DOING SOME DIGGING – 20% of Falconbridge snapped up by Xstrata

The big news this week, the story impossible to miss, is BRASCAN's sale of its 19.9% interest in FALCONBRIDGE to XS...
The big news this week, the story impossible to miss, is BRASCAN's sale of its 19.9% interest in FALCONBRIDGE to XSTRATA, a Swiss mining conglomerate. Not only is the honoured name "Noranda" gone from the Canadian mining industry (thanks to the recent merger of that company and Falconbridge), but it looks like "Falconbridge" might disappear as well, because Xstrata is seldom content to hold a minority share of its investments. Finally, with this sale, Brascan has exited the Canadian mining industry.

Our readers will remember the past year as one of mergers throughout the industry. The Noranda-Falconbridge deal was preceded by several months of talks about a takeover of Noranda by CHINA MINMETALS, which followed rumours that Brazil-based COMPANHIA VAL DO RIO DOCE (CVRD) was interested. The idea of Canada's largest mining company owned by the Communist Chinese generated shockwaves of protest through the media. No similar objection has yet been written about Xstrata's deal, thanks perhaps to the benign image of Swiss business.

Xstrata's commodity business has been built on takeovers. For the most part the company has been successful, but it lost out on its bid for WMC to BHP BILLITON last year. Xstrata has the deep pockets to go shopping with an 81% jump in pre-tax profits for the first half of 2005. Rumours were flying last month that the target of Xstrata's interest was INCO LTD. Now we know differently.

Xstrata paid $2.05 billion for its chunk of Falconbridge, but this is probably only the beginning. Xstrata does not intend to be a "long-term shareholder with a minority interest" in Falconbridge, said Xstrata CEO Mick Davis. He refused to say definitively whether his company plans on making a move for the entire company within the next 18 months, but he added the deal with Brascan means Xstrata will not have to face "interloper interference" if it decides to do so.

The deal will also prove advantageous for Xstrata as it gives the Swiss company a significant exposure to nickel for the first time, Davis added. "Clearly, [Falconbridge] is a very important copper, nickel and zinc producer.

"We have in [Falconbridge's] copper and zinc a dovetailing with our own copper and zinc assets and in nickel they [Falconbridge] bring along what I would say is for us, a desirable and important new stream."

Who is this aggressive, new player in Canadian nickel and copper? Xstrata is registered in Zug, Switzerland, with corporate offices in London, U.K. It employs about 24,000 people around the world. It has coal, copper, zinc and alloys business interests in Australia, South Africa, Spain, Germany, Argentina and Peru, and now nickel in Canada.

XSTRATA COAL is the world largest producer of export thermal coal, thanks to its acquisition of GLENCORE INTERNATIONAL's Australian and South African mines in 2002 and its acquisition of MIM HOLDINGS in 2003.

XSTRATA COPPER has mines in Australia, Argentina and Peru. Its holdings include the Mount Isa mine, and a 50% interest in Minera Alumbrera. Vancouver-based NORTHERN ORION RESOURCES (12.5%) and GOLDCORP (37.5% acquired when it merged with Wheaton River) are Xstrata's partners in Argentina.

XSTRATA ZINC produces zinc and lead in Spain, Germany, Australia and the United Kingdom. It acquired this business through recent acquisitions, one of which is the largest zinc smelter in the world, San Juan de Nieva.

XSTRATA ALLOYS produces ferrochrome and vanadium in South Africa.

XSTRATA TECHNOLOGY owns leading process technologies including that for the IsaMill, Jameson flotation cell, IsaSmelt, and Isa refining process. It also provides process design, engineering, installation, training and more.

We can look forward to XSTRATA NICKEL, which will count among its assets almost 20% of Falconbridge's extensive nickel production facilities: four mines, a mill and smelter near Sudbury; the Raglan mine in northern Quebec; the Montcalm mine near Timmins; the Nikkelverk refinery in Norway; the Falcondo mine and plant in the Dominican Republic; plus custom feed businesses in Europe, the United States and Barbados.

Add to that a stake in Falconbridge's copper, aluminum and zinc production, and Xstrata looks to have gotten a bargain at $2 billion.


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