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Copper growth for Quadra through Centenario acquisition

first_imgQuadra Mining and Centenario Copper have entered into a definitive agreement whereby Quadra is expected to acquire, by Plan of Arrangement, all of the issued and outstanding common shares of Centenario at an exchange ratio of 0.28 Quadra common shares for each whole Centenario common share. Centenario’s principal asset is the Franke SX/EW, heap leach project in northern Chile, containing an NI 43-101 compliant estimated mineral reserve of 41.7 Mt with an average grade of 0.75% total Cu. The Franke processing plant has a nominal design capacity of 70 Mlb/y of copper cathode over its estimated current 8.6 year mine life. The mineral reserves reflect today’s release by Centenario of an updated mine plan, mineral reserves and operating and capital costs for the Franke project. Centenario is currently preparing a new NI 43-101 compliant report which will include the updated information and other prescribed information which will be issued prior to the mailing of the Information Circular to Centenario shareholders. Quadra is aware of the input data, as provided under a confidentiality agreement, and has considered this in its offer to Centenario, but has not been involved in the new 43-101 as above.On November 13, 2008, Centenario reported that the Franke project faced a projected funding shortfall of $26 million, due to additional capital and working capital requirements. On November 20, 2008 Centenario reported that, with the consent of its lenders, it had repurchased a portion of its outstanding 2010 copper hedge contracts for net proceeds of $26 million, which were placed into an escrow account with its lenders. The release of the hedge proceeds were subject to i) the completion, to the satisfaction of the lenders, of due diligence activities underway by the lenders’ Technical Agent in relation to an updated Franke Development Plan and ii) the company’s ability to continue to meet the terms of the existing Franke Credit Facility, or such amendments as the lenders shall require.As of the date hereof, Centenario has not yet reached agreement with its lenders for the release of the hedge proceeds, or an equity funded Cost Overrun account and the remaining credit available under the facility. The combination with Quadra should allow Centenario to restructure or refinance its existing loan and resolve its funding shortfall.Based on the currently anticipated restructured debt amount, Quadra and Centenario estimate that an additional $25 million in funding will be required to bring the Franke project to positive cashflow, based on the current Centenario start-up schedule. In connection with the transaction and to provide Centenario with liquidity support , Quadra has agreed to loan Centenario up to $3.5 million and subscribe for 10.24 million treasury common shares of Centenario, at a subscription price of C$0.80 per share, for a total aggregate investment of some $10 million. The loan and share subscription are conditional upon, among other things, Centenario entering into a commitment letter with its existing or new lenders, by no later than March 31, 2009, with respect to the restructuring or refinancing of Centenario’s senior indebtedness on terms that are acceptable to Quadra, in its sole discretion and judgment, and the approval of the TSX. The proceeds from the loan and subscription will be used by Centenario for the Franke project, and form part of the estimated $25 million net funding need. Upon completion of the plan of arrangement, Quadra would commit the remaining portion of the $25 million funding required by the Franke project , based on the current Centenario start-up schedule.Quadra says the benefits of the combined company from the acquisition by Quadra of Centenario include:Accelerates production growth with an anticipated additional 70 Mlb of annual copper production – an increase of approximately 30% in Quadra’s anticipated annual copper production by 2010Quadra’s proven development team is uniquely positioned to complete the Franke project having successfully completed and brought into production the Carlota heap leach/SW-EW operation in 2008Proforma company maintains a comfortable cash balance, post capital and working capital injections in the Franke projectLowers average cost of Quadra’s production as the Franke project is expected to have an operating cash cost of less than $1.30/lb of copper produced, based on the updated information provided by CentenarioEstablishes copper production presence in northern Chile with potential for future synergies with Quadra’s nearby advanced Sierra Gorda projectCreates a diversified asset base across multiple producing mines and a strong portfolio of internal growth projects by adding the Franke project and related satellite properties to Quadra’s existing development projects at Sierra Gorda and MalmbergContinues strategy of building a portfolio of quality copper producing assets in low political risk jurisdictions and strongly positions the combined company for continued copper-focused base metals consolidationAccretive to Quadra’s cash flow and earning per share upon full production.Paul Blythe, President and CEO of Quadra said “The acquisition of Centenario Copper is a perfect fit to our strategic growth plan of becoming a mid-tier, copper focused metals producer and represents excellent value for our shareholders. With our technical expertise, development and funding capability, Quadra has all the required skills to complete the construction and undertake the ramp up to full production. The transaction further de-risks Quadra through the diversification of cash flow sources across multiple projects and by 2010, Quadra, is expected to produce approximately 275–300 Mlb/y of copper, all in low political risk jurisdictions, making it one of the larger mid tier copper producers.”Richard Colterjohn, President and CEO of Centenario Copper said, “The transaction provides Centenario shareholders continued exposure to the Franke project while leveraging Quadra’s technical expertise and financial strength. I am confident in their ability, as proven operators at Robinson and at their recently developed Carlota SX/EW mine, to ramp up the Franke Project to its 70 Mlb annual production capacity as quickly and effectively as possible. I believe that Centenario shareholders should benefit from Quadra management’s clearly articulated vision of becoming a leading consolidator and premier investment vehicle in the mid-tier copper space, which offers the significant potential for a positive re-rating of Quadra’s shares, both as a result of this transaction and longer term.”last_img read more

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