Resilient copper price drives Quadra-FNX takeover

Share

Back in February, when copper peaked around $4.60 (U.S.) per pound, the doom and gloom types feared a massive free fall. And no doubt, copper prices have dropped. A lot. In October, copper sold for about $3.00 per pound, a 35 per cent slump from the top.

But it's since rebounded, and seemed to have found some fundamental strength, currently sitting at $3.57 per pound.

This trend is something Barrick Gold Corp. chief executive officer Aaron Regent predicted when he shocked the markets and bid $7.3-billion for Equinox Minerals Ltd. this past spring. Though his deal was a big one, and put Barrick at big risk to slumping copper prices, Mr. Regent said he wasn't too worried about copper's long-term value because the long-term forecasts are undervalued. Higher production costs and lower mineral grades will result in high prices because fewer miners are able to produce the metal, Barrick said.

So far, it appears that theory is holding up. And with copper prices retaining some good value -- keep in mind that the metal traded around these levels just before the financial crisis when the global economy was in full swing – some deals have been cooked up. Minmetals bid for Anvil Mining, and now state-controlled Polish copper producer KGHM Polska Miedz SA is buying Quadra FNX mining for $3-billion in cash.

Quadra FNX made it clear that the deal was driven by KGHM. "We weren't driving the process," chief executive officer Paul Blythe said on a conference call Tuesday. "The timing isn't something we picked. The offer was there and we had to deal with it."

KGHM put the bid in after it tried to become a joint partner on Quadra FNX's Sierra Gorda project earlier this year, which is slated to enter production in 2014. The Polish company, 30 per cent owned by the Polish government, was able to offer up cash because it has substantial positive cash flow and a solid balance sheet.

Through the deal, Canadians will not only lose ownership of a mid-tier copper producer, but they will also lose a Canadian stock exchange listing. On the conference call KGHM said it has no plans at this time to obtain a share listing in North America. (It is currently listed on the Warsaw Stock Exchange.)

The company wouldn't provide any colour on any future deals it may strike, other than to reiterate that they implemented a strategy in 2009 to expand copper production and that remains "an ongoing assignment."

BMO Nesbitt Burns and Blake, Cassels & Graydon LLP were the main two advisors for Quadra FNX. GMP Securities provided a fairness opinion and Cassels Brock & Blackwell LLP advised on this front.