Norwegian remedy prescribed

Looking to grease regulatory wheels, Falconbridge (FAL-T, FAL-N) and Inco (N-T, N-N) have formalized their long-proposed remedy of selling Falco’s high-grade Nikkelverk nickel refinery in Norway.

LionOre Mining International (LIM-T, LIM-A, LOR-L) can pick up the refinery, which has an annual capacity of around 85,000 tonnes of refined nickel, 39,000 tonnes of refined copper plus cobalt, platinum group metals, gold and silver, for US$650 million.

The planned sale hinges on the European Commission and the U.S. Department of Justice approving the marriage of Inco and Falconbridge, and Inco acquiring a controlling stake in Falconbridge. Such approval has been delayed for months as both regulators are concerned that the enlarged Inco would have a stranglehold on the superalloy and nickel-plating markets. The sale of Nikkelverk is designed to address these concerns.

LionOre will cover the price with US$400 million in cash, accompanied by shares worth US$250 million. The 49.1 million newly minted shares would represent an 18.4% stake in LionOre. Falconbridge has agreed not to vote the shares, or boost its stake for two years; it also must reduce its holding in LionOre over an agreed upon period.

LionOre plans to finance the cash portion of the deal via a non-recourse syndicated facility. Falconbridge can terminate the deal by paying an undisclosed break fee.

In addition to the refinery, LionOre will inherit Falconbridge’s marketing and custom feed organizations that market and sell Nikkelverk’s finished nickel and other products. The offices in Brussels, Tokyo and Pittsburgh also arrange third-party feed for the facility.

Under the plan, the enlarged Inco would continue to supply 60,000 tonnes of nickel-in-matte annually to the refinery over 10 years.

“We are pleased in having reached this agreement with LionOre,” said Inco chief executive Scott Hand. “This is an important milestone in the regulatory clearance process and we look forward to completing this process so that the acquisition can be cleared by the U.S. Department of Justice and the European Commission.”

Inco and Falconbridge expect both regulatory bodies to deliver a verdict on the remedy and merger transaction by the end of June. That deadline coincides with the expiry of Inco’s thrice-extended, $19-billion offer for Falconbridge. The regulators were previously expected to hand down their decisions in mid-July.

LionOre CEO Colin Steyn says the proposed acquisition accelerates his company’s planned vertical integration and complements its strategy to commercialize the Activox hydrometallurgical process. The patented Activox process involves the combination of ultra-fine grinding and mild-pressure oxidation to treat a variety of metal sulphide concentrates.

A bankable feasibility study of a full-scale Activox plant, dense media separation (DMS) circuit and platinum group metals recovery circuit is well advanced at LionOre’s Tati nickel operation in Botswana. The Activox refinery is scheduled for commissioning in 2008, with annual production pegged at around 20,000 tonnes until at least 2024.

Steyn says the potential addition of the Nikkelverk refinery sets the stage for LionOre to become a major player in the nickel industry. The acquisition would be immediately accretive to LionOre’s earnings and provide strong cash flow for future growth.

During the first quarter, LionOre produced 6,724 tonnes nickel at a cash cost of US$3.75 per lb. The company has mining operations in Western Australia (Lake Johnston, Black Swan, Avalon, Thunderbox and Waterloo and Honeymoon Well), South Africa (Nkomati Nickel) and Botswana (Tati Nickel).

LionOre already ships ore to Nikkelverk, and Inco’s Sudbury, Ont., smelter, and is strategically allied with Inco regarding LionOre’s proprietary Activox process.

Poison Pill Pickle

Checking in on the merger melee, the Ontario Securities Commission has agreed to consider Xstrata’s (XSRAF-O, XTA-L) request to have Falconbridge’s shareholders’ rights plan terminated. A hearing is scheduled for June 27.

Falconbridge first adopted its rights plan in September 2005; the plan expired after six months, before being put before shareholders for approval. Earlier this year, Falconbridge adopted a new shareholders’ rights plan, effective immediately.

Under the plan, rights (good for shares at half the going rate) would be triggered by any bid for at least 20% of Falconbridge’s shares. A permitted bid needs to be made to all of Falconbridge’s shareholders.

Xstrata says the plan has still not been approved by Falconbridge shareholders, and, in fact, there is no longer any need for the plan, as Falconbridge is currently the subject of two competing bids aimed at all of Falco’s outstanding shares.

Falconbridge CEO Derek Pannell counters that Xstrata is just looking for permission to acquire up to another 5% of Falconbridge in an attempt to obtain a blocking position and end the current competitive bidding process.

Falco says its plan allows permitted bids for all of its shares, but that Xstrata’s offer does not comply in that it includes a provision allowing it to waive the minimum level of acceptance by shareholders, giving the Swiss miner the option to acquire a small percentage of shares and gain effective control.

Xstrata already owns just shy of 20% of Falconbridge, and has offered $52.50 cash per share, or $16.1-billion, for the rest of the company. The bid values the whole company at around $20 billion, trumping Inco’s friendly offer. Xstrata’s offer expires July 7.

Meanwhile, In Ottawa, the all-party Commons industry committee has unanimously recommended that Investment Canada postpone its review of Xstrata’s bid until all other international regulatory bodies have ruled on the proposed Inco-Falconbridge merger. The federal government is reviewing the committee’s request.

Inco remains the target of a $17.8-billion hostile takeover bid by Teck Cominco (TEK.B-T, TCKBF-O). The rebuffed offer expires on July 24.