Copper tiles
Copper producer Equinox Minerals Ltd. is looking to Saudi Arabia for its next phase of growth by striking a $1.26-billion deal to buy Australian base metals developer Citadel Resource Group Ltd.
The cash-and-share deal, announced late Sunday, will give the Canadian-Australian miner control over Citadel's portfolio of development and exploration assets in Saudi Arabia, including its flagship Jabal Sayid copper-gold project that is scheduled to begin production late next year.
The offer comes amid rising copper prices and a steady increase in demand for the widely used metal, an opportunity miners worldwide are looking to exploit after a pullback in price earlier this year and the global economic slowdown in 2008-09, which cut demand.
Equinox's entrance into Saudi Arabia, a country known more for its oil and gas than base metals, also highlights the new places miners are willing to go to find growth.
Saudi Arabia has been working to expand development of its mineral resources, in particular in the western part of the country, where Citadel's Jabal Sayid copper-gold development project is located.
Equinox chief executive officer Craig Williams said in an interview Sunday that the company has been looking for an acquisition in a jurisdiction outside of Zambia, where it currently mines, and that was either producing or close to production.
"We felt that a bit of geographic diversification would do us good to just spread the risk," said Mr. Williams. "Our objective was to look for other projects somewhere else in the world, preferably in a jurisdiction that was of equal or lower risk than Zambia. This Citadel acquisition fits all of those criteria."
He said the company had been following Citadel's progress in Saudi Arabia and its Jabal Sayid project for awhile, and after doing about three months of due diligence believes is positioned to become "a significant copper mine."
Equinox said it will swap one share for every 14.3 Citadel shares, plus 10.5 cents (Australian) per Citadel share in cash. After the deal closes, Equinox shareholders will own about 81 per cent of the combined company and Citadel shareholders will own 19 per cent. About 20 per cent of Citadel shareholders have made pre-id acceptance agreements if no other higher offers come along.
The deal, which is a 21 per cent premium to Citadel's average share price over the past two weeks, includes a $12-million (Canadian) break fee and gives Equinox a right to match any higher bid that might come forward.
Citadel's Jabal Sayid project is expected to begin production in late 2011 or early 2012, with an annual copper production target of 57,000 tonnes over 10 years. The deal will update Equinox's annual production target to more than 200,000 tonnes a year, once production begins at Jabal Sayid. That could move to 260,000 tonnes per year if the expansion of Equinox's Lumwana mine goes through. It is currently undergoing a feasibility study.
According to Equinox, Citadel has been a "first mover" in the underexplored Arabian Shield region of Saudi Arabia. Citadel is in midst of acquiring 100-per-cent ownership of the Jabal Sayid from its local Saudi Arabian partners.
Equinox's Mr. Williams said the takeover will help the company secure "a significant near-term development project in a mining-friendly jurisdiction" with "minimal security issues" in one of the 25 largest economies in the world.
Equinox said Saudi Arabia allows 100 per cent foreign ownership for businesses and that foreign investment projects receive the same guarantees as local projects and a stable tax regime.
Citadel's other exploration projects in Saudi Arabia include the Jabal Shayban and Jabal Baydan gold-base metal projects, the Lahuf gold project, the Bari porphyry gold-copper project and the Wadi Kamal nickel-copper-platinum project.
Equinox's flagship asset is its 100-per-cent-owned Lumwana copper mine in Zambia, which it bought in 1999. The company is listed on both the Toronto and Australian stock exchanges. Citadel is listed on the Australian stock exchange.