CVRD scoops up 76% of Inco, extends offer (October 30, 2006)

Marking a turning in Canadian mining history, Brazil’s Companhia Vale do Rio Doce (RIO-N) has reported that 174,623,019 shares of Inco (N-T, N-N) have been deposited to its $86-per-share cash offer, representing a 75.66% fully diluted stake in the Canadian nickel miner.

As a result, CVRD is extending its offer to midnight in Toronto on Nov. 3, 2006.

“We plan to assist CVRD in every way we can to ensure a smooth integration of our two companies, to create a new global leader in the metals and mining industry,” said Inco chairman and CEO Scott Hand in a release.

The combined assets of CVRD and Inco create one of the world’s three largest diversified mining companies, with substantial positions in iron ore, nickel, ferroalloys, bauxite, alumina and manganese. It will have a market capitalization around US$70 billion, with the Inco subsidiary valued in this deal at $17 billion.

In mid-October, Inco unveiled its largest quarterly profit in its 104-year history. For the recent third quarter, Inco earned US$701 million (US$3.08 per diluted share) on sales revenue of US$2.3 billion, up from earnings of US$64 million (US29 per diluted share) on revenue of US$1.1 billion for the same period a year earlier.

The biggest reason for the record profit was record-high nickel prices. For the third quarter of 2006, the London Metal Exchange cash nickel price hit a record quarterly average of US$29,178 per tonne (US$13.24 per lb.), compared with an average of US$14,567 per tonne (US$6.61 per lb.) for the third quarter of 2005.

The LME cash nickel price set a record high of US$34,750 per tonne (US$15.76 per lb.) on Aug. 24, 2006.

Inco produced 125 million lbs. of finished nickel in the third quarter, up 13% from the year-ago period owing to the startup of nickel production from Voisey’s Bay in Labrador and higher output from its Manitoba operations.

Meanwhile, cash costs dropped to just US$2.12 per lb. for the quarter, down 30% from a year earlier. The drop is attributed to higher byproduct credits from Inco’s output of copper and platinum group metals.

Inco finished the period with US$1.8 billion in cash, and a 20% debt-to-capitalization ratio.