One of the biggest corporate stories of 2005
- a metallic marriage made in mining heaven - has been the
friendly takeover of the world's fourth biggest nickel miner,
Falconbridge Limited by number two producer, Inco Limited. The
"nickel nuptials" should be consummated by Jan. 27, when Inco
acquires all the common shares of Falconbridge. However, there
are a few gigantic "metal-hungry sharks" patiently swimming
beyond the reef who may still spoil the wedding
celebrations.
Not since the 1969 labour strikes in the
Sudbury Basin, which cut off about 65 percent of the western
world's nickel supply and paralyzed both the British and
American manufacturing sectors, has concern about shortages of
this strategic metal consistently made the news.
Nickel, a silvery-white metal, is
predominately used in austenitic stainless steel, one of the
basic building blocks of any modern society. It is also found
in a wide variety of other industrial and military applications
that have no metallic substitutes. In fact, nickel, which is
generally mixed with other metals to form superior alloys, is
used in more than 300,000 products.
Furthermore, the rapidly industrializing BRIC
countries - Brazil, Russia, India and China - as well as many
others are causing demand for this metal to
soar. We are entering a commodity super-cycle
that will last for decades.
According to a study by the respected New
York stockbroking firm, Goldman Sachs, "nickel is
becoming
the new oil."
Like oil, nickel seems to be establishing a
similar higher base price due to supply shortages and elevated
costs to process laterite deposits.
Inco CEO Scott Hand is forging a lasting
legacy in the corporate history of Canada and this community by
creating a world-class, base-metal mining company - a $25
billion giant that will rank among the top six in the world -
and ensure that these two historic companies stay under
Canadian control.
Not since Robert Stanley, Inco president and
CEO from 1922 to 1949, has a corporate leader had such a
profound impact on the company's future. At the end of the
First World War, Stanley had the foresight to invest in
research and development that found many new peacetime uses for
nickel that saved the company from impending bankruptcy. In
addition, Stanley also participated in a merger with U.K.
controlled Mond Nickel Company Limited in 1929, and was able to
achieve significant cost savings in the development of mines
and surface operations in the Sudbury District.
Hand is creating the largest global producer
of nickel with the best expertise in the development of both
sulphide (Sudbury Basin) and laterite (New Caledonia) deposits.
Laterites make up about 72 percent of international nickel
resources and will continue to play a much significantly larger
role in the future production of this essential metal. Since
the mid-1970s, both Inco and Falconbridge have been producing
nickel from tropical laterites.
This new, pumped-up Inco - on steroids - has
some of the best nickel laterite properties in the world
including Goro and Koniambo, both in New Calendonia, the
massive deposits on the Indonesian island of Sulawesi, mines in
Dominican Republic as well as recent discoveries and strategic
investments in Brazil and Australia.
Combined with sulphide deposits at Voisey
Bay, Labrador, Raglan in Northern Quebec, Thompson, Manitoba
and of course, is the legendary Sudbury Basin - the jewel in
Inco's mineral crown.
During the past decade many significant new
discoveries by Inco and Falconbridge have ensured that the
Sudbury Basin will still be producing a metallic bounty for at
least another century. Combined with its other deposits the
merged Inco's global supremacy in this vital metal will be
ensured for generations to come.
Of the six most important metals used by
modern industrial society - iron, aluminum, nickel, copper,
zinc and lead - nickel is the most complex and expensive to
process. Of these six essential metals, economically
exploitable deposits of nickel are the most rare and difficult
to find. It has been repeatedly said that the world needs a new
Goro-sized project almost every year to match nickel's long
term demand growth.
And that is why those nasty little rumours
keep circulating throughout the global mining sector. Patient
"metal hungry sharks" are waiting for the merger to be
finalized before they attempt to swallow whole one of the most
important and strategic mining companies in the world.
In part two of this column, which will run in
the Sunday edition, I will discuss the possible contenders for
a hostile takeover and why the federal government should not
allow the new Inco to fall under foreign control.
Stan Sudol is a Toronto-based communications consultant
and freelance journalist who writes extensively on mining and
provincial issues. He grew up in Sudbury and continues to
have an interest is hometown. He can be reached at
[email protected].