Think small to carve out a mining nicheadmin
Like other mining companies, Vancouver-based Quadra Mining Ltd. has seen the value of its shares climb along with metal prices, with its stock gaining 87 per cent since the beginning of 2006.
So the company might have been expected to use its stock to go shopping in a market awash in cash-and-share negotiations.
Instead, Quadra this week announced an all-cash, $337-million (U.S.) offer for Australian copper producer Equatorial Mining Ltd., saying that it had lined up a $350-million loan to swing the deal.
The idea was to make an offer not likely to be refused, says Quadra’s chief executive officer Paul Blythe.
“We felt the only way to succeed was to put together a transaction that was all cash,” Mr. Blythe said, adding that Equatorial has been up for auction since its majority shareholder made an unsuccessful bid earlier this year to acquire the rest of the company.
“Anybody can still overbid us, and we are waiting with some suspense to see how things play out over the next 45 or 50 days, and then we can actually close the deal.”
The transaction is in line with Quadra’s corporate strategy, which amounts to snapping up scraps the majors have swept off the global mining table.
They might be small bites, the reasoning goes, but if you get enough of them they just might add up to a fair-sized company with a stable of small, but profitable, mines — just the ticket for investors itching for plays that have exposure to a surging copper price brought on by China’s seemingly insatiable appetite for the metal.
Mr. Blythe and Bill Myckatyn founded Quadra in 2002. The two men had met in the 1980s when they were both working at Placer Dome Inc., the Vancouver-based gold producer swallowed by Barrick Gold Corp. earlier this year.
At the time he and Mr. Myckatyn worked there, Mr. Blythe recalls, Placer was running more than a dozen mines, some of them not very big, that together made the company a profitable gold producer.
So Quadra’s founders were familiar with the model of cobbling assets together and using experience gained at one project to launch the next. In addition, through subsequent jobs, they watched, and participated in, an industry consolidation that saw big mining players get bigger and mid-sized players disappear.
Mr. Blythe, for example, spent several years as a manager with powerhouse Billiton PLC, which in 2001 merged with BHP Ltd. to form BHP Billiton, today the world’s biggest mining company.
Along the way, he saw a window opening.
“There were no longer any mid-tier copper companies out there,” he says. “And we felt there was a niche in putting together smaller assets that the big guys really weren’t interested in.”
The founders also believed copper prices would rise, a hunch that has proved correct — although they, and others, have been surprised by just how high prices have climbed. In Quadra’s early days, Mr. Blythe recalls, he and Mr. Myckatyn had lengthy debates over whether to use 85 cents a pound or 87.5 cents in their forecasts. Copper is now trading above $3 a pound.
Quadra’s first asset, the Robinson mine in Nevada, was formerly owned by BHP, which spent $480-million on the complex in 1996 only to mothball it as a result of sagging copper prices in 1999.
Quadra bought the project in April, 2004, for $14.9-million cash, taking on an $18.1-million letter of credit related to reclamation as part of the deal. Quadra went public the same month with a $145-million (Canadian) initial public offering.
Robinson was restarted in October, 2004, and with it in production Quadra was ready to hunt for other projects. The company is looking at regions where its team has experience: Latin America, North America and Australia.
Quadra would consider other areas if it found suitable partners, Mr. Blythe says.
Under the terms of the offer for Equatorial, announced Wednesday, Quadra has the right to match any higher bid that may emerge. Quadra says its bid represented a 32-per-cent premium to Equatorial’s closing share price the day the offer was announced.
If the transaction goes through — Quadra is hoping it will close by September or October — the deal would bump the company’s copper production by 50 per cent, from a forecast 69,000 tonnes this year to about 104,000 tonnes in 2007.
Even at that level, Quadra would be a minnow in a sector dominated by whales: Toronto-based Falconbridge Ltd., the world’s eighth-biggest copper player, produced 462,000 tonnes of copper in 2005.
Quadra CEO Paul Blythe
Family: Married, three children
Education: Bachelor of Science (Honours) in mineral processing from the Royal School of Mines, Imperial College, London.
Gadget rating: Low. “I tell the people I work with that I’m not important enough to have a BlackBerry. But I live by my laptop.”
On location: Quadra’s head office is in Vancouver. Co-founder and chairman Bill Myckatyn lives in B.C.’s Cariboo region; Mr. Blythe works from a home office in Collingwood, Ont., and on airplanes, where he spends a good chunk of each month. “We’ve taken the view that you want to hire the best people you can get, rather than the best people you can get who can move to a certain place. We have people working in Idaho, in Arizona — it’s more of a virtual office situation.”
Best move: Leaving BHP Billiton. Mr. Blythe worked for predecessor company Billiton from 1998 to 2002, leaving after the 2001 merger that created the world’s biggest mining company. “The best part is creating something from scratch.”
Pastimes: Mountain biking, road
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