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Analyst Actions: Credit Suisse Says Acquisition by KGHM Gives Quadra Conservative Valuation

KGHM's acquisition of Quadra for C$15/Share. "QUX announced an agreement with KGHM Polska Miedz S.A. (KGH.WA, Neutral, TP PLN 173.00) whereby KGHM will acquire QUX for cash of C$15/share. The total transaction value is approximately C$3.5Bln, including $500Mln of outstanding gross debt."

Deal gives QUX conservative valuation. "Although the KGHM bid represents a premium of ~41% to the 20-day VWAP, the implied valuation reflects a discount to historical precedents and our estimate of full-value. The KGHM offer reflects 0.7x our NAVPS of C$21/share, and implies a normalized copper price of $2.40/lb copper (1x P/NAV), which is a 4% discount to our current long-term price estimate of $2.50/lb and a 33% discount to current spot of $3.56/lb. On an EV/EBITDA basis, the transaction values QUX at a relatively conservative 4.7/4.6x on FY12/13."

Conservative valuation leaves room for higher bids. "In our view, QUX could be a nice fit for Teck Resources (TCKb.TO, Outperform, TP $62) with TCK gaining from faster growth in Chile copper production with Sierra Gorda coming online earlier than TCK's current growth projects (QBII and Relincho), growing its already strong partnership with Sumitomo (which controls 9.7% of TCK voting shares), and establishing a presence in Sudbury (28% of QUX's NAV). We further believe Vale and Xstrata could be potential suitors as well."

Valuation: "Based on our conservative view of valuation and other possible bidders emerging, we are maintaining our Outperform and TP of $20, which is based on a 60/40 weighting of 1x our NAVPS of C$21and 5.5x FY12/13 EV/EBITDA."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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