Equinox Minerals bids for Citadel Resources

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Quest invested in Citadel Resources (CGG) in 2008 and holds around 5% of the company. In November 2010, Equinox Minerals (EQN) bid $0.105 cash and one EQN shares for every 14.3 CGG shares conditional on 90% acceptance (or 50% acceptance if achieved by 16 December 2010). As a result the CGG price leapt from around 40 cents to around 50 cents at the time of writing, delivering further gains to our investors from this stock. It is our view however that this bid does not fully reflect the value created within CGG over recent years.

Citadel is an explorer and emerging producer in Saudi Arabia with 10 prospective exploration areas, the main one being the Jabal Sayid copper and gold project. Citadel became the first foreign company to be granted a base metal mining licence in Saudi in May 2010. Citadel raised $250 million in June 2010 in order to finance the development of Jabal Sayid. Construction has commenced  with a view to production in early 2012. It is anticipated that CGG will produce at least 57,000 tonnes of copper in concentrate per annum over a life of a mine of 10 years. This production profile is likely to be enhanced by further exploration. The performance of CGG is now linked to the daily movements of EQN shares, as well as the trajectory of the copper price.