Sherritt to triple nickel production with Dynatec takeover

As nickel prices surge to new levels, Sherritt International (S-T) has agreed to buy Dynatec (DY-T), 40% owner of the massive Ambatovy nickel project in Madagascar, for $1.6 billion.

Over the long term, annual production from both companies operating mines is expected to be 109,000 tonnes of nickel and 10,600 tonnes of cobalt, of which Sherritts share will be 49,000 tonnes of nickel and 4,740 tonnes of cobalt.

Nickel has risen to more than US$22 per lb. from less than US$10 per lb. a year ago, giving Sherritt a positive outlook for the future.

Our view is that nickel prices will be significantly in excess of $6 per lb. in the long run, said Sherritt president and CEO Jowdat Waheed during an April 21 conference call. We make our decisions based on the long run and when you flow through the cycle ups and downs, it is our view that this will benefit our shareholders significantly.

Under the deal, Dynatec shareholders will receive 0.19 of a Sherritt share and about 0.0635 of an FNX Mining (FNX-T) share.

Dynatec, based in Ricmond Hill, Ont., has a 24.5% interest in FNX to explore five mineral properties near Sudbury, Ont. the McCreedy, West, Levack, Podolsky, Victori and Kirkwood properties. Dynatec also has a coalbed-methane project covering 42,053 acres in West Virginia.

In a separate but related agreement, FNX has the right to buy Dynatecs Mining Services division from Sherritt for a cash price to be based on an independent assessment.

Sherritts closing share price of $17.15 and FNXs share price of $25.46 on April 19 values Dynatec at $4.88 per share a 29% premium over Dynatecs closing share price that day.

This transaction provides an immediate and attractive premium to Dynatecs shareholders, said Dynatec president and CEO Bruce Walter in a statement. The combination of our companies strengths will benefit the Ambatovy project as it moves forward with development.

Dynatec shares increased 63 — almost 17% — in Toronto today to $4.41 on a trading volume of 120.8 million shares.

Meanwhile, Sherritt shares dropped $2.12, or 12%, to $15.03 on a volume of almost 15 million.

Ambatovy, which has a mine life of 27 years, is projected to produce 60,000 tonnes of nickel per year when it comes on line in about three years. Construction is expected to begin in mid-2007.

The remaining 60% of Ambatovy is owned by Sumitomo Corporation (27.5%), Korea Resources Corporation (27.5%) and SNC Lavalin has agreed to acquire a 5% interest in the project with the closing of project debt financing.

Sherritt has 25 years worth of reserves at its existing metals operations. Sherritt has a 50% joint venture in Cuba with the Cuban government for mining operations and associated processing facilities as well as refining facilities in Fort Saskatchewan, Alberta. Sherritt is also involved in the production of oil, electricity, and the development of coal as an energy resource.