Analysts are praising the proposed merger of equals between Quadra Mining Ltd. and FNX Mining Co. Inc.
The consensus view is that Quadra is sacrificing short-term dilution in order to achieve diversification and economies of scale. Fraser Phillips, an analyst at RBC Capital Markets, wrote in a note that his forecasts for earnings and cash flow per share fall by an average of 10% to 12% from 2011 through 2013 as a result of the transaction. But he considers that an acceptable trade-off given the long-term benefits.
"The merged company will provide investors with leverage to copper in a mid-size North American mining company, providing an alternative to First Quantum and Inmet," he wrote.
Tom Meyer, an analyst at Raymond James, wrote that the new Quadra FNX should be a serious player in the M&A space. He noted that the shortage of good management teams, along with the insane costs to finance projects, creates opportunities for acquisitions. Until now, the only mid-sized copper company in a good position to capitalize on them was First Quantum, he wrote.
UBS Securities analyst Onno Rutten highlighted the relatively high near-term operational risk of the company. But he still maintained a "buy" rating and $21.00-a-share target on Quadra, noting that it has attractive growth prospects with the Levack Footwall in the near term and Sierra Gorda in the long term.