EQN 0.00% $7.85 equinox minerals limited

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    AT LUMWANA SITE, Zambia -At Lumwana, there is a palpable sense of energy in the air. After years of preparation and hard work, this massive copper project in a remote corner of northwest Zambia is just months away from production.

    More than 4,000 local workers mill around the site as construction reaches its final stages. A huge processing plant sits idle, ready to process ore from two nearby pits. An army of gigantic Hitachi EH4500 diesel-electric trucks has already started hauling ore.

    An employee village, which will house 1,000 worker families, is rapidly being erected.

    Lumwana is the brainchild of Equinox Minerals Ltd., a company that has gone from virtual obscurity three years ago to being one of the most heavily traded names on the Toronto Stock Exchange; it was third on the entire TSX 300 last year.

    Despite a hefty market cap of more than $3-billion, Equinox is essentially a "junior" company. It has one major project and no revenue. But the mine will soon be producing 169,000 tonnes of copper a year, with uranium to follow.

    It will be Africa's biggest copper mine and will make Equinox a major player in the industry.

    This is not the way it is supposed to happen. When junior companies identify big deposits, their job is usually to sell out to the highest bidder before there is any construction risk.

    Instead of following that path, Equinox became a typically African success story by showing some initiative and bringing the project along on its own. It has done almost everything right. And now it has to ignore the takeover speculation as it works through the final few months to production.

    Like many African mining stories, Equinox has its roots in Australia and Canada.

    Management is based in Australia, and they took the company public there in 1994. But they found a more welcome home in 2004 on the TSX, where they reached investors who were used to the riskier parts of the world.

    At the time, Equinox was a $50-million company trying to raise more than $500-million for a remote, low-grade project in a land-locked country that had gone undeveloped for a long time.

    It was a hard slog.

    "We went backward. We practically halved in market cap the first year," says Craig Williams, Equinox chief executive. "It took persistence and having a good story."

    Lumwana was discovered in 1961, but there was no serious work done on it until Equinox got involved in 1999. At the time, the property was controlled by Phelps Dodge Corp., a major producer that showed little interest in it. Mr. Williams formed a joint venture with Phelps in which Equinox could earn 51% of Lumwana by investing US$10-million and completing a feasibility study. Later, he struck a deal to buy Phelps out for a laughable US$5-million. That contract is framed on the wall at Equinox's head office today.

    "You have to put it in context," Mr. Williams says. "Copper was 63¢ [a pound]. Frankly, Phelps Dodge was struggling at that point and selling assets all over the world. We just hit them at a good time."

    Equinox eventually identified a measured and indicated resource of about 13.8 billion pounds of copper and 21.8 million pounds of uranium. That is big enough to be a world-class resource, but there were still those who complained it was too low-grade or too remote to get developed by anyone, much less a little-known junior.

    Mr. Williams set out to prove them wrong. He put together a team with experience building mines in Africa, and he has kept them together for five years. Project manager Harry Michael also built the Geita mine in Tanzania, which is one of Africa's largest gold mines. He ended up bringing nearly all of Geita's senior management with him to Equinox.

    Construction of the mine started in earnest in late 2006, and investors gradually started to understand that Lumwana was for real. The stock vaulted to more than $5 today from less than $1 in late 2005.

    Mr. Williams initially thought he would need to raise about US$350-million to build the mine. It ended up costing nearly US$800-million. But Equinox has done a remarkable job of keeping the project on budget as competitors struggle with spiralling costs.

    The key move was ordering the big mining and plant equipment years before it would be needed. Equinox did an equity raising of $29-million in 2005, and nearly all of it went right out the door in the form of deposits on equipment. It was a big risk, but the company saw the shortages coming and locked in ahead of time. The company bought 27 of the monster Hitachis at a cost about US$3.5-million each. They weight 200 tonnes and can handle loads of 240 tonnes.

    Equinox also secured crucial offtake agreements with two smelters, and a 15-year power supply contract with Zambia's state-owned utility, in which it will use about 8% of the country's total supply.

    In Central Africa, another big problem is the unskilled workforce. About 80% of workers in rural Zambia have never even driven a car, much less a giant truck. Equinox brought in four simulators, at a cost of about US$400,000 a piece to give each employee at least 40 hours of training before they start working in the open pits.

    For their services, workers get on-site housing, as well as salaries of about $14,000 a year. That amounts to a Lotto 6/49 jackpot in this corner of the world . The company is worried some of the tiny homes will end up housing nine or 10 people as employees move in their family and friends.

    Lumwana is about 83% complete, and it is easy to get a sense of what it will look like when up and running. What stands out is how big it is: the land position covers 1,355 square kilometres, and Equinox has utilized 40,000 cubic metres of concrete and 2,000 tonnes of steel. About 60 kilometres of piping and 180 kilometres of electrical cable will go in over the next few months.

    While the company has silenced the doubters who didn't think the mine would ever get built, a new theme has emerged among investors that Equinox is less than thrilled about: A potential takeover of the company.

    The speculation began in earnest this past December when rival First Quantum Minerals Ltd. announced it bought 17.27% of Equinox shares. First Quantum has denied investing for any reason other than Lumwana is a good project. But some analysts speculate Equinox could effectively be in play. Alec Kodatsky at UBS even published a note saying a major company could expand Lumwana faster than Equinox.

    First Quantum was the first company to set up a successful mining operation in the Zambian copperbelt back in the 1990s, and has paved the way for Equinox and others. But the Equinox team feels slighted by First Quantum, who they claim were dismissive of Lumwana at the beginning. It's a different story today; First Quantum is now talking up potential synergies between Lumwana and its own Kansanshi project nearby.

    "If, for whatever reason, Equinox has any problems in the future, then we might review that stake. Either increase ir or decrease it. We have those options," says Clive Newall, president of First Quantum.

    While First Quantum appears to be in no hurry to buy more Equinox shares, experts say there is good reason for it to do so. First Quantum stock has outperformed every mining stock in the S&P/TSX Composite Index in the past few years because it built the best growth profile. However, much of that is in the politically unstable Democratic Republic of Congo, where title is a concern. Investors may prefer a focus on Zambia, a more stable country that First Quantum knows well.

    None of this talk makes Mr. Williams very happy. He knows Equinox is most vulnerable now, because the stock will get valued higher once Lumwana is in production. And he knows Lumwana is one of the few greenfield copper projects big enough to interest a major. He thinks First Quantum just recognized it was cheap and was not going to get any cheaper.

    He says he "absolutely" does not want to sell at this stage of the game, and that any company thinking of coming after him should be prepared for a fight.

    In the meantime, he can finally enjoy a little credit for building a giant mine in an obscure corner of the world that almost no one believed in until he convinced them otherwise.

    "I just had a meeting with one of the world's largest mining companies who had just been through the copperbelt in the DRC and Zambia," he says.

    "They visited all the copper mines. And when they got to Lumwana, they said 'This is the only one that is being run like us, like we would do it.' "
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