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The copper miner broadens its horizons
Dan Coatsworth
Copper producer First Quantum Minerals may be making its first steps out of Africa with a C$281 million offer for TSX-listed Scandinavian Minerals. Central to the deal is the Kevitsa project in Finland, once deemed one of the world’s largest undeveloped nickel sulphide deposits.
Finnish stainless steel group Outokumpu spent three years drilling the site in the 1990s but returned it to the government reaoning the deposit was metallurgically challenging and uneconomic with low nickel prices. Scandinavian Minerals got the rights in 1999 and has been proving up the project. The reserve statement shows Kevitsa to contain 197,060 tonnes of nickel and 285,236 tonnes of copper, also cobalt, gold, platinum and palladium. With prices having recovered since Outokumpu’s ownership and suitable ore treatment methods identified, investment bank Fairfax believes First Quantum could generate annual sales of around $516 million, not including smelting and refining charges, once the mine starts production in 2010. This is based on annual production rates that include 9,400 tonnes of nickel and 16,800 tonnes of copper.
First Quantum’s deal is priced at 90% cash and the rest in shares. It is offering a 41% premium to Scandinavian’s share price on the night before the proposal was made. First Quantum president Clive Newall hoped the premium would deter counterbids. John Meyer, head of resources at Fairfax, said others may not be dissuaded from a competing offer, but could target the enlarged First Quantum.
Newall revealed First Quantum had been negotiating for the past year. The business wants to diversify from the Congo and Zambia – countries seeking to increase state ownership and tax income from mining. A feasibility study on Kevitsa due this quarter will be reworked by First Quantum for release in Q3, 2008. Scandinavia previously estimated it would cost ?140 million to bring the mine into production. ‘This figure will no doubt be substantially more, given recent cost pressures in the mining industry. We will use our engineering expertise to minimise capital costs,’ says Newall.
Meanwhile, First Quantum is seeking an estimated $13 million in damages from banking group HSBC. It has taken legal action on the grounds of being given incorrect investment advice. The miner said the bank recommended investing in asset-backed commercial paper shortly before this market collapsed last summer. ‘When you give money to a major bank, you don’t expect them to blow it all away,’ says Newall.