Sudbury FNX and Vancouver Quadra Merger to Open Global Projects to Northern Firms – by Nick Stewart

This article was orginally published in Northern Ontario Business on April 23, 2010. Established in 1980, Northern Ontario Business provides Canadians and international investers with relevant, current and insightful editorial content and business news information about Ontario’s vibrant and resource-rich North.

Copper production the focus of new company

Northern Ontario mining suppliers may be able to tap into global mining projects, including a $2-billion mine construction project in Chile, as a result of the recently announced merger between Sudbury miner FNX Mining Company Inc. and Vancouver-based Quadra Mining Inc.

“As part of the integration of the two companies, we’ll look at our purchasing systems and resource material and use our larger orders and larger demands in order to both save money and rationalize how we deal,” says Dave Constable, vice-president of investor relations with FNX.

“So I definitely think there will be opportunities for Sudbury suppliers, because they are global and already do supply to Chile. The new company will rationalize the purchasing systems and make opportunities available to suppliers for both companies to be competitive and bid on those things.”

Announced in late March, the merger of equals will create intermediate copper producer Quadra FNX, amalgamating FNX’s projects in the Sudbury Basin with Quadra’s projects in Nevada, Arizona and twin mining projects in Chile. This includes the Sierra Gorda advanced exploration copper-molybdenum project where a scoping study has has outlined 25-year mine life and 18 billion pounds of copper resources. It’s due for a 2013 start-up, with a “considerable” tentative capital cost of $2-billion.

Northern firms may access the project through the new company, says Constable, as well as any number of other opportunities Quadra FNX will be able to offer as it looks at expanding existing operations in both Sudbury and Chile.

The company has already committed to spending $100-million in the Sudbury basin in 2010. Half that total will be spent on advancing the Levack Footwall Deposit, with the remainder going to production-related exploration and development, as well as “blue-sky” exploration of project such as the recent Victoria discovery.

Other opportunities may also be presented to northern businesses in the future as Quadra FNX is committed to continuing to grow and pursuing mergers with additional companies in big, low-risk mining camps.

“This is the first step only, not the final destination,” says Constable. “In the base metal sector, size does matter. New projects require billions of dollars in new capital, and small and micro-sized companies in the sector just aren’t able to finance those kinds of new projects, so for us it’s a platform to become the lead consolidators in the base metal sector.”

Much of this is being driven by the philosophy held by both FNX and Quadra that copper will escalate in price and importance over the next decade. This is largely due to the ongoing growth of infrastructure and urbanization of China, which remains the world’s largest buyer of copper while only having three per cent of the world’s resources and reserves of the base metal.

Indeed, the 460 people employed in FNX’s current Sudbury operations would appear to have a secure future as the new combined company looks to the horizon with great ambition, says Constable.

“Anything that we ever contemplated doing, we have more ability to do so now,” said FNX Chairman and CEO Terry MacGibbon in a conference call with investors. “This bulked-up Quadra FNX company provides a fabulous combined skill set to be able to do any operation just about anywhere in the world, including Sudbury.”

With a combined market capitalization of $3.5 billion and $550 million in cash, the new company will draw on the specialized abilities of both firms, said MacGibbon. This includes the open mining and metallurgical expertise of Quadra, and the underground mining and exploration talent of FNX.

Following the merger, the new company will be owned 48 per cent by FNX shareholders and 52 per cent by shareholders of Quadra.

By 2011, the first year of combined production, the new company will have $1.5 billion in revenue, with an estimated annual production of 300 million pounds of copper and 150,000 ounces of precious metals.

With “one of the highest-grade copper orebodies in the world” in the Levack Footwall Deposit, the Sudbury operations will be considered one of the core assets of Quadra FNX, said Paul Blythe, Quadra president and CEO.

“This is a seat at the trillion-dollar table and we intend to capitalize on that,” said Blythe, referring to the exploration potential and long history of production in the Sudbury Basin.

The company will continue to maintain separate offices in Toronto and Vancouver.

The move must be approved at shareholder meetings by both companies, which will be held May 19. The merger is expected to close shortly thereafter, with MacGibbon becoming non-executive chairman of Quadra FNX while Blythe will serve as president and CEO.

Comments are closed.