CVRD bids for Canico (September 15, 2005)

Diversified Brazilian miner Companhia Vale do Rio Doce (RIO-N) has made a takeover offer for nickel developer Canico Resource (CNI-T) to gain control of the Ona-Puma nickel laterite in Par state, Brazil.

CVRD is offering $17.50 per share for Canico, a bid that values the company at $725 million. CVRD compared its bid with the 30-day average of Canico shares, $13.56, noting that the bid represented a 29% premium.

Last week Canico announced poison-pill measures that were to be put before the company’s shareholders at the next annual meeting in December. The plan, a standard rights issue allowing a two-for-the-price-of-one share purchase, had provisions for a “permitted bid” open for sixty days, conditional on a majority of outstanding shares being tendered. CVRD is making its bid conform to the Canico rules and said it had consent from the Canico board to make the offer.

Canico’s principal asset is the Ona-Puma property, although it has “legacy” properties — which had been held by a predecessor company, Oliver Gold — in the British Columbia interior. Ona-Puma is an advanced nickel-laterite project that was the subject of a final feasibility study released in August (T.N.M., August 15/05).

The planned development is an open pit exploiting a reserve of 77.7 million tonnes at average grades of 1.8% nickel and 18% iron, based on a cutoff grade of 1.1% nickel. Capital costs of the mine and rotary-kiln plant are estimated at US$762 million, with the addition of a second smelter line to cost a further US$352 million. At an 8% discount rate the project has a net present value of US$315 million, and the internal rate of return is 12%.

That economic analysis rests on a long-term nickel price of US$8,250 per tonne (US$3.75 per lb.) and on cash operating costs that average US$4,230 per tonne (US$1.92 per lb.) over the 34-year mine life.

Canico shares were trading at $19.10, up $4.45, in morning trading on the Toronto Stock Exchange.