Noranda to swallow Falconbridge, form MinMetals strategic alliance

Canadian mining and metals company Noranda (TSX, NYSE: NRD) said Wednesday it planned to merge with its 58.8%-owned subsidiary Falconbridge (TSX: FL) and that it was negotiating a strategic alliance with China MinMetals. Toronto-based Noranda no longer expects government-controlled MinMetals to make a takeover bid for it, company CEO Derek Pannell announced during a webcast on the proposed Falconbridge merger. Talks on a MinMetals takeover of Noranda began last June with exclusive negotiations taking place from September to November. However, the two companies are now focused on forming a strategic alliance, said Pannell. Pannell said Noranda had built up a positive relationship with the Chinese group over the last six to nine months and did not want to lose the goodwill and momentum created. The strategic alliance could involve MinMetals and China's development bank assisting with financing and off-take arrangements at development projects, such as El Morro and El Pachón copper properties in Chile and Argentina, in return for participation in the projects, said Pannell. The alliance could also encompass Noranda becoming involved in exploration and other activities in China, continued Pannell. An arrangement with MinMetals "opens up prospects for us in China that we wouldn't otherwise follow up," said the Noranda CEO. FALCONBRIDGE MERGER The boards of Noranda and fellow Toronto-based mining-metals company Falconbridge have agreed a merger proposal to create a new company named NorandaFalconbridge. Pannell would be CEO of the new entity. Pannell and Falconbridge CEO Aaron Regent both stressed that the merger would simplify the two companies' corporate structure and resolve ownership uncertainties, thus unleashing unrealized share price potential and liquidity. The merged company would create one of North America's largest base metal companies with operations in 18 countries and production of 550,000t/y of copper, 100,000t/y of nickel, 35,000t/y of zinc and a fully integrated aluminum business, said Pannell. Under the deal, Falconbridge shareholders will receive 1.77 Noranda shares for each Falconbridge share. Noranda said its offer represented a 15% premium to the 20-day average share price of Falconbridge for the period ending March 7. Prior to the merger, Noranda will offer to buy back 63.4 million of its common shares in exchange for three series of junior preferred shares of the company with an aggregate value of US$1.25bn. Toronto-based investment company Brascan, which owns about 41% of Noranda, has agreed to tender its common shares to the offer, which would reduce its stake in the new company to between 16% and 26%. Current Falconbridge shareholders, excluding Noranda, would end up with 36% of the new company. Noranda and Falconbridge's operations include interests in the Antamina copper-zinc mine in Peru, Collahuasi and Lomas Bayas copper mines and Alto Norte copper smelter in Chile, and the Falcondo ferronickel plant and mines in the Dominican Republic. Noranda shares fell 5.02% in early morning trading Wednesday after the conference call to Cdn$22.13 on the Toronto Stock Exchange while Falconbridge shed 0.51% to Cdn$38.95.