Copper miners Quadra and FNX to merge in a $1.5b deal

In another consolidation move in the Canadian mining industry, copper miner Quadra Mining Limited (Quadra) has agreed to a friendly merger with rival FNX Mining Company Inc (FNX) through a stock swap deal that would create a leading intermediate copper producer with a market capitalisation of $3.5 billion.

The combination, termed as "a merger of equals" has been unanimously agreed to by the boards of both the companies, and the combined entity will be known as Quadra FNX Mining Limited (Quadra FNX).

Under the terms of the deal, each FNX share will be exchanged for 0.87 Quadra shares. On completion of the transaction, existing Quadra shareholders will own approximately 52% of the new company while the remaining 48% will be owned by FNX shareholders, a statement said.

Vancouver-based Quadra is a resources company whose major assets include the Robinson mine in Nevada, producing copper and gold, the Carlota copper mine in Arizona, and the Franke copper mine in northern Chile. Its development projects are Sierra Gorda copper-molybdenum mine in Chile and the Malmbjerg molybdenum mine in Greenland.

Toronto-based FNX is a producer and developer of various minerals including copper, nickel, cobalt, platinum, palladium and gold and its primary assets are located in the prolific Sudbury mining camp in Ontario. The company has a strong balance sheet, zero debt and imminent production growth plans focused on higher margin, copper-precious metal ores, including the emerging, high grade Levack Footwall Deposit.

Paul Blythe, the present CEO of Quadra who will take over as the CEO of the combined entity said, "The merger of Quadra and FNX is a springboard transaction that creates a leading intermediate copper producer with financial strength, a solid asset base, and an experienced and entrepreneurial management team."

FNX chairman and CEO Terry MacGibbon, who would be the non-executive chairman of the new company: " This merger of equals will result in the establishment of a new, mid-cap, Canadian mining company with existing mining operations in the low risk Americas (Canada, USA and Chile), great internal growth (Levack Footwall Deposit in Sudbury and the Sierra Gorda property in Chile) and the opportunity to grow into a leading mining company."

"Quadra's operating skills and expertise in large tonnage, open pit copper-gold mines, and FNX's proven performance in underground mining of lower tonnage, high value copper-nickel-precious metal ore provides a unique combination of skill sets that will enable Quadra FNX to operate a variety of mines around the world," MacGibbon added.

The combined entity will have a strong balance sheet of $580 million in cash and investments and $50 million in debt. The total revenue estimated for 2011 is around $1.5 billion and EBITDA is approximately $765 million.

A fortnight ago, Quadra executed an agreement with China's Stage Grid International Development Limited (SGID) to form a $2-billion joint venture company for copper mining in Chile. (See: Canada's Quadra, Chinese firm in $2-billion copper mining JV)

Following the merger, SGID will invest directly into the JV which will be jointly owned by Quadra FNX and SGID.

Although the companies do not expect any rival bid for FNX, both the companies decided for a C$40 million break fee under certain circumstances, and also agreed to honour each other's right-to-match a competing offer.

The board of Quadra FNX will consist of 5 directors from Quadra and 5 from FNX and the new company will continue to operate from both Vancouver and Toronto.

The transaction is expected to close after the Quadra and FNX shareholders meetings to be held in May 2010, subject to customary and regulatory approvals. The deal would require approval of two-thirds of the shareholders of FNX and 50% plus one in case of Quadra.

CIBC World Markets Inc is acting as financial advisor to Quadra on the deal, while FNX is advised by BMO Capital Markets.