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BASE METALS MERGER-GO-ROUND – Inco et al.

The war of words swirling around the INCO, FALCONBRIDGE, TECK COMINCO, PHELPS DODGE and XSTRATA offers continues. I...


The war of words swirling around the INCO, FALCONBRIDGE, TECK COMINCO, PHELPS DODGE and XSTRATA offers continues. In the past seven days (July 20-26), here is some of the news from the interested parties (in alphabetical order).

Falconbridge has reaffirmed its support for the Inco offer, saying a combination with that company creates “exceptional earnings potential and shareholder value creation”. And when the Phelps Dodge offer for Inco goes through, former Falconbridge shareholders will receive a further premium, including additional cash.

Inco said again that its offer for Falconbridge is superior to that of Xstrata. Shareholders of both Inco and Falconbridge can expect “to participate in the earnings, cash flow and growth potential” of the new Phelps Dodge Inco, said Inco in a press release. Separately, Inco has reached an agreement with Teck Cominco to drop the Inco shareholder rights plan on Aug. 16.

Phelps Dodge has received clearance from the Canadian Competition Bureau for its offer to acquire Inco. Approval was earlier given by the U.S. antitrust regulators.

Teck Cominco has extended its offer for Inco, sans Falconbridge, until Aug. 16. Note that the date coincides with the dropping of Inco’s shareholder rights plan. By July 21, approximately 1.35 million Inco common shares had been deposited to the Teck Cominco offer, according to the latter.

Xstrata’s offer for Falconbridge has cleared the last regulatory hurdle. On July 25 the company announced that it had received approval under the Investment Canada Act. Xstrata has promised to create a stand-alone global nickel business headquartered in Toronto. It has further promised to create a Canadian-based regional office for copper and zinc, expand its R&D efforts, spend more on exploration and capital projects in Canada, retain all Falconbridge employees for three years, appoint a Canadian non-executive director to its board, and set aside 1% of its annual pre-tax profits to support the communities in which it operates.

The three Canadian companies have recently reported record profits for the second quarter of 2006. Here is a quick recap:

FALCONBRIDGE: Revenue US$3.95 billion; Earnings US$728 million; Earnings/share US$1.91.

INCO: Revenue US$1.81 billion; Earnings US$472 million; Earnings/share US$2.11.

TECK COMINCO: Revenue Cdn$1.5 billion; Earnings Cdn$613 million; Earnings/share Cdn$2.95.

By comparison, Phelps Dodge’s second quarter net income was US$471 million or US$2.32/share. Cash from operations totalled US$1.1 billion.


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