engineering, procurement and construction (EPC) contract for the process plant and related infrastructure.

The guaranteed maximum price has been set at US$381 million with an end of first quarter 2008 commissioning completion schedule. And while that price tag does include some “fat”, as Niekerk says,it offers considerable security to investors.

“In an environment of capital blowouts,” van Niekerk says after pointing to the recent announcement of doubling capital costs at some projects in Alberta’s oil sands, “to have a number that’s is effectively capped is of real value and that is being understood by analyst and some of their colleagues in the market.”

While the Street came around to seeing the increased costs in a more favourable light, analysts say the market is still skittish about the likelihood of share dilution.

According to some analysts, the Street is assuming that Equinox will have to issue more shares to raise the funds it will need to meet its capital cost demands.

But in a press release from June 29th, Equinox’s president and chief executive officer Craig Williams, says the company is in no hurry to turn to the market for revenue, or that such a scenario is its only option.

“With respect to further additional capital required, there are a number of different capital market and corporate financing alternatives available to Equinox,” Williams says in the release. “As the company is currently adequately funded following the major capital raising earlier this year, Equinox will assess these options at the appropriate time.”

Van Niekerk points to the 22 million lbs. of uranium that Equinox has at the Lumwana project as one potential source of alternative revenue, and also highlighted the fact that the company’s latest financing was a non-brokered deal and raised a total of US$30 million.

Pushed into the background amidst the commotion around the rise in capital costs, was the announcement of the doubling of the mine life at Lumwana and the discovery of a series of prospective anomalies stretching over a 2 km strike length known as the Kanga prospect.

New anomalies

The anomalies occur 300 metres on strike and to the south of the Malundwe main pit one of two pits that compose Equinox’s Lumwana copper project.

Equinox says Kanga may be a continuation of the controlling mineralizing structure that hosts Malundwe.

Induced Polarization geophysics was used to detect the anomaly, and now the company plans to begin a drilling program this month on the area. Equinox is planning to do 10,000 metres of reverse circulation drilling.

Located just 5 km. from where the Lumwana processing plant will be situated, the company believes the anomaly could lead to better economics for Lumwana.

In a release, Williams says the geophysics that lead to the discovery of Kanga, and the drill program planned for the area are just the “first steps by Equinox in its substantially expanded Zambian exploration effort.”

Increased reserves

On June 28, the company announced a 21% increase in the measured and indicated resource for Lumwana.

Lumwana will process ore from both the Malundwe and the Chimiwungo pits, and combined the two pits now have a reserve of 321 million tonnes of ore grading 0.73% copper and an inferred resource of 417 million tonnes grading 0.6% copper.

The company says the in-fill drilling program, the re-design of the Lumwana pits and a copper price of US$1.20 a lb. resulted in the 28% increase in reserves for Malundwe and the 70% increase for Chimiwungo.

Those increases, Equinox says, mean the estimated mine life has gone to 37 years from 18 years.