Falco looks toward busy but Voisey-less future

It is not without regret that Falconbridge (TSE) sails from the nickel-plated coast of Voisey’s Bay, Labrador, yet president Frank Pickard is confident there are higher profits to be made elsewhere.

Addressing a packed house at the company’s annual meeting, Pickard explained the decision to withdraw from the billion-dollar bidding war for control of the nickel-copper-cobalt deposit: “There is a point at which we became convinced, by straight economics, that it did not make sense to offer more.”

Falconbridge’s final offer for a 75% share of Diamond Fields Resources (TSE), the company that controls the deposit, was $4.1 billion. Nickel giant Inco (TSE), however, countered with a $4.3-billion bid, forcing Falconbridge to withdraw.

He said Voisey’s Bay, while a strategic deposit to own, would not have met the 15% profit level normally sought by Falconbridge.

“It’s not the end of the world for us,” he added. “We have other exploration projects that have significant amounts of nickel. We have to take the consolation prize and get busy.”

That prize is the $101-million combined commitment and non-completion fee Diamond Field Resources (TSE) must pay Falconbridge for passing the company’s offer up in favor of the deal with Inco.

With a majority stake in Voisey’s Bay no longer a possibility, some speculated that Falconbridge might buy a small piece from Inco. However, Pickard set the record straight at the meeting: “I just wouldn’t be comfortable being a 24% passive investor. We could invest somewhere else and get a better rate of return.

“Now that we don’t have Voisey’s Bay, we’ll be looking at any major nickel deposit anybody has got on the market,” he said.

Falconbridge has since announced it acquired an option to earn a 50% interest in the Nickel Chase project in northern Quebec from Glencairn Explorations (ASE) and Rupert Resources (VSE). Falconbridge must fund $700,000 worth of exploration by Dec. 31, 1998, and pay Glencairn and Rupert each $60,000. Falconbridge can earn a further 10% interest by funding 80% of the costs of a feasibility study.

The 70,000-hectare Nickel Chase property is 100 km west of Falconbridge’s Raglan nickel project and is thought to lie in a geological environment favorable for nickel deposits.

Pickard said Falconbridge plans to bring 75,000 tonnes of 4% nickel ore from Raglan to Sudbury, Ont., for smelting if the price of nickel increases. “We can start production at any time.”

The Raglan mill is scheduled to open by the fourth quarter of 1997.

Over the next 15 years, the company will develop and expand Raglan and the Collahuasi copper mine in Chile. This will help the company progress toward its goal of doubling fully integrated nickel production to 200,000 tonnes per year, while maintaining a steady 15% return on investment after tax. Copper output will be tripled, to between 400,000 and 500,000 tonnes.

As for new exploration opportunities, Pickard said gold projects, which Falconbridge had sought in recent years, are out, while platinum group element (PGE) projects are in. Falconbridge will also be entering into a new business — possibly titanium or borates — by 2005. But the Sudbury nickel operations will remain the core of Falconbridge’s business. “We’d like to keep Sudbury running at its present rate forever,” he said, noting that Falconbridge would have to open a new mine in the area in the next 10 years to keep its Sudbury operations going.

Falconbridge reported consolidated earnings of $72.4 million (or 4 cents per share) for the three months ended March 31, compared with $96.5 million (55 centsper share) for the same period in 1995. Its consolidated revenue of $573.5 million was off $41.2 million from 1995, and operating income was down $61.2 million, to $119.9 million. The poor performance stemmed from: lower average realized prices for nickel, ferronickel, copper and zinc; lower sales volumes for nickel, zinc and precious metals; and less favorable U.S. exchange rates. The decreases were partly offset by higher custom feed income.