Noranda to boost stake in Falconbridge to 29%

When Noranda Inc. (TSE) recently announced plans to increase its stake in Falconbridge Ltd. (TSE) to just under 30%, Chairman Alf Powis said he had no intention of seeking full control.

“Our plan is to get another seven million shares and put ourselves in a position with enough stock so that no one can take a run at the company,” Powis told The Northern Miner.

After Noranda has completed its stock exchange bid for seven million Falconbridge common shares at $22.25 per share, Powis has hinted that Noranda will seek board representation in proportion to its 29.4% holding.

“Hopefully, we will have an appropriate number of nominees and we can get to know more about Falconbridge than we do,” he said.

Noranda’s latest investment will add up to a 33.6% stake in Falconbridge when 9.2 million of the nickel miner’s shares held by McIntyre Mines are cancelled in December.

But analysts doubt that the resources giant will be content to remain at 33%.

While the Noranda chairman claims he hasn’t thought about what his company’s long term plans are, the betting in Toronto’s financial district is that Noranda will eventually push above the 50% level once it has secured board representation in proportion to its 33% interest.

That prediction is based on the following factors:

Falconbridge recently outmaneuvered Noranda to snap up a 24.7% control block of its own shares from Placer Dome Inc. (TSE).

In 1986, Noranda also lost out to Falconbridge in an attempt to acquire the Kidd Creek, Ont., orebody, smelting and refining complex from the Canada Development Corp. Last year, Noranda refined about 149,200 tons of copper concentrates from Kidd Creek at its Horne smelter in northwestern Quebe c. It also took about 30,000 tons of copper concentrates from Falconbridge’s Strathcona mine in Sudbury. Noranda said it wants to protect those interests.

After it failed to acquire the 24.7% control block of Falconbridge shares from Placer Dome, Noranda bought 14.8 million shares (19.9%) of Falconbridge stock on the open market. When the acquisition was announced Powis said his company had no plans to buy any more.

When Noranda announced its latest buying spree (it will bring Noranda’s Falconbridge holding up to 21.8 million shares), the company said it is purchasing the common shares of Falconbridge as a substantial equity investment to enhance its position in the minerals industry.

Once again, the resource giant said it has no plans to buy any more.

“They wouldn’t invest $450 million (since July 1) in a company like Falconbridge unless they had other plans up their sleeve,” said Dean Witter Canada mining analyst Thomas Komlos. “Their next move will be to go for 50%,” he said.

Komlos believes that Noranda will eventually achieve control through a share exchange and possibly a cash for share deal. At that point he said Falconbridge could become part of Noranda’s beleaguered mining division which has declined in proportion to its forest products wing.

As reported (N.M., Aug 29/88), earnings from the company’s metals and minerals division were $141.3 million in 1987 compared with $223 million in forest products. “There are all kinds of possibilities,” said Komlos.

One of those possibilities is that Falconbridge Chairman Bill James may try to prevent Noranda from nominating representatives to the nickel producers’ board of directors. Although James and Powis are known to be friends and they last spoke when the Falconbridge chairman was driving down Hwy. 401 from Kingston, Ont., the board representation issue apparently hasn’t been discussed.

“James is very independent and he may attempt to turn shareholders against a new management team,” said Merrill Lynch of Toronto mining analyst Catharine Gignac.

But if as expected, Noranda has any intention of divvying up Falconbridge’s copper and nickel assets to benefit its own operations, the company isn’t saying so.

“The share purchases leave us in a position which would be difficult for anyone else to match,” said Alan Thomas, Noranda’s senior vice- president, finance. “We don’t see any advantage in having any more shares than what we’ve got unless we were to bid for control.”