KGHM Climbs From 2-Month Low as Slump on Quadra Deal ‘Overdone’

KGHM Polska Miedz SA, the copper miner with the largest European output, rebounded from a two-month low as Societe Generale SA said a selloff on a deal to buy Canada’s Quadra FNX Mining Ltd. was “overdone.”

KGHM rallied as much as 3.9 percent and traded 2.6 percent higher to 125.4 zloty at 10:47 a.m. in Warsaw, valuing the Lubin, southern Poland-based producer at 25.1 billion zloty ($7.5 billion). The shares slumped 8 percent yesterday after announcing a deal to buy Quadra for C$2.87 billion ($2.84 billion) as Poland’s sole copper producer seeks to cut production costs and raise output.

The stock drop reflected “a fear that the deal will drain the company’s cash and significantly lower dividend prospects,” Leszek Iwaszko, a Warsaw-based analyst at Societe Generale wrote in a note to clients today. “This is overdone in view of the balance of deal strengths and weaknesses.”

Three-month delivery copper rose as much as 1.5 percent to $7,950 per metric ton in London on speculation European Union leaders will step up efforts to contain the sovereign-debt crisis, boosting the demand outlook for base metals.

Quadra’s purchase is set to be KGHM’s second takeover outside Poland in almost two years and the largest overseas acquisition by a Polish company. KGHM will pay C$15 a share, a 41 percent premium to Quadra’s 20-day volume-weighted average price, the Vancouver-based company said yesterday. The transaction, expected to close in the first quarter, will be funded using existing cash on hand.

The deal will give KGHM access to “attractive resources in the areas of low geopolitical risk” and creates long-term potential to lower costs of production, according to Societe Generale. The offered price is “materially below” the average price projection of C$18.15 per Quadra share based on research notes from 13 analysts as shown in a Bloomberg consensus, the bank said.

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