MINING NEWS: Teck makes all-Canadian bid for Inco

Inco has its own plans with Falconbridge but Teck Cominco believes it has more to offer the world’s second-largest nickel producer

Sarah Hurst

Mining News

Teck Cominco’s experience operating northern mines like Red Dog and Pogo in Alaska could serve it well if the Vancouver-based company’s C$17.8 billion attempt to take over Inco is successful. Toronto-based Inco is the world’s second-largest nickel producer and its properties include Voisey’s Bay mine in Labrador. Inco is currently trying to acquire another Toronto-based mining company, Falconbridge, and the Teck Cominco offer for Inco is contingent on the bid for Falconbridge failing.

Touting its offer as “A Better Deal,” Teck Cominco hopes that Inco shareholders will prefer to receive C$78.50 per share in cash or shares — a premium of 27.8 percent on the 30-day volume weighted average price of the shares as of May 5 — instead of paying a premium for Falconbridge shares and waiting on a takeover bid that has already been in the works for several months.

In response, Inco improved its offer to Falconbridge, increasing it by C$5 per share to C$51.17 per share. “This is the right deal with the right company,” said Falconbridge CEO Derek Pannell. “The mining world has long understood that Inco and Falconbridge are logical partners and this has only been underscored by the improved metals market environment.”

Deal discussed last year

“Teck Cominco is recognized for its commitment to the principles of sustainability,” Lindsay said at a press conference to discuss the takeover bid May 8. “Its leadership in building relationships with aboriginal communities is well-demonstrated at its Red Dog mine in northwestern Alaska. A Government of Canada survey of air emissions from Canadian metal smelters shows that Teck Cominco’s Trail operation is amongst the best in the country, and Teck Cominco will bring this experience and commitment to the assets and opportunities provided by the combined company.”

In February Teck Cominco reported earnings of C$1.3 billion for 2005, more than double the C$617 million earned in 2004. On May 12, in a further twist to the tale, the company announced that Falconbridge’s chief operating officer, Peter Kukielski, would join Teck Cominco as COO in July. Senior Vice President Mike Lipkewich will retire from Teck Cominco after 36 years with the company.

After Teck Cominco announced its bid for Inco, Switzerland’s Xstrata joined the fray by making a hostile takeover bid for Falconbridge. Xstrata had already bought a 19.9 percent stake in Falconbridge last August for C$2 billion. Now it is offering C$16.1 billion for the Canadian company’s remaining shares. “I don’t believe that the C$52.50 cash price per share proposed by Xstrata reflects the full and fair value of Falconbridge shares, given its current earnings prospects,” Falconbridge CEO Pannell said. The offer from Xstrata was below Falconbridge’s share price at the time of C$54, but slightly higher than Inco’s offer.

Four fatalities at closed British Columbia mine

“Today’s events are heartbreaking for all of Teck Cominco’s employees and for everyone in this community,” CEO Don Lindsay said. “Our hearts and thoughts go out to the loved ones and friends of those whose lives were lost today. We join with our employees and the community of Kimberley in sending our sincerest condolences to the families of the victims.” The site of the accident has been secured and there is no risk to the public, the company said.

The site of the incident is adjacent to a waste rock pile, according to Teck Cominco. Water seeping through the waste rock pile flows into a drainage collection system at the base of the pile and into a sampling station located in a small shed. The water flows through a pipe and into a concrete basin in the building, where water quality and flow rates are measured. The water then flows through a pipe to the treatment plant. British Columbia’s chief mines inspector has confirmed that the interior of the sampling station was oxygen-deprived. The cause is not yet known.

Teck Cominco’s most recent previous fatalities were in 2003. A worker died after a truck accident in the pit at Elk Valley Coal Partnership’s Greenhills operation in southeast British Columbia, and a contractor died during construction of the decant tunnel at Antamina mine in Peru. An explosion occurred at the Kivcet facility at the Trail smelter in British Columbia in 2004, due to moisture infiltrating the molten metal bath, but there were no injuries.

—Sarah Hurst