US bid dashes Canadian mining dream

TORONTO - A new bid for Canadian mining companies Inco and Falconbridge tosses a much-vaunted "made in Canada" merger out the window, denting domestic pride and creating a new US mining giant.

"I will be sad to see Canadian companies disappear but I think it is a pretty interesting transaction," said Kerry Smith, an analyst with Haywood Securities, of the US$40 billion ($65.9 billion) friendly offer from Phoenix, Arizona-based, Phelps Dodge.

"Inco and Falconbridge are prepared to do that no matter what it takes. They are prepared to push this deal through in some way, shape or form because they see the value longer term, which I think is right," he said.

The combination of the three companies will create the world's biggest nickel producer and the largest publicly listed copper producer, with a major position in molybdenum and cobalt.

But the new company will look very different from the two-way merger previously envisaged by Inco and Falconbridge, who touted a "made in Canada" solution as Inco tried to fend off a hostile bid from Vancouver-based Teck Cominco and Falconbridge fought off an unsolicited offer from Switzerland's Xstrata.

The firm will be called Phelps Dodge Inco and will be based in Phoenix, with Phelps' chief executive, Steven Whisler, staying as the boss and chairman of the combined company.

Inco chief executive Scott Hand will become vice-chairman and Falconbridge's CEO, Derek Pannell, will become president of Inco Nickel and head of the company's nickel, zinc and aluminium operations.

The nickel division will be run out of Toronto, though it will most likely be a fraction of the current Falconbridge and Inco headquarters. Pannell said the office in Toronto would be "just big enough and no bigger".

Both Hand and Pannell said they would not be relocating to Phoenix.

"I am staying right here in Toronto, Ontario, Canada," said Hand.

Inco had described its bid for Falconbridge as a union that should have happened years ago, as the two companies both had significant nickel operations in Sudbury, Ontario.

Teck, the world's largest zinc producer, first approached Inco last August but was rebuffed. In May, it responded with a hostile bid for its Canadian rival.

Inco, Falconbridge and Teck broached the idea of a three-way merger, but the three have separately come out against working together.

When asked how Canadians would benefit from a three-way merger with Phelps over a merger with Teck, Hand said: "Well, you know it takes three to tango, not two to tango, but three to tango in this one. If Teck wanted to tango, I'm not aware of it."

Teck said it would analyse and review the Phelps-Inco-Falconbridge announcement and would outline its position further in the near future.

Industry Canada, which oversees corporate competition issues, declined to comment on the proposal but the Canadian Auto Workers union called for an "active" Government review of the deal.

- REUTERS