Falconbridge issue benefits from higher nickel prices

The volatility of the market seems to have worked in favor of Falconbridge Ltd., which recently completed a share issue worth $142.5 million prior to a drop in the nickel price.

Nickel recovered in 1987 (average price in 1986 was US$1.76 per lb) to close out the year in the $4.10-$4.30 range. Spot price Dec 31 on the London Metal Exchange (lme) was about $4.20.

The Falconbridge offering was announced Jan 6 and consisted of six million units at $23.75 per unit (comprising one share and one-half warrant). Closing date of the offering is Jan 27. Spot price of nickel on the lme, just under $ 4 on Jan 6, fell to about $3.20 on Jan 7. The price has recovered somewhat since, and at presstime was trading in the $3.45 range.

Chairman William James has called the situation a coincidence and has denied any suggestion of a connection between the offering and the declining nickel price.

A company spokesman was equally as emphatic. “We have no influence over the price of a global commodity,” Peter McBride of the company’s public relations department, said.

Of the six million units, Placer Dome, which holds a considerable interest in Falconbridge, purchased 1.5 million units. Agreeing to buy the remaining 4.5 million units from Falconbridge, for subsequent resale, were the firms Gordon Capital, Dominion Securities and Wood Gundy.

A tight nickel market of late has helped the price of the base metal to climb. And definitely not alleviating the situation was Falconbridge’s decision Dec 17 to halt shipments of ferronickel from its plant in the Dominican Republic after the government in that country imposed a 25% export tax.

Falconbridge now says, however, that both sides have agreed to negotiate revisions to their agreement and the company’s 85.2%-owned subsidiary, Falconbridge Dominicana C. Por A., will resume shipments. The subsidiary has also agreed to make a 10-million-peso payment to the Dominican Republic government which will be applied against future taxes.