Agreement regarding the purchase of the shares of Quadra FNX Mining Ltd.

Tuesday, 06 December, 2011
Report 40/2011

The Management Board of KGHM Polska Miedź S.A. ("KGHM") announces that KGHM and the company Quadra FNX Mining Ltd. ("Quadra FNX") signed on 6 December 2011 a binding conditional Agreement, under which KGHM will acquire from existing shareholders, under a Plan of Arrangement recommended by the Board of Directors of Quadra FNX, 191 501 611 shares of Quadra FNX with its registered head office in Vancouver, B.C., ("Shares"), representing 100% of the share capital of Quadra FNX ("Agreement"). In accordance with the Agreement, the purchase price of the shares amounts to CAD 2.87 billion (the equivalent of PLN 9.44 billion, based on the average rate of the National Bank of Poland for CAD/PLN from 6 December 2011) i.e. CAD 15.00 per share (the equivalent of PLN 49.31 based on the average rate of the National Bank of Poland for CAD/PLN from 6 December 2011), representing a premium of 41% above the 20 trading day volume-weighted average price (VWAP). The shares will be paid for in cash. 

Closure of the transaction was made contingent on the fulfillment of conditions precedent, consisting of gaining shareholder approval as expressed by a majority 2/3 of the votes at the General Meeting of Quadra FNX, court approval for the transaction and regulatory approvals by appropriate monopoly-control bodies, and by the Canadian Minister of Industry. Quadra FNX is obliged to convene a General Meeting of Quadra FNX at the earliest possible time, but no later than 20 February 2012. Should Quadra FNX withdraw from the transaction, KGHM will be paid compensation in the amount of CAD 75 million (the equivalent of PLN 247 million, based on the average rate of the National Bank of Poland for CAD/PLN from 6 December 2011). KGHM is entitled to alter the pricing terms should there arise a competing offer. Closure of the transaction is anticipated at the end of the first quarter of 2012. The terms of the Agreement conform to market practice, and do not differ from terms generally used in these types of agreements. 

Quadra FNX is a mid-tier mining company with offices in Vancouver and Toronto, Canada. The company's shares are listed on the Toronto Stock Exchange – TSX. The operations of the company are focused on mined metals production (including copper, nickel, gold, platinum, palladium) in the following mines: Robinson and Carlota in the USA, Franke in Chile, McCreddy West, Levack (with the Morrison deposit) and Podolsky in Canada. Quadra FNX also has pre-operational mining projects at various stages of development: Sierra Gorda in Chile (the company's major development project, involving one of the largest copper and molybdenum deposits in the world), Victoria in Canada and Malmbjerg in Greenland. The company in addition is pursuing the Kirkwood, Falconbridge and Foy exploration projects in the region of Sudbury in Canada, and also owns a minority stake in Capstone Mining. In 2010, the company produced 115 thousand tonnes of Cu in concentrate, giving it 21st place amongst the world's major copper producers. The company's market capitalisation at 6 December 2011 amounted to CAD 2.17 billion (the equivalent of PLN 7.14 billion, based on the average rate of the National Bank of Poland for CAD/PLN from 6 December 2011). 

The signing of this Agreement, which opens the way for the acquisition of 100% of the shares of Quadra FNX, is in conformance with the strategy of KGHM. It provides for an increase in annual production by the KGHM Group of over 100 thousand tonnes of copper beginning from 2012; in 2018 this will increase to over 180 thousand tonnes. In addition, following the start-up of projects in Sierra Gorda in Chile (2014) and Victoria in Canada, this will lead to a substantial decrease in unit copper production costs in the KGHM Group. The purchase of these shares will be funded from the existing cash resources of the Company, derived from operational surpluses and from the sale of the telecom assets consisting of shares in Polkomtel SA and Dialog SA. 

This Agreement represents a "significant agreement" according to the Decree of the Minister of Finance dated 19 February 2009 regarding current and periodic information published by issuers of securities and conditions for recognising as equivalent information required by the laws of a non-member state, as its value exceeds 10% of the equity of KGHM. 

Legal basis: § 5 sec. 1 point 3 the Decree of the Minister of Finance dated 19 February 2009 regarding current and periodic information published by issuers of securities and conditions for recognising as equivalent information required by the laws of a non-member state (Journal of Laws from 2009 No. 33, item 259 with subsequent amendments)