First Nickel soars on Lockerby deal

Shares in First Nickel (FNI-T) jumped as much as 9, or more than 12%, to 80 in early trading in Toronto on May 31, after the junior said it had acquired the mothballed Lockerby mine, near Sudbury, Ont., from Falconbridge (FL-T).

The deal saw First Nickel issue around 2.2 million shares, pay $1.5 million in cash, and assume $5.9 million worth of liabilities related to the mine.

Falconbridge can repurchase a 51% stake in the mine if First Nickel outlines more than 150 million lbs. of new nickel-equiv. resources. To do so, the major would need to pay double First Nickel’s exploration costs. Thereafter, Falco would assume operatorship of a joint venture between the two.

Also under the deal, Falconbridge is granted a right of first refusal to match any third party offer to buy the mine from First Nickel. Falconbridge will also nominate two directors to First Nickel’s board.

In a related deal, Falconbridge has an annual option to buy all of the ore handled through Lockerby’s underground infrastructure, including any third-party ore. The price paid would take into account Falco’s milling, smelting and refining costs.

Falconbridge discovered the Lockerby deposit in 1962; between 1976 and the end of 2003 it produced some 8 million tonnes of ore running 1.8% nickel and 1.1% copper. In 2003, production totaled 225,000 tonnes averaging 1.9% copper and 1.15% nickel. The mine has remained on care and maintenance since September of 2004.

The most recent production from Lockerby was sourced from the East and Depth zones; that’s where First Nickel plans its initial mining. Exploration efforts will focus on the down-plunge extensions of the two zones.

Lockerby is home to two 1,300-metre shafts, plus an internal shaft from 1,200-1,920 metres below surface. First Nickel also plans to drill the footwall area of the mine, which has not been tested for copper and platinum group elements.

Subsequent to the Lockerby acquisition, First Nickel issued Falco another 2.2 million shares under a private placement priced at 90 per share, for gross proceeds of $2 million. The placement increases Falco’s stake in the junior to 21.9% from around 16%.

First Nickel has also wrapped up the exchange of class A and B special notes into series A debentures and common shares, respectively. The exchange is part of a previously announced $14.5-million offering aimed at reducing shareholder dilution under the Lockerby acquisition.

First Nickel currently has more than 53 million shares issued and outstanding.