Inco and Falconbridge head for the altar

Staff -- Purchasing, 11/3/2005

Inco elbowed Swiss rival Xstrata out of the race for Falconbridge with a $10.2 billion friendly bid that would create the world's biggest nickel miner. Scott M. Hand, Inco's chief executive will be chief executive of the new firm and says, "The new Inco will be stronger, larger, more diversified, with perhaps the best operations, best estimated reserves, the best growth projects, as well as a great global marketing position." The combined company will have a pro forma estimated 2005 nickel output of 735 million pounds, forecast to climb to some one billion pounds in 2009 once new projects come on stream. That would push Russia's Norilsk Nickel out of the No. 1 spot and give the new Inco about 24% of world nickel output.

Falconbridge, already one of the world's top 10 companies in nickel, zinc and copper, was created in June when Noranda acquired the 41% of Falconbridge that it did not own and renamed the combined entity Falconbridge. The company's chief executive, Derek Pannell, will become president of the new Inco. The two top executives expect to see immediate cost reductions of at least $350 million a year. Much of that will come from consolidation in Sudbury, Ontario, where both companies have their main nickel mining and smelting plants, but also from combining purchasing, logistics and sales operations.

Nickel prices have lost more than 14% on the year as the stainless steel sector, its main consumer, grapples with a growing surplus and lower output. But Hand says nickel prices have not peaked. "The bloom is not off the rose," he suggests, noting high demand from China for nickel and copper. "Both are in short supply and both have a lack of new supply coming on stream." In fact, Inco has forecast that the global nickel market will be in deficit by some 50,000 metric tons/year until 2009.