CANADIAN MINING PERSPECTIVE: Merger action kicks off with Quadra, FNX deal

The first of what may be many "mergers of equals" this year was announced on March 23. Quadra Mining and FNX M...

The first of what may be many "mergers of equals" this year was announced on March 23. Quadra Mining and FNX Mining are combining to create a new intermediate copper producer to be known as Quadra FNX Mining Ltd. The friendly, all-stock deal is worth about US$1.5 billion.

This is one merger that makes great sense. Quadra FNX will have a market capitalization of US$3.5 billion and focus on projects in Canada, the United States and Chile. The new company is expected to have a balance sheet of US$580 in cash and investments with only US$50 million in bank debt. The boards of both companies are unanimously behind the deal.

FNX brings to the table its three copper-nickel mines (McCreedy West, Levack and Podolsky) in the Sudbury Basin of Ontario. The opportunities for growth lie in the Levack Footwall development and the recent Victoria discovery.

Quadra's contribution will be three copper mines (Robinson in Nevada, Carlotta in Arizona and Franke in Chile). Growth potential lies in the Sierra Gorda development, also in Chile. Quadra is wooing Chinese investors to create a joint venture for the two mines in Chile.

In 2011, the merged company anticipates producing 300 million lb of copper, 150,000 oz of precious metals, and significant byproduct metals (nickel, gold, platinum and palladium). Thanks to FNX's properties near Sudbury, it will also have the option to produce primary nickel, but Quadra FNX is billing itself as a copper producer first.

Management of the new company will include Terry MacGibbon (FNX) as non-executive chairman and Paul Blythe (Quadra) as president and CEO. Bill Myckatyn (Quadra) will serve as vice-chairman and lead director. The board will consist of five nominees each from Quadra and FNX plus one from the Chinese investor. Quadra FNX will maintain office in both Toronto and Vancouver. Current Quadra and FNX shareholders will own 52% and 48% respectively of the combined company.

I have not forgotten how disruptive a merger, of "equals" or otherwise, can be to the running of the combined enterprise. However, the "complementary, entrepreneurial" management styles of the two companies may lessen the blow.

The union of Quadra and FNX certainly is the best idea for merger this writer has heard in a long time. It is the right size, the right portfolio, and, if we believe that the copper price will continue to strengthen, the right commodity.

Congratulations to both Quadra and FNX.


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