Australia’s Equinox offers $1.23 bn for Citadel

Australia’s Equinox offers $1.23 bn for Citadel

Sydney: Zambian copper miner Equinox Minerals said it would buy Australian-listed Citadel Resource Group for $1.23 billion, sending Citadel shares 21% higher and lifting other miners on a takeover buzz.

Mining companies are scouring the globe for more finds as demand for copper, used in anything from plumbing to computer components, grows and prices near record highs.

The deal would potentially give Equinox the same copper output as BHP Billiton’s Olympic Dam mine, the world’s fourth-largest deposit.

The acquisition also came on day when Australian markets were alive with merger news, as Singapore Exchange offered $8.3 billion for Sydney-based ASX Ltd.

Equinox, listed in Canada and Australia, offered one of its shares for every 14.3 Citadel shares plus A$0.105 in cash for each share in Citadel or around 42.5 cents a share based on Equinox’s volume-weighted share price of over the 10 days.

“Equinox does not appear to be paying too much and it will add diversification and scale to the company," said RBS analyst Lyndon Fagan.

Citadel Share Surge

The agreed bid sent Citadel shares to 51.5 cents, a record high. At 10:00 am, they were up 20% at 50.5 Australian cents, while the broader market was up 1.4%. Equinox shares rose 2.4% to A$5.91.

The deal also pulled other miners higher, including CuDeco, up 7.1% and PanAust, up 6.7%, as speculation of further takeovers in the sector intensified.

Demand for copper is rising worldwide, led by China’s growing need for imported metal to supplement its own supplies.

BlackRock Inc, the world’s largest money manager, said the outlook for copper is well supported by underlying fundamentals.

“Demand remains strong and inventories have declined for about 30 weeks in a row, where the inventories in other base metals have remained stubbornly high," said BlackRock resources-division chief Evy Hambro, who is overweight in the copper mining sector.

RBS’s Fagan said mining companies were looking for value-accretive acquisitions.

Australia’s Oz Minerals, which would be about half the size of Equinox if its deal to buy Citadel succeeds, this month said it had already looked at buying three or four copper mines in the past five months but had yet to make any offers.

Earlier this year, Oz bought 19.9% of Australian copper explorer, Sandfire Resources for A$100 million but still holds A$1.43 billion in cash for more purchases.

Copper Demand

Equinox’s main project is the Lumwana copper mine in Zambia, which it commissioned in 2009 and this year is forecast to yield 140,000 tonnes of copper, making it one Africa’s largest.

Citadel owns 70% of the Jabal Sayid copper mining project in Saudi Arabia, with rights to acquire 100%.

It will be Saudi Arabia’s first copper mine.

Forecasts call for annual production of around 60,000 tonnes of copper over the first three years of the mine’s estimated 10-year operating life starting in 2012.

Equinox Chief Executive Craig Williams said Citadel was a perfect fit, in line with his company’s strategy of growing its presence in copper mining.

“The acquisition of Citadel will achieve our stated goal of securing a significant near-term development project in a mining friendly jurisdiction," Williams said in a statement.

Each Citadel director and a number of Citadel shareholders, including its joint venture partners in Jabal Sayid, collectively representing 19.9% of Citadel’s share register, have already struck separate pre-bid acceptance agreements with Equinox for all their Citadel shares, according to Equinox.

Citadel is being advised by Gryphon Partners. Rothschild is advising Equinox.