Makes me wonder a little bit more about our latest effort to "Spin out" from ISM the new Metal Mines.
* Deal values FNX at C$15.12/shr, a 1.8 pct premium
* Merged company to have assets in Canada, U.S. and Chile
* Sees production of 300 mln lbs of copper in 2011 (Adds details on deal, CEO comments. In U.S. dollars unless noted)
By Euan Rocha
TORONTO, March 23 (Reuters) - Copper producer Quadra Mining said on Tuesday it has agreed to buy FNX Mining Co in an all stock deal worth C$1.6 billion ($1.57 billion) that will create a mid-tier base metals miner with assets in Canada, the United States and Chile.
The deal will give Vancouver-based Quadra access to FNX's copper-nickel assets in the mineral-rich region of Sudbury, Ontario. It also allows Quadra, an open-pit miner, to gain from FNX's expertise in underground mining.
The deal is a signal that mining companies that were hit hard by the global economic slowdown have begun to actively reinvest in growth, and that stronger metal prices, coupled with an improved financing environment, are leading to a resurgence in merger and acquisition activity.
"The merger of Quadra and FNX is a springboard transaction that creates a leading intermediate copper producer," said Quadra Chief Executive Paul Blythe, who will continue as CEO of the combined company.
Blythe said the new company, Quadra FNX, will have a market capitalization of $3.5 billion and about $580 million in cash, and be well positioned to drive further consolidation in the sector.
"Certainly we are very comfortable in the Americas that is where we are established ... But we are going to be looking at value," FNX's Chief Executive Terry MacGibbon told Reuters.
"If there are opportunities in other parts of the world that can add value for our shareholders, we are going to be very flexible," said MacGibbon, who will be assuming the post of nonexecutive chairman at Quadra FNX.
UBS analyst Onno Rutten believes that the combined entity is better positioned to develop and consolidate Sudbury assets, if and when any become available.
DEAL VALUE
Under the terms of the deal, each FNX share will be exchanged for 0.87 of a Quadra share, valuing each FNX share at C$15.12, a premium of 1.8 percent over the Monday close of C$14.85.
Quadra shareholders will own about 52 percent of the new company, while the rest will be owned by shareholders of Toronto-based FNX.
The combined Quadra FNX will have anticipated 2011 production of about 300 million pounds of copper, 150,000 ounces of precious metals, generating 2011 revenues of $1.5 billion, the companies said in a joint statement.
The deal has been approved by the boards of both companies and all directors and officers have agreed to lock up their shares in support of the merger, the companies said in a joint statement.
The agreement includes a commitment by Quadra and FNX not to solicit alternative transactions, but each company has the right to match a competing offer should one arise.
Quadra FNX's new board will have five directors from each of the current Quadra and FNX boards and a representative from China's State Grid International Development (SGID).
Earlier this month Quadra Mining and SGID -- a unit of China's largest utility company, State Grid Corp of China -- agreed to form a joint venture to help expand Quadra's Chilean operations and fund its $2 billion Sierra Gorda copper project. [ID:nN08165352]
The Quadra-FNX deal has a break fee of C$40 million.
The deal is contingent on FNX and Quadra shareholders approving the deal by a two-thirds and simple majority, respectively.
Special shareholder meetings for each company to vote on the merger are expected to be held in May, with the deal expected to close shortly thereafter.
Quadra's financial advisor on the deal was CIBC World Markets Inc. and its legal counsel was Blake, Cassels & Graydon LLP, while BMO Capital Markets, along with Cassels, Brock and Blackwell LLP acted as FNX's advisors on the deal.
Quadra shares closed 2.3 percent lower at C$16.98 on the Toronto Stock Exchange on Tuesday. FNX was up 1.9 percent at C$15.14. ($1=$1.02 Canadian) (Reporting by Euan Rocha in Toronto and Ashutosh Joshi in Bangalore; editing by Peter Galloway)
