Falconbridge near settlement on Dominican tax

William James, chairman of Falconbridge Ltd. (TSE) confirms that a settlement is in the making though not yet finalized with the government of the Dominican Republic, which could see Falconbridge’s ferronickel operation there reopened and nickel shipments resumed to customers within a matter of days.

He said in an interview with The Northern Miner that the mine, which produces about 70,000,000 lb of nickel in ferronickel annually, could start shipping immediately from a 19,000,000-lb stockpile, once the deal is finalized. “There are plenty of ships in the area,” he said.

The government of the Caribbean country last December imposed a “prohibitive” 25% export duty on ferronickel shipments from the mine (operated by Falconbridge subsidiary Falconbridge Dominicana C por A), forcing a recent shutdown until a new agreement was hammered out with the government.

The new deal, James said, would eliminate the export duty, and instead would involve a tax system on a deemed earnings-related basis, that he said would be at about the same tax rate as for mines in Canada (in the case of gold mines, about 50%). He declined to give other details at this stage. It will, though, be a better deal for the company than the export tax, he said, particularly because the latter was tied in with the devaluation of the peso. The 25% duty resulted from the exchange rate of five Dominican pesos to the U.S. dollar, but the Dominican dollar has since fallen to six pesos to the U.S. dollar, and the duty would rise even higher.

Analysts had expected that a settlement of the dispute would somewhat deflate the nickel price, which has been reaching new highs in recent weeks, as well as add several dollars to the Falconbridge share price.

At presstime, though, despite earlier unsubstantiated reports of a final Falconbridge settlement, the nickel price had dropped only to around $7.93(US) per lb, from about $8.20 per lb the day before. The company’s stock price has remained in the $22-23-a-share range. Placer sale

Turning to the Placer Dome (TSE) plan to divest itself of its nearly 25% interest in Falconbridge, (N.M., May 16/88), James said at this point he was not aware of any specific offers to Placer for the Falconbridge block.

Of possible suitors, he said he would “not be a bit surprised” if Noranda Inc. (TSE) were to be among them. Noranda could be a serious contender, he indicated.

Nor would he rule out entirely a buyback by Falconbridge itself of the Placer interest.

James said while he generally regretted the move by Placer Dome, with whom he said Falconbridge has had an excellent relationship, the motive for the sale was easy to understand.

“We’ve done the same thing ourselves, in selling off excellent companies in order to get money,” he said, instancing Falconbridge’s sale of Corporation Falconbridge Copper, Kiena Gold Mines (TSE), and Giant Yellowknife Mines (TSE), for debt reduction and other corporate purposes.