Noranda increases stake in Falconbridge to 25%

Analysts are also speculating that by increasing its stake in Falconbridge from 20% to 25%, Noranda was attempting to put more pressure on Falconbridge Chairman Bill James to offer Noranda seats on his board of directors.

Whatever the reason, securities regulations require Noranda to sit tight for at least 90 days before resuming its creeping takeover of the free world’s second largest nickel producer.

In a bid to acquire Falconbridge’s Kidd Creek, Ont., zinc-copper mine, Noranda has spent approximately $450 million since last summer to buy the 18.5 million Falconbridge shares it now holds.

But analysts are predicting that Noranda will probably need to spend a lot more to gain control of the Kidd Creek orebody which it has been after since the early 1960s. At year end, proven and probable ore reserves stood at 48.9 million tonnes of grade 3.45% copper, 5.08% zinc, 0.15% lead and 63 g silver per ton.

“It’s a great orebody and we have always wanted it,” said Alfred Powis, Noranda’s chairman, who admitted that discussions with James regarding a possible settlement have come to a standstill.

“We have not reached an agreement on the value of Kidd Creek but we are perfectly happy to go forward with our interest in Falconbridge,” he said. “The nickel business is good too.”

According to Powis it is almost impossible to put a value on the Kidd Creek complex which last year produced more than 135,000 tonnes of zinc metal and almost 200,000 tonnes of zinc concentrates, plus 122,329 tonnes copper. But analysts say his valuation falls far short of James’s.

Back in 1986 Falconbridge literally stole the mine from under Noranda’s nose when it acquired Kidd Creek from the Canada Development Corporation for approximately $1.4 billion.

Powis said he has already put in a request for representation on the Falconbridge board. But the request is apparently still under consideration and there are no guarantees that James will comply until Noranda has increased its stake in Falconbridge to greater than 50%.

When reached at his Toronto office, James refused to comment on both the discussion or Noranda’s request for board representation.

Meanwhile, Noranda’s 25% stake in the nickel miner allows it to include Falconbridge’s profits with its own. The practice, known as equity accounting, could have a significant effect on Noranda’s second- quarter earnings, analysts say.

But Noranda has not decided yet whether it will equity account for Falconbridge’s earnings in its quarterly results. “That decision will be made later on,” said Noranda’s vice- president and treasurer Bruce Bone, who hopes that shareholders benefit from the Falconbridge block. Falconbridge recently announced a $1 dividend (payable to shareholders March 17) which brings the total dividends paid out by the company over the past 12 months to $5.75.

Noranda’s controlling shareholders, Brascan Ltd. and 85%-owned subsidiary Brascade Resources Inc., paid an average of $27.27 in 1981 to gain a combined 51% controlling stake in the company.

The Noranda issue was trading recently on the Toronto Stock Exchange recently at $22.75 in a 52-week range of $27.50 and $20.75. “They (Brascan and Brascade) haven’t seen a great return on their investment,” said Bone.

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