Skye falling into view of global miners
CVRD, BHP Billiton and Xstrata said to be weighing bid for Vancouver company
ANDY HOFFMAN AND ANDREW WILLIS
theglobeandmail.com
The same global mining giants at the centre of the high-stakes battle for Inco Ltd. and Falconbridge Ltd. are moving downstream, turning their acquisition sights to smaller Canadian base metal miners amid a shortage of new nickel supplies.
Companhia Vale do Rio Doce (CVRD) of Brazil, BHP Billiton Ltd., the world's biggest mining firm, and Xstrata PLC, which recently seized control of Falconbridge, are all considering bids for Vancouver's Skye Resources Inc., according to industry sources familiar with the matter.
CVRD's interest in Skye is understood to be the most advanced, and the iron ore giant is believed to be preparing a bid that could be in the range of $20 a share, according to one source in the investment banking industry.
BHP, however, may have the upper hand. The company already has a 16.5-per-cent stake in Skye, which is developing the Fenix nickel project in Eastern Guatemala. BHP has its own operations in the country close to the Fenix project.
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Skye shares jumped 50 cents to $16.20 Friday on the Toronto Stock Exchange on speculation of a takeover bid. The stock has surged almost 450 per cent this year.
Unlike CVRD's $19.4-billion all-cash bid for Inco or Xstrata's $18-billion acquisition of Falconbridge, an offer for Skye would be a relatively small purchase for the mining companies.
Skye's market capitalization is $477-million. The Vancouver firm expects to produce up to 25 million pounds of nickel from the Fenix project a year beginning in 2008, according to a recent feasibility study. The company says Fenix could produce up to 50 million pounds of ferro-nickel a year thereafter.
A Skye spokesman declined to comment on Friday. The company asked its financial adviser TD Securities to explore the potential merger or sale of Skye in late August.
Spurred by soaring demand for nickel, copper and other base metals from China and India, the mining industry is undergoing rapid consolidation amid soaring commodity prices.
A friendly merger between Inco and Falconbridge was recently scuttled by hostile bids from larger foreign rivals. Inco attempted to fend off a hostile offer from Vancouver's Teck Cominco Ltd. and preserve its merger with Falconbridge by hooking up with Arizona copper giant Phelps Dodge Corp. in a three-way $40-billion deal to create a North American mining supermajor.
But Xstrata won control of Falconbridge with an all-cash bid that bested the Inco and Phelps stock-and-cash offer. Similarly, CVRD appears set to take over the storied Canadian nickel producer with its own all-cash bid of $86 an Inco share. Teck was forced to withdraw from the race after it failed to close a massive stock sale to fund its bid. Inco terminated its merger agreement with Phelps last week when it became clear the stock-and-cash offer wouldn't survive an Inco shareholder vote.
Phelps itself has now become a possible takeover candidate.
Interestingly, Skye's Fenix project was once owned by Inco, but the mine and an on-site processing plant was shut down in the early 1980s because of soaring energy costs and low nickel prices. The price of nickel has more than doubled this year, extending a three-year boom in base metals.
Skye acquired the rights to the Fenix project in 2004 and Inco owns approximately 12 per cent of the company's stock. A CVRD spokesman did not respond to requests for comment.
Xstrata recently converted Falconbridge's nickel assets into a new division, Xstrata Nickel. A spokeswoman for the Anglo-Swiss miner declined to comment on the company's possible interest in Skye.
Skye is headed by Ian Austin, the former chief financial officer of Placer Dome Inc., which was swallowed up by Barrick Gold Corp. last year for $10.4-billion (U.S.). Mr. Austin was unavailable for comment on Friday. |
