Poland’s KGHM bids $3.5 billion for Quadra FNX; shares up 39%

The project is a joint venture between Quadra FNX and Japanese metals producer Sumitomo Mining.

The total cost of the mine is estimated at US$2.8 billion and production is scheduled to start in 2014.  According to Quadra FNX’s  feasibility study, the production from current sulphide reserves will average 483 M lbs of copper, 25 million lbs of molybdenum, and 64 kozs of gold per annum over a 20-year mine life.

With a market cap of $8 billion, state-controlled Polish company KGHM is the world’s 9th biggest copper producer and the third largest producer of silver.

Under the agreement, Quadra FNX shareholders will receive $15 in cash for each common share of Quadra FNX. The bid price represents a 41% premium on the 20-day weighted average price of the common shares as of Dec. 5. 2009 warrant holders will receive $1.68 in cash.

KGHM said it plans to finance the acquisition, including US$500 million in debt, with cash on hand.

Quadra FNX President and CEO Paul Blythe said the company is advising shareholders to accept the offer:

“KGHM participated in the process Quadra FNX ran to identify a joint venture partner for Sierra Gorda earlier this year. In recent weeks KGHM came forward with a proposal to acquire the Company, which has resulted in the agreement we are announcing today. This proposal represents a significant premium to the current share price and we are recommending that our securityholders vote in favour of the transaction.”

In the event of a superior offer, KGHM has five business days to match it. If the deal is not completed due to a superior offer or other circumstances, Quadra FNX will pay KGHM a break fee of $75 million.

If the bid goes through, it would be one of the largest copper deals since Barrick Gold acquired Equinox Minerals earlier this year for $7.3 billion, and Minmetals Resources of China bought Anvil Mining Ltd. for $1.3 billion.