Falconbridge concedes

The end of a yearlong quest is finally in plain sight for Xstrata (XSRAF-O, XTA-L), with Falconbridge‘s (FAL-T, FAL-N) board of directors recommending that its shareholders tender to the Swiss-based miner’s offer of $62.50 per share.

Falconbridge’s change of heart follows an examination of its alternatives after its shareholders rejected a friendly merger with Inco (N-T, N-N) nearly two weeks ago. Falco’s board now says it is “satisfied that it is unlikely that an offer more attractive than Xstrata’s will emerge.”

“Xstrata currently owns 24.5% of Falconbridge and since its offer is for any or all shares of Falconbridge, it appears likely that it will attract sufficient shares to gain effective control of Falconbridge on August 14,” said Falconbridge CEO Derek Pannell in a prepared statement.

Beating a familiar drum, Pannell warned shareholders they should tender by the Aug. 14 deadline, as there could be no assurance they would be able to sell their shares to Xstrata at the bid price later on, despite Xstrata’s consistent proclamation that it wants all of Falconbridge.

Xstrata originally picked up a 19.9% stake in Falconbridge from Brookfield Asset Management (BAM.LV.A-T, BAM-N), then Brascan, for around $2 billion in mid-August 2005. At the time, Xstrata CEO Mick Davis said his company did not intend to remain a long-term shareholder with a minority interest; he consistently reiterated this stance throughout the battle for Falconbridge.

Davis said his company’s original stake acquired at $28 per share put it in a unique position during the bidding process, in that it allowed for a “definitive, compelling and generous offer,” while ensuring that the transaction would remain value, earnings and cash flow accretive.

On a friendlier note, Pannell applauded Xstrata’s management, which he said values both the physical and human assets at Falconbridge, and the company’s commitment to base the enlarged company’s nickel, copper and zinc offices in Toronto. Xstrata also pledged a 3-year moratorium on layoffs among operating staff at any of Falco’s operations in Canada.

Xstrata’s bid expires on Aug. 14; its own shareholders will vote on the proposed acquisition the same day. Xstrata has already locked up the support of Credit Suisse Securities and Glencore International, who together hold around 35.9% of the company’s outstanding shares.

If Xstrata succeeds in buying Falconbridge, it will have to absorb around US$192 million in payments related to a 75-per-share dividend declared by Falco, and a US$450-million break to Inco.

Looking ahead, Xstrata says it expects to deliver annual savings of around US$120 million via reductions in Falco’s head office and administrative functions and certain exploration activities outside Canada. It also plans to work with the eventual winner of the battle for Inco to realize the enormous potential savings identified at Falco and Inco operations in the Sudbury region.

Raglan expansion

In other news, Falconbridge recently unveiled a $540-million expansion plan for its Raglan nickel-copper mine in Nunavik Territory in Quebec. Of the total, $240 million will be spent over six years to replace reserves mined since operations began in 1997. Another $250 million will go toward expanding nickel ore production by 30% to 1.3 million tonnes a year (or around 30,500 tonnes of contained nickel) by 2009. The expansion will create 50 new jobs and require a $50 million facelift for the loading dock at Deception Bay.

The Raglan operation comprises three underground mines, an open-pit mine, and a concentrator. The nickel-copper concentrate is trucked 100 km north and shipped to Quebec before being carried by railway for smelting in Sudbury. It eventually makes its way to Norway for refining at Nikkelverk.

Raglan produced 6,100 tonnes of nickel-in-concentrate and 1,500 tonnes of copper-in-concentrate during the recent second quarter, both up from a year earlier owing to higher mill throughput, which was partially offset by lower grades.

Falconbridge currently has six drill rigs running at Raglan, and has already identified two new lenses about 4 km east of the concentrator. Hole 714-3 yielded 25.1 metres grading 4.77% nickel and 1.27% copper, beginning at a depth of 620 metres.