Falconbridge fends off Eramet at Koniambo

The French government has ruled that partners Falconbridge (FAL.LV-T, FAL-N) and Societe Miniere du Sud Pacifique (SMSP) have met all of the conditions set out under the Bercy Accord.

Signed in 1998, the accord governs the transfer of ownership of the Koniambo ferronickel project in New Caledonia’s Northern province to Falco and SMSP. It included two conditions: completion of a feasibility study and the placement of firm orders for at least US$100 million worth of equipment and services before Jan. 1, 2006.

The feasibility study was completed in June of 2005, while the government just recently confirmed satisfaction of the second criterion, paving the way for the transfer.

The government’s decree also follows Falconbridge’s recent decision to solely fund the US$2.2-billion project near Kone. That hefty investment will be repaid out of cash flow from the operation prior to distributions to shareholders.

The transfer of Koniambo to the partners also withstood a late appeal by French rival Eramet, which had asked Paris’ High Court of Justice to block the transfer of Koniambo, claiming that Falconbridge had not honoured the terms of the accord. The court ruled otherwise.

Under the accord, state-owned Eramet was required to relinquish Koniambo in exchange for a smaller deposit at Poum plus around US$1 billion. The deal was also designed to placate New Caledonia’s pro-independence Northern province. The deal provided for the return of Konaimbo to Eramet if the conditions were not met by the end of 2005.

“We are pleased to have resolved this legal challenge and to have satisfied both conditions of the Bercy Accord. Today’s announcement allows Falconbridge and SMSP’s joint venture company to receive ownership of Koniambo,” said Falconbridge’s president Aaron Regent in a prepared statement. “We can now look forward to advancing this world-class resource to the next phase of development.”

Plans at Koniambo call for a 60,000-tonne-per-year nickel-in-ferronickel mining and smelting complex, with operating costs projected at US$1.65 per lb. The estimated price tag includes a US$600-million, 390-MW power station, metallurgical plant and costs for mine development and infrastructure, including a port and roads. It excludes US$500 million for working capital and various financing, interest and contingency costs.

The project centres on measured and indicated resources totaling 142.1 million tonnes running 2.13% nickel, based on cutoff grade of 1.5% nickel. At a 2% cutoff the resources amounts to 75.6 million tonnes at 2.47% nickel.

If all goes as planned, the giant project could start up as early as 2009.

New Caledonia is also home to Inco‘s (N-T, N-N) US$1.9-billion Goro nickel-laterite project, which has a reserve of 95 million tonnes grading 1.53% nickel and 0.12% cobalt.

In April, Japanese metal producers Sumitomo Metal Mining and Mitsui teamed under the Sumic Nickel banner to acquire a 21% stake in the project in return for US$150 million. Sumitomo owns 52.4% of Sumic Nickel, with Mitsui owning the remainder.

Goro, near the southeast tip of the 500-km-long Island, is expected to yield 60,000 tonnes nickel and 4,300-5,000 tonnes cobalt annually, beginning in September 2007.

Inco retains a 69% stake in Goro, with the three provinces of New Caledonia owning the remainder.

Inco recently extended its $12.5-billion friendly takeover offer for Falconbridge by more than a month to Jan. 27 to give it more time to line up all of the required regulatory approvals.

“Inco and Falconbridge are continuing to work with the U.S. Department of Justice and the competition authorities in Europe and Canada in connection with their review of the pending acquisition,” Inco said in a prepared statement.

“Based upon the current projected timetable for the completion of the reviews by these authorities of this transaction, taking into account the holiday season, Inco has determined that all of the necessary regulatory clearances will not be obtained by the original December 23, 2005 expiration date.”

The extension could also provide time for Swiss-based miner Xstrata (XSRAF-O, XTA-L), which holds a 20.01% stake in Falconbridge, to crash the wedding party.

Xstrata originally acquired a 19.9% stake in Falconbridge from Brascan (BNN-T) for around $2 billion in mid-August. At the time, Xstrata CEO Mick Davis said his company did not intend to remain as a long-term shareholder with a minority interest. The company subsequently shimmed its stake to 20.01% a few weeks later, via a private, off-market deal.

Following transfer of the ownership, Koniambo will be held 49% by Falconbridge and 51% by SMSP. The duo plan detailed engineering work in 2006. Pending permitting and the finalization of financing, construction could conceivably begin in 2007, with start-up to follow in 2009.