Falco concedes

A year-long quest is finally coming to an end for Xstrata (XSRAF-O, XTA-L, with Falconbridge’s (FAL-T, FAL-N) board of directors effectively handing over the reins of the iconic Canadian mining company.

With no competing bid on the horizon, and shareholders recently snubbing a friendly bid from cross-town rival Inco (N-T, N-N), Falco’s management finally broke and told shareholders to cash in their shares with the Swiss-based miner.

Investors heeded that advice in droves with some 257.7 million shares taken up under the offer by the end of business on Aug. 14. The shares represent around 67.8% of Falco’s fully diluted shares, and boost Xstrata’s stake to 92.1%.

Xstrata plans to pay $62.50 for each of the shares by Aug. 17, and has extended its bid until Aug. 25 to allow for the remaining shares to be turned in. Thereafter, the company plans to compulsorily acquire any shares that remain outstanding.

Xstrata says it is already working closely with Falco’s management to integrate the two companies. Xstrata expects to deliver annual savings of around US$120 million via reductions in Falco’s head office and administrative functions and certain exploration activities outside Canada. It also plans to work with the eventual winner of the battle for Inco to realize the enormous potential savings proposed by joint venturing some Falco and Inco operations in the Sudbury, Ont., region.

In conceding, Falconbridge CEO Derek Pannell fired a parting shot warning his company’s shareholders they should tender by the Aug. 14 deadline, as there could be no assurance they would be able to sell their shares to Xstrata at the bid price later on, despite Xstrata’s insistence that it wanted all of Falconbridge.

Xstrata originally picked up a 19.9% stake in Falconbridge from Brookfield Asset Management (BAM.A-T, BAM-N), then Brascan, for around $2 billion in mid-August 2005. At the time, Xstrata CEO Mick Davis said his company did not intend to remain a long-term shareholder with a minority interest — a position he consistently maintained throughout the battle for Falconbridge.

Davis said his company’s original stake, acquired at $28.00 per share, put it in a unique position during the bidding process in that it allowed for a “definitive, compelling and generous offer,” while ensuring that the transaction would remain value, earnings and cash-flow accretive.

On a friendlier note, Pannell applauded Xstrata’s management, which he said values both the physical and human assets at Falconbridge, and the company’s commitment to base the enlarged company’s nickel, copper and zinc offices in Toronto. Xstrata also pledged a 3-year moratorium on layoffs among operating staff at any of Falco’s operations in Canada.

Xstrata’s win means it will have to absorb around US$192 million in payments related to a 75-per-share dividend previously declared by Falco, and a US$450-million break fee payable to Inco.

Quebec investments

In other news, Falconbridge said it plans to spend some $540 million to expand its Raglan nickel-copper mine in Nunavik Territory in Quebec. Of the total, $240 million will be spent over six years to replace reserves mined since operations began in 1997. Another $250 million will go toward expanding nickel ore production by 30% to 1.3 million tonnes a year by 2009. The expansion will create 50 new jobs and require a $50-million facelift for the loading dock at Deception Bay.

The Falconbridge nickel mining camp at Raglan consists of three underground mines, an open-pit mine plus a processing mill. All are connected by road to a landing strip at Donaldson and to harbour terminals at Deception Bay. Ore from the mine is crushed, ground and processed into nickel-copper concentrate at the Raglan plant.

The company has also announced that it will go ahead with the $145-million development of its Perseverance zinc mine in northwestern Quebec’s Matagami region.

The cluster of small, high-grade, massive sulphide deposits at Perseverance sat undeveloped for several years, but Falco says that higher zinc prices and the provincial government’s support now make mining economical.

The development announcement was made at an event attended by Quebec Premier Jean Charest and provincial minister of Natural Resources and Wildlife, Pierre Corbeil.

Falco says construction should last about two years, with the mine’s life estimated at roughly five years. The mine will employ some 250 people during the peak period of construction and about 225 thereafter.

Perseverance hosts measured and indicated resources in three near-surface deposits — named Perseverance, Perseverance West and Equinox — totalling 5.1 million tonnes grading 15.8% zinc, 1.24% copper, 29 grams silver per tonne and 0.38 gram gold per tonne.

Zinc ore will be brought to surface via a single ramp and trucked 6 km away to Falconbridge’s former Lac Matagami mine facilities where, in anticipation of the Perseverance project startup, the company retained the administrative offices and concentrator after the Bell-Allard mine’s 2004 closure.

From there, about 228,000 tonnes of zinc concentrate per year will be shipped and processed at Noranda Income Fund’s (NIF.UN-T) CEZinc refinery in Valleyfield, Que.

Falconbridge owns a 90% interest in Perseverance, with provincial government-owned Socit de Dveloppement de la Baie James holding the remainder.

Noranda’s Matagami exploration office discovered the deposits in early 2000 after following up several blind electromagnetic targets buried under about 35 metres of overburden. For its efforts, the office scooped up awards from the Quebec Prospectors Association and the Prospectors and Developers Association of Canada.

Collectively, the Perseverance, Equinox and Perseverance West deposits represent the largest discoveries in the famous Matagami mining camp since the original Matagami Lake deposit was found in 1965.