Falco ponies up for Koniambo

With a yearend deadline looming ever larger, Falconbridge (FAL.LV-T, FAL-N) has agreed to solely finance development of the US$2.2-billion Koniambo ferronickel project in New Caledonia’s Northern province, near Kone.

Under the deal, Falconbridge’s investment would be repaid out of cash generated by the operation prior to shareholder distributions. Ownership of the project would remain unchanged with Falconbridge holding 49% and Societe Miniere du Sud Pacifique (SMSP) owning the balance.

“This framework will allow the joint venture between Falconbridge and SMSP to be formalized and the next phase of the project to commence,” said Falco president Aaron Regent in a prepared statement. “The project is now in a position where the requirements to allow the project to proceed are now completed or will be completed by the end of the year.”

Still, under the Bercy Accord, which governs the transfer of ownership of Koniambo to Falco and SMSP, the pair must also place firm orders for US$100 million worth of equipment and services before Jan. 1, 2006. Falconbridge says it made a final submission exceeding that value in mid-December. The submission is currently being reviewed.

Meanwhile, French rival Eramet has asked Paris’ High Court of Justice to block the transfer of Koniambo, claiming that Falconbridge has not honoured the terms of the 1998 Bercy Accord.

On Dec. 27, Reuters reported that the French government had decided that Falco had met the requirements; an official court decision is expected on Dec. 28.

Plans at Koniambo call for a 60,000-tonne-per-year nickel-in-ferronickel mining and smelting complex, with operating costs projected at US$1.65 per lb. The estimated price tag includes a US$600-million, 390-MW power station, metallurgical plant and costs for mine development and infrastructure, including a port and roads. It excludes US$500 million for working capital and various financing, interest and contingency costs.

The project centres on measured and indicated resources totaling 142.1 million tonnes running 2.13% nickel, based on cutoff grade of 1.5% nickel. At a 2% cutoff the resources amounts to 75.6 million tonnes at 2.47% nickel.

If all goes as planned, the giant project could start up as early as 2009.

New Caledonia is also home to Inco‘s (N-T, N-N) US$1.9-billion Goro nickel-laterite project, which has a reserve of 95 million tonnes grading 1.53% nickel and 0.12% cobalt.

In April, Japanese metal producers Sumitomo Metal Mining and Mitsui teamed under the Sumic Nickel banner to acquire a 21% stake in the project in return for US$150 million. Sumitomo owns 52.4% of Sumic Nickel, with Mitsui owning the remainder.

Goro, near the southeast tip of the 500-km-long Island, is expected to yield 60,000 tonnes nickel and 4,300-5,000 tonnes cobalt annually, beginning in September 2007.

Inco retains a 69% stake in Goro, with the three provinces of New Caledonia owning the remainder.

Inco recently extended its $12.5-billion friendly takeover offer for Falconbridge by more than a month to Jan. 27 to give it more time to line up all of the required regulatory approvals.

“Inco and Falconbridge are continuing to work with the U.S. Department of Justice and the competition authorities in Europe and Canada in connection with their review of the pending acquisition,” Inco said in a prepared statement.

“Based upon the current projected timetable for the completion of the reviews by these authorities of this transaction, taking into account the holiday season, Inco has determined that all of the necessary regulatory clearances will not be obtained by the original December 23, 2005 expiration date.”

The extension could also provide time for Swiss-based miner Xstrata (XSRAF-O, XTA-L), which holds a 20.01% stake in Falconbridge, to crash the wedding party.

Xstrata originally acquired a 19.9% stake in Falconbridge from Brascan (BNN-T) for around $2 billion in mid-August. At the time, Xstrata CEO Mick Davis said his company did not intend to remain as a long-term shareholder with a minority interest. The company subsequently shimmed its stake to 20.01% a few weeks later, via a private, off-market deal.


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