FNX Dynatec do Sudbury swap

FNX Mining (FNX-T) will buy Dynatec‘s (DY-T) 25% stake in the Sudbury joint venture and 50% interest in Aurora Platinum in return for 20.5 million newly minted shares.

The shares represent a 26.2% fully diluted stake in FNX and are worth around $291 million at current share prices.

FNX plan already has the required support of holders of 55.7% of its issued and outstanding shares.

The deal also proposes that Dynatec must vote its newly acquired FNX shares in line with FNX board recommendations for three years, as long as Dynatec holds at least a 10% fully diluted stake in FNX. Dynatec will also be represented on FNX board of directors as long as it maintains that minimum interest level.

Dynatec is also prohibited from buy any more FNX shares for three years, and can only sell its shares via a broad distribution overseen by FNX; FNX can pick the purchasers and negotiate the price for a period of ten business days.

More importantly in an era of skilled labour shortages, Dynatec will continue to provide mining services under FNX’s management at the Sudbury properties until the end of 2007. Dynatec would be paid a fee on a cost-plus basis plus two annual instalments totalling $15 million.

FNX chief executive Terry MacGibbon says the mining services agreement is designed to provide continued efficiency and profitability while protecting shareholders from significant new operating risks during the transition period.

On the flip side, Dynatec can require FNX to buy $10 million worth of Dynatec shares in its next public offering of at least $100 million worth of shares anytime during the next year.

The deal is slated to close by Oct. 21, subject to regulatory approval.

The Sudbury joint venture (owned 75% by FNX and 25% by Dynatec) acquired the formerly producing McCreedy West, Levack, Norman, Kirkwood and Victoria properties from Inco (N-T) in late 2003.

MacGibbon says the acquisition of Dynatec’s stake gives FNX all of the upside potential of the assets, including the recent Levack Footwall discovery. He says the consolidation of the assets allows for increased flexibility, which will allow the possible acquisition of other mineral properties and mines, and the expansion of current operations.

“As FNX’s largest shareholder, Dynatec will remain highly leveraged to the value generating potential of the Sudbury joint venture and Aurora properties,” says Dynatec CEO Bruce Walter.

He says the deal provides Dynatec with operating cash flow under the mining contract, which will allow for the financial flexibility to move forward with other growth opportunities.

Ongoing drilling on the Footwall discovery behind the Levack No. 2 shaft, 40 km north of Sudbury, Ont., continues to return impressive results, with nine of the last 12 holes returning significant widths of high-grade mineralization.

Hole 6046B encountered 6.3 metres running 25.45% copper, 5.36% nickel, 7.95 grams platinum, 17.09 grams palladium, and 4.49 grams gold, beginning 1,368.9 metres down hole. Drilling outside the known vein system generally yielded similar grades over narrower intervals. So far, the system has been traced along 153 metres of strike between depths of 1,190 metres and 1,342 metres. The zone remains open in all directions, except to the west where it appears to thin.

Drilling from surface, and from underground at Falconbridge‘s (FAL.LV-T) adjacent Craig mine will continue throughout 2005.

The footwall discovery prompted FNX to adopt a shareholder rights protection plan, or “poison pill” in mid-April; the plan was approved by shareholders a month later. At the time, the company said it was not aware of any impending takeover bid.

The plan is automatically triggered by an unauthorized bid, or acquisition of more than 20% of FNX’s outstanding shares. In either case, each existing shareholder would be able to exercise their share rights at half the going share price.

The McCreedy West mine was officially reopened in mid-September of 2004. Two drills are testing for new deposits and extensions from surface.

Aurora

FNX acquired Aurora Platinum earlier this summer by issuing nearly 4.3 million shares at an ascribed value of $11.64 apiece. FNX sold a half-interest to Dynatec for $12.2 million in cash plus 7.7 million shares.

Aurora brought with it a 60% stake in the historic Falconbridge mine property, which produced 33 million tons averaging 1.58% nickel and 0.89% copper. In particular, the Falconbridge East mine produced 8.7 million tons grading 1.15% nickel and 0.76% copper. Falconbridge itself owns the remaining 40% of the property.

Combined, the Falconbridge and Falconbridge East mines are estimated to contain 1.6 million tons of “proven” ore grading 1.5% nickel, 0.92% copper and 0.07% cobalt. There are also 790,000 tonnes of “possible” material grading 1.25% nickel, 0.75% copper and 0.06% cobalt. These estimates do not conform to the standards of National Instrument 43-101.

The property also contains more than 8 km of favourable and relatively unexplored Sudbury basin footwall where FNX and Dynatec made their recent discovery.

The partners also inherited Aurora’s 16.8% stake in Lake Shore Gold (LSG-V) and 20.6% interest in Superior Diamonds (SUP-V).

Ambatovy

Dynatec and Impala Platinum (IMPUY-O) recently added Sumitomo (SSUMY-O) to the roster at the US$2.25-billion Ambatovy nickel-laterite project in central Madagascar. In the end, Dynatec and Implats saw their stakes diluted to 37.5% apiece, with Sumitomo paying Dynatec for its 25% stake.

Sumitomo earned its stake by chipping in a quarter of the project’s equity costs, and agreeing to fund its share of guarantees for at least US$1.25 billion in project financing currently being sought. Sumitomo also agreed to advance Dynatec a US$98-million subordinate loan to cover a portion of its equity contribution, and will guarantee US$249 million worth of project debt for Dynatec. The deal also called for Dynatec to issue Sumitomo 10.2 million shares in four annual instalments.

At last count, Ambatovy was home to reserves totalling 125 million tonnes grading 1.04% nickel and 0.1% cobalt. The operation is expected to produce 60,000 tonnes nickel and 5,600 tonnes cobalt annually over 27 years.

Construction is slated to begin in the second quarter of 2006; production could conceivably crank up by the end of 2008.

Shares in Dynatec were 6, or 3.7%, higher at $1.68 in mid-afternoon trading in Toronto following the news on Oct. 5; FNX was off 60, or around 4%, at $14.60.

The proposed deal will see FNX’s issued and outstanding share count grow from around 55.4 million to 75.9 million, with 20.5 million held by Dynatec. Dynatec has about 217.5 million issued and outstanding shares, including 7.7 million held by FNX.