During the past two years, one could safely say that the only sure things in life are death, taxes, mining takeovers and a rising price of nickel.
Earlier this morning (Friday) Sherritt International Corporation announced a friendly takeover of Dynatec Corporation. Both are Canadian.
Sherritt is a diversified resource player producing thermal coal, nickel, cobalt, oil and electricity, the last four commodities in Cuba. Dynatec is a junior miner with a 24.5 percent interest in FNX Mining Company – the Sudbury Basin nickel producer – and is working to develop the large Ambatovy laterite nickel project in Madagascar as well as owning coalbed methane lease arrangements in West Virginia.
In a news release, Jowdat Waheed, president and CEO of Sherritt said, "This is an important step in the growth strategy of our metals division, enabling us to become a premier, globally diversified lateritic nickel producer based in Canada. The Ambatovy nickel project enhances our already strong metals operating platform, from which we will be able to meet demand in a growing market.”
Bruce V. Walter, president and CEO of Sherritt said, “This transaction provides an immediate and attractive premium to Dynatec’s shareholders. In addition, the combination of our companies’ strengths will benefit the Ambatovy Project as it moves forward with development. Our shareholders will also continue to participate in the significant value potential of the Sudbury Basin through a direct interest in FNX.”
The total value of the deal is $1.6 billion and each Dynatec shareholder will receive a percentage of Sherritt and FNX common stock – 0.190 and 0.0635 respectively which are currently owned by Dynatec. The value of the transaction is $4.88 per Dynatec common share representing a premium of 29 percent to the company’s closing share price on the Toronto Stock Exchange on April 19. The takeover must be approved by 66 2/3 percent of Dynatec shareholders and has the support of the company’s board of directors.
Dynatec’s Ambatovy project in Madagascar is among the largest nickel developments in the world, with annual design capacity of 60,000 tonnes of nickel and 5,600 tonnes of cobalt. The company retains a 40 per cent ownership interest in what many believe is one of the lowest cost nickel projects when by-product credits (cobalt) are included.
A 27.5 percent interest in the project will be held by each of Sumitomo Corporation and Korea Resources Corporation (leading a consortium of Korean enterprises including Daewoo International Corporation, Keangnam Enterprises Ltd. and STX Corporation). The remaining five percent interest has been acquired by SNC-Lavalin Inc. However, Madagascar is considered a biological hot spot so expect significant opposition to this project from the environmental movement, notwithstanding the project’s potential to alleviate poverty in one of the world’s poorest countries.
This friendly merger will create a nickel laterite powerhouse with a long proven history of dealing with these technologically challenging minerals. There are few global mining companies that have this expertise.
Nickel can be produced from either sulphide or laterite ore. About 72 percent of the world's nickel resources are laterites found mainly in tropical locales such as Indonesia, Cuba, Brazil and New Caledonia. The remaining 28 percent are sulphides primarily located in Canada and Russia. Australia has both sulphide and laterite nickel deposits. In 1968 laterites supplied 28 percent of global nickel demand, rising to 42 percent in 2003 and expected to increase their share to 51 percent by 2012.
The high-pressure acid-leaching (HPAL) technology that Dynatec will use at the Ambatovy project is not new. It has been carried out successfully at Moa Bay, Cuba, for more than 35 years. The original process for ammonia pressure leaching of nickel concentrate was developed by Professor Frank A. Forward of the University of British Columbia for Sherritt International Ltd. in 1948. Sherritt established a research group headed by Vladimir Mackiw that became internationally known for their expertise in HPAL technologies. A refinery was built in Fort Saskatchewan, Alta., originally to process sulphide concentrate from Sherritt’s mine in northern Manitoba.
In 1994, Sherritt, which had been processing Cuban nickel-cobalt mixed sulphides since 1991, concluded a deal with Fidel Castro to create a vertically integrated nickel and cobalt mining, refining and marketing operation, with facilities at Moa Bay and Fort Saskatchewan. This is operated as a 50.0 percent (Sherritt) and 50 percent (General Nickel Co. of Cuba) joint venture.
The United States was not pleased and passed the Helms-Burton Act in 1996 that permits lawsuits against companies that do business with previously-owned American assets nationalized in the Cuban revolution of 1959.
Sherritt chair Ian Delaney and other executives are prohibited from entering the United States. Sherritt's Metallurgical Technologies Division was spun off to Dynatec Corp. in 1997. In 2006, Sherritt produced 31,878 tonnes of nickel. The company is working on expanding their Cuban operations.
And finally almost like the certainty of death and taxes, the price of nickel continues to climb with a few fluctuations along its upward journey.
The most recent London Metal Exchange record cash price for the shinny metal was on April 4, 2007 at $52,375 (US) per tonne or $23.76 per pound while todays' price is a bit lower at $50,600 per tonne or $22.95.
Stan Sudol is a Toronto-based communications consultant and policy analyst who writes extensively on mining issues. stan.sudol@sympatico.ca
