Inco bid was rejected by Diamond Fields

At a recent press conference, Robert Friedland, co-chairman of Diamond Fields Resources (TSE), confirmed that his board shot down a proposal from Inco (TSE) that would have seen the nickel giant increase to 50% its interest in the Voisey’s Bay nickel-copper-cobalt deposit in Labrador.

On March 4, Falconbridge (TSE) forwarded to Diamond Fields a series of draft agreements that set out Inco’s proposal, which would have seen Inco acquire a 25% interest from Falconbridge. In return, Falconbridge would receive $944 million in cash plus one-third of Falconbridge’s costs relating to the Class B subordinate voting shares. The total value of the offer would be about $1.3 billion.

Friedland said Diamond Fields advised Falconbridge to reject the offer, prompting the latter to terminate discussions with Inco. Falconbridge also advised Diamond Fields that such discussions would not be resumed.

Nonetheless, Falconbridge President Frank Pickard said his board was pleased to receive the offer, as it confirmed the value Falconbridge had placed on Diamond Fields.

Friedland explained that the intent of Diamond Fields’ board in accepting Falconbridge’s offer was to become shareholders in a company that owned most of what seemed sure to become the world’s largest, lowest-cost nickel mine, and not split it down the middle with another company.

By agreeing to a 50-50 split of Voisey’s Bay, he said, “we wouldn’t have that obviously great equity that inherits the future of the nickel business. We want to own shares in a company that dominates the business by having a 75% share of Voisey’s Bay. We don’t want to get caught in a situation where there’s a Tweedledum and Tweedledee.”

Although the deal would make Falconbridge more cash-rich, Friedland asked: “What’s the use of cash when you have a cash-flow machine like Voisey’s Bay?” He also outlined his board’s reasons for accepting the Falconbridge merger proposal, stressing that Falconbridge’s cobalt recovery technology is “without parallel” in the mining industry and will add many millions of dollars to the mine’s bottom line. This technology is proprietary to Falconbridge, and provides for substantially higher recoveries than other processes.

Early bird

He said the board believes Falconbridge will bring the mine into production at the earliest date possible, which means the mine will start making money sooner than previously expected.

He added that the experience Falconbridge gained while developing its Raglan mine in cold and remote northern Quebec is a plus. Plans call for the two mines to share resources and costs, which will strengthen both projects.

Another reason for Diamond Fields’ decision to accept the offer is the participating equity shares involved in the merger proposal. The agreement gives Diamond Fields shareholders additional Falconbridge shares if further exploration leads to other, high-grade discoveries.

Friedland stressed that Diamond Fields did not view acceptance of the Falconbridge merger proposal as a means of soliciting a higher bid from a third party. “People that speculate that way really don’t know us very well. We waited until we saw [a merger proposal] that was completely compelling to our shareholders, and when we accepted it, we really meant it.” Falconbridge and Diamond Fields have mailed management information circulars detailing the proposed merger to their respective shareholders. Both groups of shareholders will vote on the merger proposal on April 12.

If the merger proceeds as planned, Friedland and fellow co-chairman Jean Raymond Boulle will have board representation on the combined company.