War for Rio Algom, Oct... ,
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Bidding War for Rio Algom, Aug. 2000
"Canadian mining giant Noranda and the British/South African mining firm Billiton are locked in a bidding war for Rio Algom, Ltd., the Toronto-based owner of the Nicolet Minerals Company, which plans the Crandon mine in Wisconsin."
|Tell Noranda and Billiton what they should know about Wisconsin's growing opposition to the Crandon mine:||
|Link to: http://www.rioalgom.com, http://www.noranda.com, http://www.billiton.com|
LETTER TO NORANDA and BILLITON SHAREHOLDERS
The takeover rumors surrounding Rio Algom have citizens of Wisconsin very surprised. The company's proposed Crandon zinc-copper sulfide mine has run into a firestorm of protest in our environmentally conscious state. The proposed mine is upstream from the pristine Wolf River and the wild rice beds of the Mole Lake Ojibwe. Opposition to the project has united Native American nations with sportfishing groups, environmentalists with unionists, and local rural residents with urban students.
The state has passed moratorium legislation and met company groundwater models with skepticism; a legislative bill is pendng to prohibit cyanide use. The township of Nashville has also rescinded a Local Agreement with the company, and local tribes Mole Lake and Potawatomi have strengthened their reservation environmental regulations using federal laws. Rio Algom's Crandon mine looks increasingly like a very risky investment. Wisconsin scores the lowest of any U.S. state on the Fraser Institute index that ranks openness to mining. Noranda and BHP dropped mining plans here in the 1990s; Exxon and Phelps-Dodge both chose to withdraw from the Crandon
We would suggest that any prospective buyer of Rio Algom not buy the firm's assurances that the Crandon project is a done deal, and do its own independent Web research. Company shareholders can likewise visit http://www.treatyland.com and http://www.nocrandonmine.com
Rio Algom rejects Noranda request for due diligence
August 31, 3:28 pm ET
TORONTO, Aug 31 (Reuters) - Base metals miner Rio Algom Ltd (Toronto:ROM.TO - news) said on Thursday it had rejected Noranda Inc.'s (Toronto:NOR.TO - news) request for more information about its assets and operations so it could decide whether to raise its C$1.5 billion ($1 billion) hostile bid.
Rio Algom said it had turned down the request because of its agreement with South Africa's Billiton Plc (quote from Yahoo! UK & Ireland: BLT.L), which has made a friendly offer of C$27 a share or C$1.7 billion for the company.
"We have declined (Noranda's) request on the grounds that it is inconsistent with our agreement with Billiton," Rio Algom spokesman Corey Copeland told Reuters.
Noranda last week launched a cash offer of C$24.40 a share for Toronto-based Rio Algom and said it would sell 50 percent of Rio's assets to Chile's state-run Codelco, the world's biggest copper company, once the deal was closed.
However Billiton, in efforts to diversify its portfolio, topped the Noranda bid last Friday, offering a 49 percent premium to Rio's closing share price on August 21, the day before Noranda's bid, which carried a 35 percent premium.
($1 equals $1.47 Canadian)
Noranda Mulls Higher Rio Algom Bid,
Merger bid won't affect mine plans, officials say
Nicolet parent Rio Algom accepts $1.2 billion buyout
NORANDA RESPONDS TO BILLITON'S OFFER FOR RIO ALGOM LIMITED
In response to Billiton Plc's offer for Rio Algom Limited, Noranda Inc. announced today that it will be reviewing the Billiton offer for Rio Algom with Codelco before making any decisions. Further comments on this matter will be made at an appropriate time.
HISTORY SHOWS NORANDA FIGHTS TO WIN
August 29, 2000
Toronto Globe and Mail
As shareholders in Falconbridge may recall, bare-fisted slugfests for control of companies aren't Noranda's style. But Falconbridge's old owners also know that when the mining arm of the Brascan empire takes off the gloves, it plays to win.
These days, Noranda is caught up in a high-stakes battle for control of Rio Algom, a copper mining company with stakes in several potentially promising plays in South America.
Noranda wants to be the one to realize on Rio Algom's potential. Early last week, the company teamed up with the Chilean state-owned mining company Codelco to lob a hostile $15-billion takeover bid at Rio Algom. This isn't typical behaviour for companies in the Brascan group -- these folks are masters of the creeping takeover.
Arbitragers promptly decided that bigger games were afoot, and drove Rio Algom's stock price through Noranda's $24.50-a-share bid. The speculators bet on a higher bid. By week's end, that bet paid off.
On Friday, Britain's second-largest mining group, Billiton, revealed that it had been in merger talks with Toronto-based Rio Algom and announced a friendly $1.7-billion takeover of the company. Noranda's preemptive bid was thwarted, with Billiton enjoying the support of Rio Algom's board, and setting the bar in this takeover battle at $27 a share.
The moment Rio Algom began trading after the Billiton announcement, the market signalled it expected Noranda to fire back. In frenzied trading on Friday, Rio Algom moved to $28.75 on the Toronto Stock Exchange, backing off slightly to close yesterday at $28.60.
We're now into something of a phony war, a period likely to last a few weeks. Noranda and Codelco will marshall their forces and wait for regulatory fillings that show Billiton's strengths and weaknesses.
With the guns silent, it's worth looking back to 1989, when Noranda was stalking nickel producer Falconbridge. In a wildly entertaining cat-and-mouse game, Noranda CEO Alf Powis tried to gain control at minimal cost, while his old friend Bill James at Falconbridge fought him every step of the way.
The pair danced for several years until Mr. James ended the stalemate by enticing a rich, full-blown takeover offer for his company out of U.S. mining company Amax. Noranda teamed up with Sweden's Trelleborg to top the offer; Amax then bowed out of the picture after banking a tidy breakup fee for its role.
The lesson to reflect on here is that Noranda has shown it will enlist partners and pay premium prices to win an asset it covets.
Analysts say there are compelling reasons for Noranda to raise the ante in the battle for Rio Algom. Joint ownership of one South American mine, and the close proximity of several properties, mean Noranda can realize cost savings at Rio Algom that Billiton will never see. It's also worth noting that Noranda will have no trouble financing its bid with credit facilities that are already in place. Company executives say any financing needed for this deal can be done without diluting the 40-per-cent ownership stake that Brascan holds in Noranda.
In comparing the bidding for Rio Algom to what happened around Falconbridge, recall that the partner has already arrived -- in fact, Codelco called up Noranda with the idea of a joint bid for Rio Algom.
There's a new hand on the helm at Noranda these days; David Kerr took over as CEO for Mr. Powis several years ago. But Mr. Kerr was also on the bridge during the battle for Falconbridge as Noranda's chief financial officer; he knows what it takes to get a hostile deal done.
On the other side, Billiton executives have already taken a bit of abuse from analysts over what some saw as an overly rich Rio Algom bid. The British company negotiated the right to match any rival offer for Rio Algom and keep the support of the Canadian company's board. But it also obtained a $68-million break-up fee before tabling the $1.7-billion bid. If Billiton does bow out, it won't go away empty handed.
This battle will come down to a question of who wants Rio Algom's rich copper properties more. History says Noranda will fight on, and so does the market. And to date, the market has been a canny gauge of what's happening in this takeover fight. On the advisory front, Rio Algom is looking to RBC Dominion and Credit Suisse First Boston for help as it deals with takeover bids.
Noranda has Trilon Securities and CIBC World Markets in its corner, while Morgan Stanley is guiding Codelco.
Billiton is looking to BMO Nesbitt Burns and Chase Manhattan for advice; the latter firm is relatively unknown in Canadian merger and acquisition circles, and its involvement here likely signals where Billiton might be borrowing money to finance its bid.
Deal puts shroud over Crandon mine plans
Chile's Codelco May Abandon Bid for Rio Algom, El Diario Says
Source: Bloomberg News
Santiago, Aug. 28 (Bloomberg) -- Codelco, the world's biggest copper producer, may abandon its bid for Toronto-based Rio Algom Ltd. because sweetening its offer would mean paying more than the $800 million Codelco had budgeted for the purchase, newspaper El Diario said.
Billiton Plc offered $2 billion in cash and assumed debt for Rio Algom on Friday, beating out Tuesday's offer by Codelco and its partner, Noranda Inc.
[Billiton is actually a South African company based in London.........]
Billiton enters fight for Rio Algom
British firm's $1.7-billion friendly offer tops Noranda's,
Noranda unlikely to give up Rio Algom takeover battle
By Scott Anderson
August 25, 2000
TORONTO, Aug 25 (Reuters) - Despite seeing its hostile bid for Canadian metals miner Rio Algom Ltd. <ROM.TO>. topped, Noranda Inc. <NOR.TO>. said on Friday it was not ready to give up the fight.
In what is clearly seen as a white knight coming to the rescue, South African miner Billiton Plc <BLT.L> announced an agreed C$1.7 billion ($1.15 billion) cash bid for Rio Algom, trumping Noranda's hostile bid of C$1.5 billion ($1 billion). The Billiton offer amounts to about C$27 a share.
Noranda launched its hostile offer of C$24.50 cash a share for Rio Algom earlier this week, saying it would sell half Rio's assets to Chile's state-owned Codelco (Corporacio Nacional del Cobre) for the same price, once the deal was done. They planned to jointly manage the assets.
Despite the sweeter Billiton deal, which has the blessing of Rio Algom, it appeared Noranda was not ready to admit defeat.
"We haven't seen the offer and we're going to wait to see the offer. We will certainly have to review it before we make any decisions going forward," said Dale Coffin, manager of public affairs at Noranda.
"They made the offer this morning and now we have to reflect and try to come to a decision on what we want to do next."
It appeared that investors were contemplating a further move by Noranda in the high-stakes takeover game. Rio Algom stock was up C$2.25 to C$28.50 in heavy trading on the Toronto Stock Exchange, with more than 10.3 million shares changing hands, making it the most active issue on the day.
The heavy trading propelled Rio through its 52-week high of C$26.45.
I think quite clearly the market is making the assumption that Noranda, at the very least, is going to come back (with another bid)," said Manford Mallory, a metals analyst at Research Capital in Toronto. "There is a realistic chance that they will."
Mallory said he was not surprised to see the C$2.50 a share premium found in the Billiton offer, noting he values Rio Algom at more than C$30 a share.
"These people have not lost control of their senses. What has distorted people's views is that mining stocks have been depressed for three years now and people have got used to those kind of share values and valuations, thinking that they were real," Mallory said.
"This is a cyclical industry and Rio Algom has potential that is about to blossom in the next couple of years, so I think the stock is legitimately worth what is being paid here."
Copyright 2000 Reuters Limited.
TELL BILLITON ABOUT
|For Billiton Plc:|| BMO Nesbitt Burns
|For Rio Algom:||BC Dominion Securities
Credit Suisse First Boston
|Marc Gonsalves, Senior Manager Corporate Affairs, Billiton Plc|
|Tel: +44 20 7747-3956
Fax: +44 20 7747-3903
| Mobile: +44 7768 264 950
|Corey Copeland, Vice President Corporate Affairs, Rio Algom Ltd|
|Tel: +1 416 365 6863
Fax: +1 416 365 6801
|Mobile: +1 416 526 4718
|Michael Campbell, Manager Public Affairs, Billiton SA Limited|
|Tel: +27 11 376 3360
Fax: +27 11 376 3362
| Mobile: +27 82 458 2587
|John Antcliffe/Michael Oke, Smithfield Financial
Tel: +44 20 7360-4900
TORONTO (CP) - The copper market just got hotter with Britain's Billiton PLC bidding $1.7 billion for Toronto-based miner Rio Algom Ltd., topping Noranda Inc.'s $1.5-billion offer made Tuesday.
And Billiton says its bid has the support of Rio Algom's directors. "The Rio Algom board of directors, on the recommendation of a special committee of the board, has unanimously recommended the agreement and has received fairness opinions from its financial advisers," Billiton said Friday in a release.
The offer still needs acceptance by holders of two-thirds of Rio Algom shares and regulatory approvals.
Noranda and a Chilean copper giant had joined forces earlier this week to bid for Rio Algom, which has lucrative assets in South America. Noranda offered $24.50 a share in a move aimed at increasing Noranda's copper production and cementing a partnership with Chile's Corporacion Nacional del Cobre, also known as Codelco.
Billiton's offer is $27 a share. The British company, known for its aluminum and nickel mines, is trying to increase its copper holdings.
"Following partnerships with a range of junior explorers and a major technological alliance, the acquisition of Rio Algom will provide Billiton with a significant entry point into the global copper business and a vehicle for future development of other base metals opportunities," the company said.
Rio Algom produces primarily copper from mines in Chile, Argentina and Canada and also has a strong portfolio of predominantly copper and zinc assets in South America that are set to come on stream in a few years.
Billiton said Rio Algom has agreed not to encourage any competing offers. and their pact provides for a break fee for Billiton of $45 million US with the right for Billiton to match any competing offer.
� The Canadian Press, 2000
London � Mining group Billiton PLC on Friday vaulted into the copper industry, announcing an agreed $1.7-billion (Canadian) cash bid for Toronto-based Rio Algom Ltd., trumping a hostile offer led by Noranda Inc.
Billiton, seeking to diversify its base metals portfolio, said Rio Algom's board had unanimously recommended its offer of $27 a share, giving the London-listed South African bidder some coveted copper assets in both South and North America.
But Billiton shares fell over 5 per cent after the news amid market concerns that it had overpaid for Rio Algom and might have left itself stretched to make other acquisitions. One analyst said the price tag was 55 times prospective earnings.
"We are not particularly impressed," the analyst said, adding that Rio Algom shares were worth only $19 each if valued by discounting cash flows.
The stock stood at 292 pence, down 5.88 per cent, in morning trade, having underperformed its sector by 11.6 per cent this year. Billiton is to assume Rio Algom's net debt of $900-million (U.S.), doubling its gearing ratio to around 50 per cent.
Rio Algom shares closed on Thursday at $26.25 (Canadian), well above above the $24.50 cash per share offered by Noranda, which is being backed by state-owned Chilean copper miner Codelco.
Billiton is offering a 49 per cent premium o Rio Algom's closing price last Monday, the day before Noranda pounced. Billiton said it had been considering a Rio Algom bid for nths and signed a confidentiality agreement at the start of August.
"This offer reflects the value we have worked hard to build for investors, whilst our employees will benefit from joining a global company with the size and resources needed to compete worldwide," Rio Algom chairman Gordon Gray said in a statement.
Billiton chief Brian Gilbertson denied overpaing for Rio Algom and his finance director, Mick Davis, added that the deal would enhance earnings from the second half of next year, assuming a long-term copper price of 95 U.S. cents a pound. Copper currently fetches around 85 cents per pound.
"We are not in the habit of overpaying," Mr. Gilbertson said in briefing analysts about the acquisition. He insisted Billiton could still fund more big acquisitions. "This transaction we can finance easily and, indeed, we can finance any other reasonably sized acquisition," he added.
Billiton is looking to buy control of Australia's Worsley alumina refinery from Reynolds Metals Co. Reynolds' 56-per-cent Worsley stake � estimated to be worth between $1-billion (U.S.) and $1.5-billion � is for sale as a result of its merger with Alcoa Inc.
In an interview with Reuters, Mr. Gilbertson spoke of Rio Algom's strong growth potential and said that within about four years Billiton could be the world's fifth-largest copper producer. "Strategically it fills that gap in our portfolio," he said, referring to Billiton's lack of copper assets.
"The quality and potential of the Rio Algom assets represent, for Billiton, a unique entry vehicle into the global copper and metals market," he added in a statement.
Billiton's business is heavily weighted towards aluminium, nickel, ferroalloys and coal. One of the jewels in Rio Algom's crown is the massive Antamina project in Peru. When completed in 2001, it will be the largest copper and zinc mine in the world.
In Chile, Rio Algom owns the Cerro Colorado copper mine and the undeveloped Spence copper deposit. In Argentina, it controls 25 per cent of the Alumbrera open-pit copper-gold mine. It also owns 33.6 per cent of Highland Valley copper mine in Canada.
Billiton said the acquisition would modestly weaken earnings in the year to June 30 next year but that the Antamina project would reverse that when it came on stream next year.
Mr. Gilbertson said that once the Spence project entered production, scheduled for 2004, Billiton could be producing up to 550,000 tonnes of copper concentrate and cathode, making it by then the world's No.5 producer of the metal.
Analysts said Noranda could yet pull out a higher bid.
Noranda and Rio Algom each own 33.75 per cent of Antamina with Vancouver-based Teck Corp.. If Noranda triumphed, it would control the project and gain access to an additional 83 million tonnes of copper reserves.
As part of Noranda's offer, it has agreed to sell half of Rio Algom's assets to Codelco (Corporacio Nacional del Cobre), the world's largest copper miner, once the deal is sealed.
Billiton this year joined Codelco in a biotechnology joint venture to use bacteria in copper production, but said on Friday that the Rio Algom deal would not harm the relationship.
Mr. Gilbertson also said Billiton had no current plans to sell any of Rio Algom's assets to help fund the purchase, but he did not rule it out.
Billiton's bid is conditional on 66.67-per-cent acceptance. It said the deal also included a break fee of $45 million (U.S.) � and the right for Billiton to come back to the table � if a higher offer was made.
BMO Nesbitt Burns and Chase Manhattan are Billiton's advisers for the transaction. RBC Dominion Securities and Credit Suisse First Boston are acting for Rio Algom.
August 25, 2000
The plan marks Billiton's biggest move yet into South America and copper production. Until now, the company made metals such as aluminum, nickel and chrome and mined coal, largely in South Africa and Europe. In addition to copper exposure, the purchase would give Billiton a larger stake in Latin America, which last year produced 12 percent of sales.
"It's a huge swing in strategy," said Graham French, a fund manager at M & G Investment Management, which holds Billiton shares. "It's a different part of the world and a different metal. At this stage it's not what Billiton should be doing."
Billiton shares dropped as much as 20.25 pence, or 6.5 percent, to 290 pence in London, indicating investors are concerned the company may be overpaying.
"I think the acquisition is too expensive, they have overpaid," said Kieran O'Gorman, a stockbroker at P.H. Pope & Son which holds shares in Billiton. "The management haven't thought this through. "
Investors say buying Rio Algom may limit Billiton's room for maneuver to buy further assets, such as the 56 percent stake in the Worsley alumina refinery in Australia that Alcoa is selling.
They are also disappointed that the company is moving away from aluminum where further consolidation is expected, which may boost producers' share prices.
Billiton declined to say in advance of its annual results announcement next week by how much the acquisition will increase borrowings. Last year, though, the company reported it owed creditors some $1.2 billion in loans and other debt.
"They are stretching their balance sheet," said French. "People want them to have a certain degree of flexibility."
Buying Rio Algom follows last month's announcement that Billiton wants to gain a foothold in the iron ore market by buying a 2.1 percent stake in Cia. Vale do Rio Doce, the world's largest iron ore producer.
With the acquisition of Toronto-based Rio Algom, the company will fulfill its objective of adding copper to its portfolio of industrial metals assets.
"If Rio Algom's assets are developed to their full potential it will be the world's fifth-largest copper producer," said Brian Gilbertson, chairman and chief executive of Billiton. "It is a gap in our portfolio and it slots in well."
South American Expansion
Rio Algom mines copper, molybdenum, uranium and coal in Chile, Argentina, the U.S. and Canada. It plans to triple its current output of 162,000 metric tons of copper a year by 2005 as it opens new mines in Peru and Chile.
The key assets Billiton is interested in acquiring are Rio Algom's 33.8 percent stake in the Antamina copper-zinc field in the Peruvian Andes and the as yet undeveloped Spence prospect in Chile. Copper prices have risen 12 percent in the past year.
"Rio Algom generates a lot of cash, said Martin Potts, an analyst at Williams de Broe. "True, they have debts, but it's quite common with North American companies. Their projects in Peru and Chile will be major money generators."
The company's history stretches back to 1860 when it acquired concessions to tin deposits on an island called Billiton, located between Sumatra and Borneo. In 1970, Royal Dutch/Shell Group bought the company which was listed on the London Stock Exchange in 1997.
Its assets now include aluminum smelters in South Africa, nickel operations in Australia and Colombia and coal mimes in Canada.
Billiton looked at Rio Algom earlier this year, said Gilbertson, although an 18 percent rise in the Canadian company's shares in March scuppered talks.
Still, the shares began to fall and Gilbertson and Rio Algom's Chief Executive Gordon Gray, met two months ago. Talks in earnest began at the start of August, said Gilbertson, resulting in today's agreed bid.
"Strategically it is a good deal," said Sylvain Brunet, an analyst at Morgan Stanley Dean Witter. "There aren't that many opportunities to enter the copper market."
Noranda may increase its offer or another bidder may emerge, and Gilbertson told the Wall Street Journal Billiton may raise its offer. Still, he described Billiton's offer as "fair and full" and said "Billiton is not in the habit of overpaying."
Rio seen looking for white knight to outbid Noranda
Mining Reporter, Toronto Globe and Mail
August 24, 2000
Rio Algom Ltd. will be looking for a white knight to outbid Noranda Inc.'s $1.5-billion takeover offer, as well as evaluating the option of selling itself off piece by piece to get the most for its shareholders, one analyst said yesterday.
Shares of Rio Algom rose 5 cents yesterday on the Toronto Stock Exchange to $26.30 a share, indicating speculators believe the $24.50-a-share bid announced Tuesday will not be the last. About 5.4 million shares changed hands.
Investment dealers will be looking to assemble mining groups interested in bidding for Rio Algom with the aim of dismantling the company and each choosing their preferred assets, said the analyst, who did not want to be named.
Noranda and Chile's copper mining agency, Corporacion Nacional de Cobre (Codelco), acted together "just to get the process going," he said. Noranda has agreed to sell a 50-per-cent interest in the assets to Codelco if its takeover bid for Rio Algom is successful. Noranda and Rio Algom are based in Toronto.
"The market is probably expecting some additional bids. I wouldn't be surprised to see some additional bids for Rio, either by Canadian or international mining companies," Bank of Nova Scotia economist Patricia Mohr told Reuters News Agency.
Rio Algom's copper production, which is expected to be more than 440 million pounds this year, is forecast to increase to one billion pounds by 2005 as a result of its projects under development.
The company's assets, which consist of a number of separate wholly owned and joint-venture projects, would lend themselves to being sold separately.
They include 33.75 per cent of the $2.3-billion (U.S.) Antamina copper and zinc project in Peru, the $1-billion Spence copper project and Cerro Colorado mine in Chile, a 25-per-cent interest in the Alumbrera copper and gold mine in Argentina and a 33.6-per-cent interest in the Highland Valley copper mine in British Columbia.
INTERVIEW-Noranda's Kerr upbeat on Codelco partnership
by Lesley Wroughton
August 24, 2000
TORONTO, Aug 24 (Reuters) - Until a month ago, Noranda was content with slowly buying shares in Canadian metals miner Rio Algom, but all that changed when Chile's state-run copper producer Codelco proposed a joint bid to take it over.
A tie-in with Codelco, the world's biggest copper producer with assets worth $5.8 billion, immediately gives Noranda new global clout in an industry thinning under consolidation.
"One of the shortages we have had is the mining assets. We are very strong metallurgically, but our assets on the mining side have been depleting over the years and we needed to do something to keep a balance," said David Kerr, Noranda's president and chief executive, in an interview.
The companies launched a hostile C$1.5 billion ($1 billion), or C$24.50 cash a share, offer for Toronto-based Rio Algom this week. Noranda said it would sell half of Rio's assets to Codelco (Corporacio Nacional del Cobre) for the same price as the offer, once the deal was done. They plan to jointly manage the assets.
Rio Algom has said the bid was unsolicited and not permitted under its shareholder rights plan.
"We were hesitant at first because we have been comfortable nibbling away, buying a few shares and growing our position in Rio Algom, but after some consideration we decided it was probably the right thing to do at this point in time," said Kerr, adding that he believed the offer price would discourage others from bidding.
Noranda, with revenues in 1999 of C$2 billion, is primarily a copper producer but also has interests in zinc, nickel, refined copper, primary and fabricated aluminum, lead, silver, gold and cobalt.
It is also about to launch a C$733 million magnesium plant in Quebec which will extract magnesium from asbestos tailings that represent more than 200 years of supply. The plant will produce about 63,000 tonnes annually.
While some might argue the logic behind a partnership with a 100 percent government-owned company, Kerr said it made sense because there are advantages a Canadian company would have for bidding for another Canadian company.
"They would've seen we were adding to our position in Rio Algom and that if they were going to find a partner other than us, there was a good chance that we would be a counter-bidder against them," Kerr said.
Codelco, whose board of directors includes top government ministers, has over the past six years accounted for over 18 percent of Chile's exports and about 3.4 percent of gross domestic product. It controls about 20 percent of the world's total known copper reserves.
"Codelco is an excellent choice as a partner. They have the strengths of being a strong influence in Chile and are strong financially," said Kerr.
Kerr said Noranda was mainly attracted by Rio's copper assets, especially its underdeveloped Spence copper deposit in Chile.
Additionally, Noranda and Rio Algom each own 33.75 percent of the Peru's massive Antamina mine with another Canadian miner Teck Corp.
The acquisition would give Noranda a 50.6 percent controlling share of the project, which when completed in 2001 will be the largest zinc/copper mine in the world.
"We have made some good additions to our mining assets but still it wasn't quite enough. We needed to keep doing it and one of the most obvious candidates from our perspective was the copper mining assets of Rio Algom," Kerr said.
Rio also owns the Cerro Colorado copper mine in Chile and in Argentina it controls 25 percent of the Alumbrera open-pit copper/gold mine. In Canada it has a 33.6 percent stake in the Highland Valley copper mine in British Columbia.
The acquisition would also double Noranda's annual copper production from approximately 250,000 tonnes to 500,000 tonnes by 2005. In addition, the deal would immediately increase its copper reserves to 11.1 million tonnes and help to better balance its copper mining and metallurgical assets.
Kerr said with $1.3 billion in assets currently under construction in North and South America, Noranda was eager to begin delivering profits.
"One of the problems over the past 15 years, we have spent a lot of money on things that did not have a great deal of return. While the industry like ours is not terribly interesting to investors at the moment, I also think that we have to start delivering on projects that we put in place," he said.
Kerr says the company adjusted its return on equity to 15 percent from 12 percent six months ago, more than doubling the average six percent it has managed on existing businesses over the past 10 years.
"Twelve first seemed like a stretch when we first signed up but 15 percent is now within our grasp," he said.
Copyright 2000 Reuters Limited.
Chile Sends Codelco on Takeover Hunt to Boost Revenue
(Bloomberg) -- Chile is sending state-owned miner Codelco on a takeover hunt, vying to defend its position as the world's biggest copper producer and put more revenue into the Chilean government's coffers.
Codelco's plan to buy half of Canadian miner Rio Algom Ltd. for as much as $800 million would help boost the Chilean producer's copper output 25 percent by 2005, generating a surge in revenue for the government. It also would make good on company promises to expand outside Chile and hold onto its 13 percent share of global copper production.
"It's a first and strong signal of a strategy to reinforce the international presence of Codelco," company President Juan Villarzu said. The purchase, he added, would "consolidate Codelco as undisputed leader in the copper industry at a global level."
Privately owned competitors like Phelps Dodge Corp., the world's second largest copper producer, and Grupo Mexico SA, the third largest, have both made acquisitions recently, helping step up the pace of a global consolidation in copper mining.
Codelco, in contrast, has long stuck largely to mining in Chile. That would change if the offer for Rio Algom -- part of Noranda Inc.'s hostile $1.8 billon bid - succeeds, giving Codelco half of Rio Algom's mines and operations in Argentina, Canada, and Peru.
Buying into Rio Algom would be Codelco's biggest venture with a non-government owned company since the company was born in 1971, when then Socialist President Salvador Allende seized foreign owned copper mines.
A takeover would also serve to ease executives' concerns that Codelco might lose its nearly 13 percent share of some 12.7 million metric tons of copper mined worldwide last year. Codelco expects annual consumption to grow 3 percent a year and the company would have to add 40,000 tons of output a year just to keep up with demand.
Rio Algom will add about 250,000 tons of output, sending total annual production above 2 million tons by 2005 up from 1.6 million tons last year.
"We demand profits and efficiency," said Jose de Gregorio, who doubles as mining minister and Codelco's board chairman. "They've found a good way to do their business, and we support them totally."
Even so, Codelco's bid to stay No. 1 may be flawed, analysts said.
"I'm not sure that being a big company is better than being a small company in the mining industry," said Raymond Goldie, an analyst at First Associates Investments in Toronto.
Codelco could further strengthen its position by joining its mining operations in Chile with Rio Algom's and Noranda's, said First Associate's Goldie.
Rio Algom's Spence copper deposit is near Codelco's Chuquicamata, the world's No. 2 copper mine, allowing the new owners to cut costs by sharing manpower and processing plants at the two operations.
And Noranda owns a smelter nearby, allowing it to lock in supplies of copper concentrate to melt into fine copper from Spence and Chuquicamata. Codelco also would win a stake in Rio Algom's Alumbrera copper mine in Argentina.
And in Peru, Codelco will get a stake in the Antamina deposit high in the Andes Mountains, which is expected to become the world's largest copper-zinc mine once it opens in mid 2002.
Still, the government's decision to allow Codelco to shell out $800 million comes as Chile is only barely recovering from a deep recession last year.
"I don't think the Chilean state should be investing the people's money in a business deal that may or may not be successful," Sen. Francisco Pratt, a right-leaning critic of Codelco, told Radio Cooperativa. "We should be spending that money on social causes like health or education."
It is also far from sure whether Codelco will succeed in its bid, since Rio Algom shareholders haven't accepted the offer and Noranda and Codelco may yet have to up their price for Rio Algom.
Rio Algom shares are trading at C$26.25 in Toronto -- higher than the C$24 offer price, a sign the two companies may yet have to up their bid.
Moody's may cut Noranda Inc Baa2 ratings
Rio Algom Responds to Take-over Announcement by Noranda
Aug 22, 2000
From: Newsroom firstname.lastname@example.org
Rio Algom Limited announced today that it has been informed that Noranda intends to make an unsolicited bid to acquire all of the company's outstanding common shares for a consideration of $24.50 for each Rio Algom share. The unsolicited bid is not a permitted bid as defined in the company's shareholder rights protection plan, which is designed to provide the board of directors and shareholders with sufficient time to pursue other alternatives to maximize shareholder value.
Rio Algom Chairman Gordon Gray said: "If an offer is received, Rio Algom's board will review it and respond in the appropriate manner. The company is on a growth program aimed at achieving a 15% return on equity over the cycle, and is committed to maximizing value for shareholders."
Rio Algom is an international mining and metals-distribution company based in Toronto, and one of the fastest growing copper companies in the world. It is creating value for shareholders by finding and developing long life, low unit-cost base metal mines, and building profitable market share in its metals distribution business. It has paid dividends to shareholders every year since its incorporation in 1960, and has recorded annual profits for all but one of the last 40 years.
1991 BROCHURE ON NORANDA'S