[Kabar-indonesia] Brazilian company makes dramatic bid for Inco

[Joyo at aol.com]

The Guardian [UK]
August 12, 2006

Brazilian company makes dramatic bid for nickel miner

· Inco takeover would create world's largest producer

· China's need for stainless steel fuels strong demand

Marianne Barriaux

The world's biggest iron ore producer dramatically entered the bidding war 
for Canadian mining company Inco yesterday as it launched an unsolicited 
C$19.9bn (£9.4bn) all-cash offer for the nickel producer.

Companhia Vale do Rio Doce (CVRD), the £29bn Brazilian mining giant, 
announced it intended to bid for the group to create one of the three largest 
diversified mining companies in the world.

It plans to offer C$86 a share for Inco - the second biggest nickel miner - 
that is already the target of two separate bids from fellow Canadian firm, Teck 
Cominco, and American copper producer, Phelps Dodge.

Roger Agnelli, CVRD's chief executive, said: "Our offer surpasses those of 
our competitors. If shareholders accept it, we will be creating the largest 
nickel producer in the world."

Inco has attracted increasing interest from other metal producers in the wake 
of strong worldwide demand for nickel and the sharp increase in its price. 
Nickel is used to make stainless steel, for which there is a huge demand from 
China. The price has more than doubled this year to a record high yesterday of 
$27,100 a tonne.

This has seen a bidding frenzy surrounding Inco. Phelps Dodge put in an offer 
for the company when Inco was involved in a battle with Anglo-Swiss Xstrata 
to acquire Canadian group Falconbridge. There was an attempt to create a 
three-way merger.

Teck Cominco then entered the fray in May when it launched a C$18.7bn hostile 
bid for Inco. That bid expires on Wednesday, and the company has said it does 
not intend to raise its offer.

But Inco put a stop to its friendly bid for Falconbridge at the end of July 
when it failed to gain enough shareholder support. Xstrata was then given free 
rein to pursue its acquisition of Falconbridge; its offer expires on Monday.

The cost and technical difficulty of developing nickel projects has meant 
that mining groups are reluctant to take them on and would prefer to acquire 
existing producers. BHP Billiton, the world's largest miner, is developing two 
nickel projects in Australia: Ravensthorpe and Yabulu, where costs have gone up 
30% from the original predictions.

Simon Toyne, a mining analyst at Numis Securities, said Inco was attractive 
in that it was already an established nickel producer. But he added: "The 
question of whether Inco is value-enhancing or not depends on how long nickel 
prices remain at their current high levels."

Some analysts have expressed concern that CVRD's bid might be hindered by the 
compulsory wait for the Canadian regulators' approval - a process that can 
often take a long time.

If successful, the takeover of Inco will be CVRD's second acquisition in 
Canada. Last year, it bought another nickel miner, Canico Resource Corporation, 
for C$933m. It had also previously tried to gain control of mining group 
Noranda, which subsequently became Falconbridge, but its bid was trumped by China 
MinMetals' higher offer. In the event, the Chinese group's bid also failed.

CVRD said it expected to start the offer formally on Monday, which will 
subsequently expire in 45 days' time.

The company commented: "CVRD has not yet held any discussions with Inco's 
management with respect to this transaction, but would welcome the opportunity to 
work with Inco to achieve a successful outcome to this transaction."

The purchase of Inco will be financed by loans from UBS, ABN Amro, Credit 
Suisse and Santander.

Backstory

Brazil's Companhia Vale do Rio Doce (CVRD) was state-owned until 1997 when it 
was privatised. It is the largest metals and mining company in the Americas. 
The group, whose shares are traded on the New York and Sao Paulo stock 
exchanges, is the world's largest producer and exporter of iron ore - a key component 
of steel. But it has branched out into other metals and mining schemes in the 
past few years, investing in coal projects in Mozambique, Australia and 
Venezuela, a potassium project in Argentina, and coke and coal projects in China.

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Joyo Indonesia News Service
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