Noranda details pursuit of Kidd Creek

Details of the dealings are contained in the written offer of Noranda and Swedish firm Trelleborg AB to buy all of the outstanding shares of Falconbridge.

The pair is offering $37 per share for the nickel producer; the Noranda-Trelleborg offer will expire Sept 15. Already on the table is a takeover offer worth $36.125 per share by New York-based Amax Inc. (NYSE).

The document reveals Chairman Alf Powis of Noranda and Chairman William James of Falconbridge met in December, 1988, to discuss Noranda’s possible acquisition of a 50% interest in the Kidd Creek zinc-copper-silver mine at Timmins, Ont.

Several months earlier, Noranda had become Falconbridge’s major shareholder through open market stock purchases of the nickel producer.

In January, 1989, Noranda proposed purchasing 100% of Kidd Creek, subject to a 50% net profit interest for Falconbridge, for about $620 million. Further discussions ensued.

In April, a confidentiality agreement gave Noranda access to financial and other information about Kidd Creek. Based on its analysis of that information, Noranda decided it would not increase its price. The Noranda-Falconbridge talks apparently stalled at that time.

Noranda currently has a 23.8% interest (27% voting interest) in Falconbridge.

The document also reveals James approached Trelleborg, in June of 1988, about the Swedish company acquiring a major shareholding in Falconbridge. Trelleborg said it was not interested.

Falconbridge and Trelleborg picked up the discussion again in April of this year but reached no final agreement. However, Trelleborg began in May, 1989, to buy shares of Falconbridge on the open market. The Swedish firm currently has a 3.4% interest in Falconbridge.

Also revealed in the document is the intermediary role played by securities firm Loewen, Ondaatje, McCutcheon in bringing Noranda and Trelleborg together to make the joint offer. Should their offer succeed, the companies will become 50/50 partners in the Falconbridge operations.

Estimated total cost (share purchases and other expenses) of the takeover is $2.4 billion. Noranda says it has received offers from Canada’s six largest chartered banks in excess of that amount to cover the costs. Should the deals with the banks not succeed, Noranda says it could draw upon unused lines of bank credit totalling more than $2.4 billion and/or borrow from associated companies.

(An acquisition company would be set up to facilitate the takeover, with Trelleborg purchasing half of the new company’s shares.)

The real prize for Noranda in the takeover is the Kidd Creek operation, which produced 4.3 million tonnes ore in 1988 and at the end of that year had estimated reserves of 48.9 million tonnes. In addition to the mining operation, Kidd Creek hosts a copper smelter and refining complex.

Noranda reports treating a substantial portion of Kidd Creek’s copper concentrate between the mine’s 1966 production start-up and late 1982 when the smelter and refining complex there went into commercial production. Since 1982, Noranda say its has treated most of the surplus copper concentrate produced by Kidd Creek on a toll basis.

Acquisition of Falconbridge and the Kidd Creek operation would allow Noranda to secure a source of feed for its Horne copper smelter at Rouyn-Noranda, Que.

At presstime, shares of Falconbridge were trading above $38 on the TSE.

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