Editorial: We’ll think no more of Inco…

October marked the beginning of a new era for Canadian mining, with the absorption of the iconic Canadian nickel miner Inco (N-T, N-N) into the Brazilian base metals behemoth Companhia Vale do Rio Doce (RIO-N).

Last week we saw 76% of Inco’s shareholders tender to CVRD’s juicy C$86-per-share cash offer, which beat out two inferior, scrip-heavy bids by U.S. copper giant Phelps Dodge and Canada’s Teck Cominco, as well as an earlier, ill-fated attempt to merge Inco, Phelps Dodge and Falconbridge.

CVRD wasted no time putting its stamp on its new subsidiary — which it now calls “CVRD Inco” — by wiping out Inco’s entire board of directors, except for Inco chairman Scott Hand.

The vacancies have been filled with CVRD nominees Roger Agnelli (CVRD’s CEO), Jose Auto Lancaster Oliveira (executive director of CVRD’s Non-Ferrous Minerals division), Murilo Pinto de Oliveira Ferreira (CVRD’s executive director of equity holdings and business development), Fabio de Oliveira Barbosa (CVRD’s CFO), Gabriel Stoliar (CVRD’s executive director of planning), Michael Phelps (independent), Mel Leiderman (independent), Stephen Wallenstein (independent) and Stanley Greig (independent).

Agnelli will serve as CVRD Inco’s chairman, and Hand will serve as president, CEO and director during the transition period.

Ultimately, CVRD wants 100% of Inco’s shares, and will likely acquire them in a compulsory manner. In the meantime, Inco intends to withdraw its common shares from listing on the New York Stock Exchange and from registration under Section 12(b) of the U.S. Securities Exchange Act of 1934.

Inco expects that the delisting will become effective in 20 days and that the deregistration will become effective in 100 days. Inco will also delist from the Toronto Stock Exchange as soon as possible.

Effective immediately, Inco will start using U.S. Securities and Exchange Commission forms available for use by foreign private issuers, instead of those used by U.S. domestic reporting companies, which it has historically used on a voluntary basis.

As a producer of nickel, which is primarily used in stainless steel, Inco is a natural fit with CVRD, the world’s largest iron ore miner. Indeed, in the early days of CVRD’s hostile bid, Inco management never spoke out against the concept of a CVRD takeover, only saying that CVRD’s bid hadn’t been clearly superior financially to Phelps Dodge’s or Teck’s.

With the exception of Inco’s head office staff, ordinary Inco workers should breathe easy that there won’t be any deep cuts coming once the promised 3-year layoff freeze ends: there is little overlap between the two companies and CVRD looks to be fully committed to Inco’s carefully planned growth pipeline. In fact, CVRD is already signalling that it wants to speed up the development of new nickel mines and boost production at Inco’s existing ones.

“It’s the Brazilian way to do things — easy, smoothly and without any big changes or revolutions… we want to keep everybody there working,” Agnelli said of the takeover during a recent media gathering in Toronto.

Agnelli showed his considerable charm at the event, and implored Inco and CVRD employees to “work together to make a great company, not a big company.”

(Less clear to us, though, is how CVRD and Inco employees can start working together effectively when there is such a big language barrier between most of them.)

But a visibly relaxed Hand said he believed that “the values CVRD has are very much in line with our own,” and added that, while Inco had focused a lot on growth opportunities outside of Canada, “now we are circling back and saying to ourselves, why can’t we get more production out of the greatest orebody in the world, Sudbury? So I think we’re going to see that, as well as in Thompson, Manitoba, where we have a much longer life ahead of us than many people thought before.”

This year’s quarterly results from both CVRD and Inco show two companies at the top of their game, boasting canny, capable management, strong cash flows, healthy balance books, and a host of high-quality, long-life mining assets.

Combined under the CVRD banner, these two companies should prove to be a formidable, profitable player in the world’s base metals sector.