e425
Filed by Inco Limited
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: Falconbridge Limited
Commission File No. 1-11284
Inco Limited Commission File No. 1-1143
This document is important and requires your immediate
attention. If you are in doubt as to how to respond to the Teck
Offer, you should consult with your investment dealer,
stockbroker, lawyer or other professional advisor. Enquiries
concerning the information in this document should be directed
to Georgeson Shareholders North American toll-free number
at 1-866-264-4715 or collect at 416-847-7159. Bankers and
brokers may call at 212-440-9800.
Directors Circular
RECOMMENDING
REJECTION
OF THE OFFER BY
TECK COMINCO LIMITED
TO PURCHASE ALL OF THE COMMON SHARES
OF
INCO LIMITED
Your Board of Directors unanimously recommends that
Inco Shareholders
REJECT
the Teck Offer and
NOT TENDER their
Inco Shares
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NO NEED FOR IMMEDIATE ACTION |
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As an Inco Shareholder, there is no need for you to do anything
immediately. The Teck Offer is currently open until
July 24, 2006. Moreover, the Teck Offer is conditional
on the termination of the Falconbridge Transaction, which the
Board believes is superior to the Teck Offer and remains
committed to completing. The Board intends to communicate
further with Inco Shareholders on a timely basis prior to the
expiry of the Teck Offer. |
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If you have already tendered Inco Shares to the Teck Offer, you
should withdraw them as described on pages 39 to 41 of the
Teck Circular. |
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Notice to United States Securityholders:
The Teck Offer is in respect of securities of a Canadian
issuer. The enforcement by United States securityholders of
civil liabilities under United States federal securities laws
may be adversely affected by the fact that the issuer is located
in a foreign country and that some of its directors and officers
are residents of a foreign country.
May 29, 2006
May 29, 2006
Dear Fellow Inco Shareholder:
On May 23, 2006, Teck Cominco Limited made an unsolicited
offer to purchase all of the outstanding common shares of Inco.
By now, you have likely received materials from Teck asking you
to tender your Inco common shares to the Teck Offer.
The Board of Directors of Inco has carefully reviewed and
considered the Teck Offer. Based on this review, the Board has
voted unanimously to recommend that Inco shareholders REJECT the
Teck Offer. We urge you to NOT TENDER your Inco common shares.
The Board believes that the Teck Offer does not provide full
value for Inco and is an attempt by Teck to acquire Inco without
offering adequate consideration to Inco shareholders. In
particular, the Board believes that:
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the Teck Offer fails to recognize the strategic value of
Incos world-class assets and growth prospects; |
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the proposed Teck-Inco combination would be dilutive to
Incos asset quality; |
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the Teck Offer does not reflect an adequate premium for control
of Inco; |
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the proposed Inco-Falconbridge transaction will create superior
value for Inco shareholders compared with the Teck Offer; |
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the timing of the Teck Offer is opportunistic and
disadvantageous to Inco shareholders; |
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Tecks dual-class share structure prejudices Inco
shareholders; |
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the proposed Teck-Inco combination lacks industrial logic and
offers few synergies; and |
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the Teck Class B Subordinate Voting Shares offered to Inco
shareholders are not listed on a U.S. stock exchange and
are less liquid than the Inco common shares. |
In addition, Incos financial advisors have each provided
written opinions to Incos Board of Directors that the
consideration being offered pursuant to the Teck Offer is, as of
the date of such opinions, inadequate from a financial point of
view to Inco shareholders.
The attached Directors Circular explains each of these
reasons in detail. We strongly encourage you to read the
Directors Circular in its entirety and consider all these
points carefully.
Let me begin by highlighting three areas for your consideration.
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The Teck Offer is timed opportunistically to disadvantage
Inco shareholders and is priced below fair value. |
The Inco Board believes that the timing of the Teck Offer is an
opportunistic attempt by Teck to take advantage of the recent
spike in the price of Tecks Class B Subordinate
Voting Shares relative to the price of Incos common
shares. The Board believes that Incos share price has been
adversely affected by arbitrage trading and hedging strategies
linked to the proposed
Inco-Falconbridge
transaction and perceived uncertainty regarding the timing of
the completion of the proposed
Inco-Falconbridge
transaction. By contrast, Tecks share price has been
positively affected by the recent
short-term surge in the
price of zinc and copper. These factors have given Teck the
opportunity to make a share exchange offer that provides the
illusion of a small premium based on these short-term
factors a premium that would otherwise be largely
absent.
By launching an unsolicited offer for the Inco common shares at
this time, rather than waiting until the outcome of the proposed
Inco-Falconbridge
transaction is known, Teck is attempting to take advantage of
Incos commitment to, and strategic focus on, the proposed
Inco-Falconbridge
transaction and may have assumed that the Inco Board would be
constrained from exploring alternatives to the Teck Offer while
the proposed
Inco-Falconbridge
transaction is pending. While we will respect our obligations
under our Support Agreement with Falconbridge and remain
committed to completing the proposed
Inco-Falconbridge
transaction, my fellow directors and I are nonetheless committed
to fully exploring those alternatives.
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2. |
Inco, not Teck, would bring the real long-term value to this
proposed combination, which would dilute the value of
Incos assets to Inco shareholders. |
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Teck claims that the acquisition of Inco will create a
Canadian powerhouse on the world stage. Consider what Inco
would be contributing to this powerhouse: |
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world-class, low-cost global operations that have made Inco the
worlds second largest producer of nickel, and that are
expected to attain all-time record production in 2006; |
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the worlds best growth and expansion projects in nickel,
which will increase our production 48% by 2009, making us the
worlds number one nickel producer; |
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world-leading ore reserves and mineral resources; and |
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an enviable portfolio of brownfield and greenfield projects for
further expansion down the road. |
By way of contrast, Teck would be contributing:
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a copper business where two-thirds of production is expected to
end within seven years; |
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a zinc business where Tecks economic interest in its
principal mine (86% of Tecks total 2005 production) will
be reduced to 75% by no later than 2010 and as early as 2007,
and which will be further reduced to 50% in stages thereafter; |
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a relatively high-cost coal business; and |
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no publicly-identified material growth projects in any of these
principal businesses. |
With declining mineral reserves and no significant metal growth
projects of its own, it is easy to understand why Teck is
opportunistically pursuing Inco. It is much harder to see the
benefits of the Teck Offer to Inco shareholders, who are being
asked to dilute their participation in Incos world-class
nickel business at a time when that business is poised to
outperform from both a production and a financial perspective.
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3. |
Incos friendly acquisition of Falconbridge remains the
best option for Inco shareholders |
The Board remains committed to Incos friendly acquisition
of Falconbridge and believes that it represents a better
opportunity for Inco shareholders than the Teck Offer. On
May 13, 2006, the Board reaffirmed its commitment to the
proposed
Inco-Falconbridge
transaction by approving an increase in the cash component of
the consideration payable to Falconbridge shareholders. The
board of directors of Falconbridge has also reaffirmed its
support of the Inco offer.
Incos combination with Falconbridge (the combined entity,
New Inco) offers a unique opportunity to create a
much larger nickel and copper company with strong positions in a
number of other metals, and to create real shareholder value at
the same time. New Inco will be a truly formidable player on the
world mining stage. It will be the worlds number one
producer of nickel and a strong producer of copper, with
first-class operations around the world. And it will have one of
the best project pipelines in the mining business, with the
worlds best portfolio of properties and growth projects in
nickel and copper, arguably the two metals with the best
prospects going forward.
Bringing together Inco and Falconbridge will also accomplish
what no other combination of companies can, which is to unlock
the significant value of the synergies in our Canadian nickel
and copper operations, particularly in the Sudbury basin. We now
estimate that the average annual pre-tax run-rate of the New
Inco synergies would be approximately $550 million, with a net
present value of approximately $3.5 billion on an after-tax
basis, using a 7% discount rate. Inco believes it should be able
to achieve synergies approaching the average annual pre-tax
run-rate by approximately 24 months after the completion of
the Inco-Falconbridge transaction. The estimated synergies
figure has increased as a result of seven months of working
closely with Falconbridge on how to maximize synergies and the
impact of higher commodity price assumptions. Through this
process we have identified several additional opportunities to
accelerate and increase production utilizing New Incos
resources and infrastructure.
Meanwhile, Teck speculates that it could achieve more limited
synergies in Sudbury through a joint venture with Falconbridge.
That is much easier said than done. The synergies of the New
Inco will require combination of mineral resources, integration
of infrastructure, major changes in materials flows as well as
long-term commitments and investments, and the cooperation and
support of the workforce in Sudbury; these types of changes can
only be achieved by combining our two companies.
ii
The Teck Offer falls short in a number of other areas in
addition to those I have highlighted here. For instance, its
dual-class share structure would have the effect of making any
Inco shareholder who tendered to this offer a
second-class, subordinated shareholder in Teck.
Therefore, we strongly encourage you to read this
Directors Circular in its entirety. Make sure that you
fully understand the views of your Inco Board before you make
any decision. I am confident you will conclude, as we have, that
the Teck Offer does not provide the value that Inco shareholders
deserve.
For the above reasons, we urge you to REJECT the Teck Offer
and NOT TENDER your Inco common shares. If you have tendered
your Inco common shares, you can withdraw them. For assistance
with withdrawing your Inco common shares, you can contact your
broker or our information agent, Georgeson Shareholder, at one
of the numbers below. In addition, all enquiries concerning the
information in this document should be directed to Georgeson
Shareholder at:
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North American Toll-Free Number:
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1-866-264-4715 |
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Collect:
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416-847-7159 |
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Bankers and Brokers Call
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212-440-9800 |
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On behalf of the Board of Directors of Inco, I thank you
for your continued support.
Sincerely,
Scott M. Hand
Chairman and Chief Executive Officer
Inco Limited
INCO LIMITED, 145 King Street West, Suite 1500, Toronto,
Ontario M5H 4B7
iii
QUESTIONS AND ANSWERS ABOUT THE INADEQUATE OFFER
FROM TECK COMINCO LIMITED
Should I accept or reject the Teck Offer?
Your Board of Directors unanimously recommends that Inco
Shareholders REJECT the Teck Offer and NOT TENDER
their Inco Shares. Members of the Board and senior officers
ARE NOT tendering their Inco Shares into the Teck Offer,
which the Board views as offering inadequate consideration to
Inco Shareholders.
How do I reject the Teck Offer?
You do not need to do anything. DO NOT tender your Inco
Shares.
Can I withdraw my Inco Shares if I have already tendered?
YES. According to the Teck Circular, you can
withdraw your Inco Shares: (a) at any time until your Inco
Shares have been taken up and paid for by Teck; (b) if your
Inco Shares have not been paid for by Teck within three business
days after having been taken up by Teck; (c) up until the
tenth day following the day Teck files a notice announcing that
it has changed or varied the Teck Offer unless, among other
things, prior to filing such notice Teck has taken up your Inco
Shares or the change in the Teck Offer consists solely of an
increase in the consideration offered and the Teck Offer is not
extended for more than ten days; or (d) at any time after
the 60-day period
following the commencement of the Teck Offer, provided that Teck
has not taken up your Inco Shares prior to receipt by the
depositary under the Teck Offer of the notice of withdrawal
relating to your Inco Shares.
How do I withdraw my Inco Shares?
We recommend you contact your broker, or Georgeson Shareholder,
the information agent retained by Inco, at one of the numbers
listed at the end of this Q&A for information on how to
withdraw your Inco Shares.
Why does the Board believe that the Teck Offer should be
rejected?
The Board believes that the Teck Offer fails to provide full
value for Inco and is an attempt by Teck to acquire Inco without
offering adequate consideration to Inco Shareholders. The Board
believes that:
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1. |
the Teck Offer fails to recognize the strategic value of
Incos world-class assets and growth prospects; |
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2. |
the proposed Teck-Inco
combination would be dilutive to Incos asset quality; |
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3. |
the Teck Offer does not reflect an adequate premium for control
of Inco; |
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the Falconbridge Transaction will create superior value for Inco
Shareholders compared with the Teck Offer; |
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5. |
the timing of the Teck Offer is opportunistic and
disadvantageous to Inco Shareholders; |
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6. |
Tecks dual-class
share structure prejudices Inco Shareholders; |
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7. |
the proposed Teck-Inco
combination lacks industrial logic and offers few
synergies; and |
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the Teck Class B Subordinate Voting Shares offered to Inco
Shareholders are not listed on a U.S. stock exchange and
are less liquid than the Inco Shares. |
In addition, Incos Financial Advisors have each provided
written opinions to the Board that the consideration being
offered pursuant to the Teck Offer is, as of the date of such
opinions, inadequate from a financial point of view to the Inco
Shareholders.
A summary of all of the reasons for the unanimous recommendation
of the Board is included on pages 6 to 20 in this
Directors Circular.
Why does the Board believe that the proposed Falconbridge
Transaction is superior to the Teck Offer?
The Board believes firstly, that the synergies offered by the
Falconbridge Transaction are clearly larger, more tangible and
realizable than those offered by the Teck Offer; secondly, that
the assets of a combined
Inco-Falconbridge will
have a longer life and provide a significantly better growth
platform than a combined
Teck-Inco entity; and
thirdly, that nickel and copper provide a more attractive asset
mix than the group of products represented by the current Teck
portfolio. Unlike the transaction proposed by the Teck Offer,
the Falconbridge Transaction offers real industrial logic,
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sizeable and tangible synergies, and an optimal mix of metal
exposures and thus creates real value for Inco Shareholders.
My broker advised me to tender my Inco Shares. Should I?
NO. The Board has unanimously recommended that Inco
Shareholders REJECT the Teck Offer and NOT TENDER
their Inco Shares. You should be aware that Teck has
established a Soliciting Dealer Group and that Teck has agreed
to pay brokers for Inco Shares tendered to the Teck Offer.
Am I likely to receive Cdn.$78.50 in cash if I elect the Cash
Alternative under the Teck Offer?
NO. Teck has capped the total amount of cash and
shares that are available under the Teck Offer, with the result
that, as of May 26, 2006, only approximately 36% of
the total consideration is available in cash the
remainder is being provided in the form of Teck Class B
Subordinate Voting Shares. The Teck Offer acknowledges that it
is unlikely that Inco Shareholders who elect to receive the Cash
Alternative will in fact receive only cash consideration.
Assuming full pro ration, each Inco Shareholder will
receive only Cdn.$28.00 of the per share consideration in cash,
together with 0.6293 of a Teck Class B Subordinate Voting
Share.
If I tender my Inco Shares early, am I more likely to obtain
my preferred option of all cash or all shares?
NO. You will obtain no advantage by tendering your
Inco Shares early and it will have no impact on how likely you
are to receive your preferred consideration.
Do I have to decide now?
NO. You do not have to take any action at this time.
The Teck Offer is scheduled to expire on July 24, 2006 and
is subject to a number of conditions that have yet to be
satisfied. In particular, the Teck Offer is conditional on the
termination of the Falconbridge Transaction, which Incos
Board of Directors believes is superior to the Teck Offer and
remains committed to completing. The Board recommends that you
not take any action until closer to the expiry date of the Teck
Offer to ensure that you are able to consider all of the options
available to you.
If you have already tendered Inco Shares to the Teck Offer and
you decide to withdraw these Inco Shares from the Teck Offer,
you must allow sufficient time to complete the withdrawal
process prior to the expiry of the Teck Offer. For more
information on how to withdraw your shares, you should contact
your broker or Georgeson Shareholder, the information agent
retained by Inco, at one of the numbers listed below.
Who do I ask if I have more questions?
Your Board recommends that you read the information contained in
this Directors Circular. You should contact Georgeson
Shareholder, the information agent retained by Inco, with any
questions or requests for assistance that you might have.
TELEPHONE NUMBERS FOR GEORGESON SHAREHOLDER:
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North American Toll-Free Number:
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1-866-264-4715 |
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416-847-7159 |
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Banks and Brokers Call:
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212-440-9800 |
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TABLE OF CONTENTS
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THE FALCONBRIDGE TRANSACTION IS SUPERIOR TO THE TECK OFFER
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NEW INCO SELECTED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION
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REGULATORY MATTERS
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CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This Directors Circular contains, among other things, the
unanimous recommendation of the Board that Inco Shareholders
reject the Teck Offer and not tender their Inco Shares to the
Teck Offer. This Directors Circular, including the
discussion of the reasons for the Boards recommendation,
contains forward-looking information (as defined in the
Securities Act (Ontario)) and forward-looking statements
(as defined in the United States Securities Exchange Act of
1934) that are based on expectations, estimates and projections
as of the date of this Directors Circular. Such
forward-looking statements can be found in The
Falconbridge Transaction, Analysis and Reasons for
the Boards Conclusion and Recommendation, The
Falconbridge Transaction is Superior to the Teck Offer,
New Inco Selected Pro Forma Consolidated Financial
Information, Regulatory Matters,
Material Changes and Recent Developments,
Schedule B Important Information
Regarding Incos Ore Reserves and Mineral Resources
and Schedule H The Falconbridge
Transaction Inco Pro Forma Consolidated Financial
Statements. Generally these forward-looking statements can
often, but not always, be identified by the use of
forward-looking terminology such as plans,
expects or does not expect, is
expected, budget, scheduled,
estimates, forecasts,
intends, anticipates or does not
anticipate, or believes, or variations of such
words and phrases, or statements that certain actions, events or
results may, could, would,
might or will be taken, occur or be
achieved. Forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause actual
results and developments to be materially different from any
future results, performance or achievements expressed by, or
implied by, the forward-looking statements in this
Directors Circular.
Examples of such forward-looking statements in this
Directors Circular include, but are not limited to: the
prices and production levels and supply of and demand for
nickel, copper, zinc, coal and other commodity products produced
by Inco, Falconbridge or Teck; interest and currency exchange
rates; the results expected to be achieved from the successful
completion of the Falconbridge Transaction or the Teck Offer,
including the operating, corporate and the other synergies and
cost savings expected to be realized; and whether or not a
superior or alternative proposal to the Teck Offer may emerge.
Actual results and developments are likely to differ, and may
differ materially, from those expressed or implied by the
forward-looking statements contained in this Directors
Circular.
These forward-looking statements are based on a number of
assumptions which may prove to be incorrect, including, but not
limited to: (A) assumptions in connection with the
combination of Inco and Falconbridge or otherwise about: the
results expected to be achieved from the successful completion
of the combination of Inco and Falconbridge, including estimated
average annual pre-tax run-rate operating and corporate
synergies of approximately $550 million, and other benefits
expected to be realized, and the timing and net percent value on
an after-tax basis thereof, based on the achievement of
operational efficiencies from restructuring, integration and
other initiatives relating to the combination of Inco and
Falconbridge; the ability of New Inco to achieve increased
production at its mining operations and realize projected
optimization levels; the accuracy of projected synergies in
respect of New Incos projected growth prospects, reserve
and resource levels, mine life and project start-up projections;
the increased market capitalization, share price multiple and
improved liquidity of Inco Shares; the improved cash flow and
earnings of New Inco; statements regarding plans, objectives and
expectations with respect to existing and future operations;
statements regarding business and financial prospects;
statements regarding anticipated financial or operating
performance and cash flows; statements regarding possible
divestitures; statements regarding strategies, objectives, goals
and targets; the ability of New Inco to successfully compete
against global metals and mining and exploration companies by
creating through such a combination an enterprise of increased
scale; strong demand for nickel, copper and other metals in
emerging markets such as China; the approvals or clearances
required to be obtained by Inco and Falconbridge from regulatory
and other agencies and bodies being obtained in a timely manner;
divestitures required by regulatory agencies being acceptable
and completed in a timely manner; there being limited costs,
difficulties or delays related to the integration of
Falconbridges operations with those of Inco; and the
timely completion of the steps required to be taken for the
eventual combination of the two companies; and (B) the fair
value of the assets of Inco, Falconbridge or Teck; the existence
of third parties interested in purchasing some or all of
Incos assets; the accuracy of Incos ore reserve and
mineral resource estimates; whether mineral resources can be
developed; annual rates of production; estimates on the U.S.
dollar-Canadian dollar exchange rate for 2006; global industrial
production in key geographic markets; interest rates; global
nickel and other metals demand and supply in key geographic
markets;
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REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
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vii
growth in the key end-use markets for the metals produced by
Inco; that Inco would not have any labour, equipment or other
disruptions at any of its operations of any significance other
than any planned maintenance or similar shutdowns and that any
third parties which Inco relies on to supply purchased
intermediates or provide toll smelting or other processing do
not experience any unplanned disruptions; the accuracy of
projected world supply and demand levels for nickel, zinc, coal,
copper and stainless and non-stainless steel; the continuity of
Incos mining world wide operations; the markets
positive perception of the Falconbridge Transaction; and what
the prices of nickel and other primary metal products produced
by Inco and the costs of production will be in the future. In
particular, the mine planning and other assessments related to
the determination of the value of the synergies of the
Falconbridge Transaction are based on preliminary evaluations
only, and feasibility studies remain to be undertaken to confirm
the mine plans and evaluations upon completion of the
Falconbridge Transaction.
Some of the material assumptions made by us involve confidential
or particularly sensitive information and, accordingly, we do
not believe it is appropriate to disclose such assumptions for
competitive or other business reasons. Forward-looking
statements for time periods subsequent to 2006 involve longer
term assumptions and estimates than forward-looking statements
for 2006 and are consequently subject to greater uncertainty.
Therefore, the reader is especially cautioned not to place undue
reliance on such long-term forward-looking statements.
In respect of forward-looking statements relating to Inco,
factors which could cause actual results to differ materially
from current expectations include, but are not limited to:
fluctuations in the prices of nickel and other primary metal
products produced by Inco; fluctuations in the fair value of the
assets of Inco; whether or not a superior or alternative
proposal to the Teck Offer may emerge; the existence of third
parties interested in purchasing some or all of Incos
assets; the accuracy of Incos ore reserve and mineral
resource estimates; the accuracy of Incos annual rates of
production; the accuracy of Incos cash costs estimates,
and in particular, Incos cash costs per nickel unit;
whether Incos mineral resources can be developed; the
successful completion of new development projects, planned
expansions or other projects within the timelines anticipated
and at anticipated production levels; the successful completion
of cost reduction, productivity improvement and strategic
initiatives and whether such initiatives will yield expected
benefits; fluctuations in interest rates and exchange rates; the
strength of the economic fundamentals of nickel and copper
relative to other base metals; the increase in global demand for
nickel relative to supply; general economic conditions;
competitive conditions in the business in which Inco operates;
changes in consumer spending and preferences; changes in
Incos relationships with its suppliers; the possibility of
negative investment returns in Incos pension plan; the
outcome of pending legal proceedings; and changes in laws, rules
and regulations applicable to Inco.
This Directors Circular also includes forward-looking
statements relating to Falconbridge. Forward-looking statements
relating to Falconbridge include, among other things,
expectations as to: the results expected to be achieved from the
successful completion of the combination of Inco and
Falconbridge, including estimated average annual pre-tax
run-rate operating and corporate synergies of approximately
$550 million and other benefits expected to be realized,
and the timing thereof, based on the achievement of operational
efficiencies from restructuring, integration and other
initiatives relating to the combination of Inco and
Falconbridge; the ability of New Inco to achieve increased
production at its mining operations and realize projected
optimization levels; the accuracy of projected synergies in
respect of New Incos projected growth prospects, reserve
and resource levels, mine life and project start-up projections;
the increased market capitalization, share price multiple and
improved liquidity of Inco Shares; the improved cash flow and
earnings of New Inco; statements regarding plans, objectives and
expectations with respect to existing and future operations;
statements regarding business and financial prospects;
statements regarding anticipated financial or operating
performance and cash flows; statements regarding possible
divestitures; statements regarding strategies, objectives, goals
and targets; the ability of New Inco to successfully compete
against global metals and mining and exploration companies by
creating through such a combination an enterprise of increased
scale; strong demand for nickel, copper and other metals in
emerging markets such as China; the approvals or clearances
required to be obtained by Inco and Falconbridge from regulatory
and other agencies and bodies being obtained in a timely manner;
divestitures required by regulatory agencies being acceptable
and completed in a timely manner; there being limited costs,
difficulties or delays related to the integration of
Falconbridges operations with those of Inco; and the
timely completion of the steps required to be taken for the
eventual combination of the two companies; and
Falconbridges nickel and copper production. These
statements were derived from publicly available documents and
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REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
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viii
filings by Falconbridge with the U.S. Securities and
Exchange Commission (SEC) and Canadian provincial
securities regulatory authorities, as well as from third party
sources such as analyst reports. Inco does not assume any
responsibility for the accuracy or completeness of such
information. In addition, a number of factors which could cause
Falconbridges actual results to differ from the
forward-looking statements are contained in Falconbridges
public filings with the SEC and Canadian provincial securities
regulatory authorities.
This Directors Circular also includes forward-looking
statements relating to Teck. Forward-looking statements relating
to Teck include, among other things, expectations as to:
Tecks zinc, metallurgical coal, copper and gold
production, reserve and resource levels; fluctuations in the
prices of and demand for zinc, metallurgical coal, copper and
gold; the growth and/or depletion of Tecks copper, zinc
and gold production; estimates and projections in respect of
Tecks mine lives, and in particular, potential mine
closures; the rate at which Tecks economic interest in
certain mines will decline over time; the effects of increases
in the global supply of coal on Tecks profitability and
performance; expected
start-up dates for
planned projects; and synergies available to Teck through a
combination with Inco. These statements were derived from the
Teck Circular and other filings by Teck with the SEC and
Canadian provincial securities regulatory authorities, as well
as from third party sources such as analyst reports. Inco does
not assume any responsibility for the accuracy or completeness
of such information. In addition, a number of factors which
could cause Tecks actual results to differ from the
forward-looking statements are contained in the Teck Circular
under the heading Statements Regarding Forward-Looking
Information and in Tecks public filings with the SEC
and Canadian provincial securities regulatory authorities.
While Inco anticipates that subsequent events and developments
may cause Incos views to change, Inco specifically
disclaims any obligation to update these forward-looking
statements. These forward-looking statements should not be
relied upon as representing Incos views as of any date
subsequent to the date of this Directors Circular.
Although Inco has attempted to identify important factors that
could cause actual actions, events or results to differ
materially from those described in forward-looking statements,
there may be other factors that cause actions, events or results
not to be as anticipated, estimated or intended. There can be no
assurance that forward-looking statements will prove to be
accurate, as actual results and future events could differ
materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on
forward-looking statements. These factors are not intended to
represent a complete list of the factors that could affect Inco,
Falconbridge or Teck or New Inco or a combined Teck-Inco entity.
In addition to being subject to a number of assumptions,
forward-looking statements in this Directors Circular are
subject to the risks identified in Schedule B to this
Directors Circular Important Information Regarding
Incos Ore Reserves and Mineral Resources , the risks
related to the Falconbridge Transaction described in the section
entitled Risks Related to the Offer in the
Falconbridge Circular, as well as the risks which are identified
in the filings by Inco with the SEC and Canadian provincial
securities regulatory authorities including Incos Annual
Report on Form 10-K for the year ended December 31,
2005.
IMPORTANT LEGAL INFORMATION
This Directors Circular may be deemed to be solicitation
material in respect of Incos proposed combination with
Falconbridge. Inco filed with the SEC, on October 24, 2005,
a registration statement on Form F-8 (containing an offer
to purchase and a share exchange take-over bid circular) and has
filed amendments thereto, and will file further amendments
thereto as required, in connection with the proposed
combination. Inco has also filed, and will file (if required),
other documents with the SEC in connection with the proposed
combination. Falconbridge has filed a Schedule 14D-9F in
connection with Incos offer and has filed, and will file
(if required), other documents regarding the proposed
combination, in each case with the SEC.
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE
REGISTRATION STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED OR
THAT WILL BE FILED WITH THE SEC WHEN THEY BECOME AVAILABLE
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.
Investors and security holders may obtain copies of the
registration statement and Incos and Falconbridges
other public filings made from time to time by Inco and
Falconbridge with the SEC free of charge at the SECs web
site,
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ix
www.sec.gov. In addition, documents filed with the SEC by Inco
may be obtained free of charge by contacting Incos media
or investor relations departments. Filings made by Inco and
Falconbridge with Canadian securities regulatory authorities,
including filings made in connection with the Falconbridge
Transaction, are available at www.sedar.com.
INFORMATION REGARDING FALCONBRIDGE AND TECK
This Directors Circular also includes information relating
to each of Falconbridge and Teck. This information was derived
from publicly available documents and filings by Falconbridge
with the SEC and Canadian provincial securities regulatory
authorities, and by Teck with the Canadian provincial securities
regulatory authorities, as well as certain other third party
sources such as analyst reports. Inco does not assume any
responsibility for the accuracy or completeness of such
information.
Although Inco has no knowledge that would indicate that any
information contained in such documents filed by Falconbridge
and Teck, respectively, are untrue or incomplete, Inco does not
assume any responsibility for the accuracy or completeness of
the information contained in such documents, or for any failure
by either of Falconbridge or Teck to disclose events which may
have occurred or may affect the significance or accuracy of any
such information but which are unknown to Inco.
Additional information regarding the Falconbridge Transaction is
also set forth in the Falconbridge Transaction Circular and the
Falconbridge Support Agreement (as amended), each of which is
available at the Companys website at www.inco.com and is
also available through the Companys filings with the
Canadian securities regulatory authorities at www.sedar.com, as
well as through the Companys filings with the SEC at
www.sec.gov.
CURRENCY
Unless otherwise indicated, all references to $ or
dollars in this Directors Circular refer to
United States dollars and references to Cdn.$ in
this Directors Circular refer to Canadian dollars.
CURRENCY EXCHANGE RATE INFORMATION
The following table sets out the high and low exchange rates for
one U.S. dollar expressed in Canadian dollars for the
period indicated and the average of such exchange rates, and the
exchange rate at the end of such period, in each case, based
upon the noon rate of the Bank of Canada:
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Three Months | |
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Year Ended December 31, | |
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Ended March 31, | |
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2006 | |
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2005 | |
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2004 | |
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2003 | |
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High
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1.1726 |
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1.2704 |
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1.3968 |
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1.5747 |
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Low
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1.1322 |
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1.1507 |
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1.1774 |
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1.2924 |
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Rate at end of period
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1.1671 |
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1.1659 |
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1.2036 |
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1.2924 |
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Average rate per period
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1.1549 |
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1.2116 |
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1.3015 |
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1.4015 |
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On May 26, 2006, the exchange rate for one U.S. dollar
expressed in Canadian dollars based upon the noon rate of the
Bank of Canada was Cdn.$1.1073.
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x
SUMMARY
The information set out below is intended to be a summary only
and is qualified in its entirety by the more detailed
information appearing elsewhere in this Directors
Circular. All capitalized terms in the summary have the meanings
ascribed to such terms elsewhere in this Directors
Circular.
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Unanimous Recommendation of the Board of Directors: |
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The Board unanimously recommends that Inco Shareholders
REJECT the Teck Offer and NOT TENDER their Inco Shares to the
Teck Offer. |
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The Teck Offer: |
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Teck has offered to purchase all of the outstanding Inco Shares
for consideration of, at the election of the holder of Inco
Shares (the Inco Shareholder): (i) Cdn.$78.50
in cash, or (ii) 0.9776 of a Teck Class B Subordinate
Voting Share plus Cdn.$0.05 in cash, for each Inco Share,
subject to a maximum amount of cash and a maximum number of
shares. Assuming full pro ration of the maximum amounts, Inco
Shareholders would receive Cdn.$28.00 in cash and 0.6293 of a
Teck Class B Subordinate Voting Share for each Inco Share
held. The Teck Offer acknowledges that it is unlikely that Inco
Shareholders who elect to receive the cash alternative will in
fact receive only cash consideration. |
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The Teck Class B Subordinate Voting Shares carry one vote
per share while the Teck Class A Multiple Voting Shares
carry 100 votes per share. As a result, the Teck Class B
Subordinate Voting Shares currently represent only a 31% voting
interest in Teck on a fully diluted basis, while accounting for
approximately 98% of the total economic interest in the equity
of Teck. In the event that the Teck Offer were completed, Inco
Shareholders would receive approximately 40% of the economic
interest of the combined entity, but only approximately 17% of
the voting interest. |
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Based on the closing price for Teck Class B Subordinate
Voting Shares on May 26, 2006, the last trading day on the
TSX before the date of this Directors Circular, the
Implied Offer Price of the Teck Offer, assuming full pro ration,
was Cdn.$72.57 per Inco Share. The Teck Offer is currently
scheduled to expire on July 24, 2006 unless accelerated,
extended or withdrawn. |
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Reasons for Rejection: |
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The Board believes that the Teck Offer fails to provide full
value for Inco and is an opportunistic attempt by Teck to
acquire Inco without offering adequate consideration to the Inco
Shareholders. |
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The Board has carefully reviewed and considered the Teck Offer,
with the benefit of advice from its Financial Advisors and its
legal advisors. The following is a summary of the principal
reasons for the unanimous recommendation of the Board to Inco
Shareholders that they REJECT the Teck Offer and NOT TENDER
their Inco Shares to the Teck Offer. The Board believes that: |
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the Teck Offer fails to recognize the strategic
value of Incos world-class |
assets and growth prospects;
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the proposed Teck-Inco combination would be dilutive
to Incos asset quality; |
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1
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the Teck Offer does not reflect an adequate premium
for control of Inco; |
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the Falconbridge Transaction will create superior
value for Inco Shareholders compared with the Teck Offer; |
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the timing of the Teck Offer is opportunistic and
disadvantageous to Inco Shareholders; |
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Tecks dual-class share structure prejudices
Inco Shareholders; |
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the proposed Teck-Inco combination lacks industrial
logic and offers few synergies; and |
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the Teck Class B Subordinate Voting Shares
offered to Inco Shareholders are not listed on a U.S. stock
exchange and are less liquid than the Inco Shares. |
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In addition, Incos Financial Advisors have each provided
written opinions to Incos Board of Directors that the
consideration being offered pursuant to the Teck Offer is, as of
the date of such opinions, inadequate from a financial point of
view to the Inco Shareholders. |
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Rejection of the Teck Offer by Incos Directors and
Senior Officers: |
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The directors and senior officers of Inco, together with their
respective associates, have each indicated their intention to
reject the Teck Offer and not tender their respective Inco
Shares to the Teck Offer. |
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REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
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2
DIRECTORS CIRCULAR
This Directors Circular is issued by the board of
directors (the Board) of Inco Limited
(Inco or the Company) in connection with
the offer (the Teck Offer) dated May 23, 2006,
by Teck Cominco Limited (Teck) to purchase all of
the outstanding common shares (the Inco Shares) of
the Company for consideration of, at the election of the holder
of Inco Shares (the Inco Shareholder):
(i) Cdn.$78.50 in cash, or (ii) 0.9776 of a Teck
Class B subordinate voting share (a Teck Class B
Subordinate Voting Share) plus Cdn.$0.05 in cash, for each
Inco Share, subject to a maximum amount of cash and a maximum
number of shares, upon the terms and conditions set forth in the
Teck Offer and the accompanying take-over bid circular (the
Teck Circular). Assuming full pro ration of the
maximum amounts, Inco Shareholders would receive Cdn.$28.00 in
cash and 0.6293 of a Teck Class B Subordinate Voting Share
for each Inco Share held. Based on the closing price for Teck
Class B Subordinate Voting Shares on May 26, 2006, the
last trading day on the TSX before the date of this
Directors Circular, the Implied Offer Price of the Teck
Offer, assuming full pro ration, was Cdn.$72.57 per Inco Share.
The Teck Offer is currently scheduled to expire on July 24,
2006, unless accelerated, extended or withdrawn.
INCO
Inco is one of the worlds premier metals and mining
companies. Inco is a leading producer of nickel, a hard,
malleable metal which, given its properties and wide range of
applications, can be found in thousands of products. Inco is
also an important producer of copper, precious metals and
cobalt, and a major producer of value-added specialty nickel
products.
Incos principal mines and processing operations are
located in the Sudbury area of Ontario, Canada; the Thompson
area of Manitoba, Canada; Voiseys Bay, Newfoundland and
Labrador, Canada; and, through PT International Nickel
Indonesia Tbk (PT Inco), a subsidiary in which
Inco has an approximate 61% equity interest, on the island of
Sulawesi, Indonesia. Inco also operates additional wholly-owned
metals refineries at Port Colborne, Ontario, Canada; Clydach,
Wales and Acton, England. Inco also has interests in nickel
refining and nickel specialty products operations in Japan,
Taiwan, South Korea and China.
In the fourth quarter of 2005, production of nickel and copper
concentrates commenced at the first phase of Incos
Voiseys Bay development project, consisting of an open-pit
mine and concentrator. In 2006, Voiseys Bay is expected to
produce 54,000 tonnes of nickel in concentrates for processing
primarily by Incos Ontario and Manitoba operations, as
well as copper concentrates for sale to third parties. The
second phase of the Voiseys Bay project, consisting of a
processing plant to produce finished nickel products, is
expected to be completed by 2011.
Inco is also developing a second major greenfield project, the
Goro nickel-cobalt laterite mine project in the French overseas
territorial community (collectivité territoriale) of
New Caledonia. Inco currently holds approximately a 72% interest
in the project development company, Goro Nickel SAS. The Goro
project, consisting of an open-pit mine and processing facility
having an expected annual capacity of 60,000 tonnes of nickel,
is currently expected to commence initial start-up in late 2007.
See Material Changes and Recent Developments.
The Inco Shares are traded on the TSX and NYSE under the symbol
N.
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3
THE FALCONBRIDGE TRANSACTION
On October 11, 2005, Inco announced its intention to make
an offer to purchase all of the outstanding common shares of
Falconbridge (the Falconbridge Transaction) in a
transaction that Falconbridge has recommended to its
shareholders pursuant to a support agreement dated
October 10, 2005, as amended (the Falconbridge
Support Agreement). The combined organization which would
be created by the pending Falconbridge Transaction (New
Inco) would be one of the worlds premier metals and
mining companies in both nickel and copper, with one of the
mining industrys most attractive portfolios of low-cost,
profitable growth projects.
The Teck Offer, which was commenced on May 23, 2006, is
conditional on the Falconbridge Transaction being terminated.
The Board remains committed to the Falconbridge Transaction and
believes that the Falconbridge Transaction clearly represents a
more attractive opportunity for Inco Shareholders than the Teck
Offer. See The Falconbridge Transaction is Superior to the
Teck Offer.
On May 13, 2006, the Inco Board reaffirmed its commitment
to the Falconbridge Transaction by increasing the cash
consideration payable to Falconbridge shareholders under the
Falconbridge Transaction from Cdn.$34.00 in cash per
Falconbridge share held to Cdn.$51.17 in cash per Falconbridge
share held and by increasing the maximum amount of cash
consideration available under the Falconbridge Transaction from
approximately Cdn.$2.9 billion to approximately
Cdn.$4.8 billion, representing an increase of over
Cdn.$1.9 billion. The board of directors of Falconbridge
reaffirmed its support for Incos revised offer for
Falconbridge in a Notice of Change to Directors Circular
dated May 26, 2006, in which it unanimously recommended
that Falconbridge shareholders accept Incos revised offer
for Falconbridge and tender their Falconbridge shares to the
revised offer.
Under Incos revised offer, Falconbridge shareholders may
elect to receive (a) Cdn.$51.17 in cash in respect of each
Falconbridge share held or (b) 0.6927 of an Inco Share and
Cdn.$0.05 in cash in respect of each Falconbridge share held,
subject to pro ration such that if all Falconbridge shareholders
elected the cash alternative or all Falconbridge shareholders
elected the share alternative, each Falconbridge shareholder
would be entitled to receive Cdn.$12.50 in cash and 0.524 of an
Inco Share for each Falconbridge share tendered, subject to
adjustment for fractional shares.
Falconbridges strong financial performance in the
intervening period since the announcement of the Falconbridge
Transaction was a significant factor in Incos decision to
increase the cash consideration offered to Falconbridge
shareholders. As a result of higher metals prices, particularly
in respect of copper, Falconbridges cash flow increased to
$668 million in the first quarter of 2006, representing an
increase of 48% over its first quarter of 2005. Falconbridge has
utilized its cash flow to redeem $500 million of its Junior
Preference Shares, and has also announced its intention to
redeem the remaining $253 million of its Junior Preference
Shares, since the proposed combination of Inco and Falconbridge
was first announced.
Based on current First Call consensus mean estimates for book
earnings and cash flows for each of Inco and Falconbridge, the
successful completion of the Falconbridge Transaction is
expected to be accretive to Inco from a GAAP earnings
perspective, and significantly accretive from a cash flow
perspective in the first full year. Inco believes that the
combination will be positive from a net asset value perspective
based on Incos short and long-term metal price
assumptions. Moreover, Inco expects that the increase in the
cash consideration under the revised Inco offer will not
adversely impact its current credit ratings.
Updated synergies estimate
Last October, Inco and Falconbridge announced that the companies
had jointly identified the potential to realize estimated
average annual pre-tax run-rate operating and corporate
synergies of approximately $350 million through the
Falconbridge
Transaction.(1)
The estimated synergies were attributable to: (1) savings
in general and administrative costs (approximately
$110 million), (2) cost improvements from more
efficient operations, streamlined procurement
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(1) |
Based on Incos internal short and long-term commodity
price assumptions used by the Company for management
decision-making purposes (Incos Price
Assumptions), as at October 2005. Approximately
$350 million using First Call Consensus commodity price
assumptions for 2006 to 2009 and long-term commodity price
assumptions based on an average of nine analyst forecasts as at
October 2005. |
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4
practices and economies of scale (approximately
$90 million), (3) optimizing material feeds,
intermediate product flows and processing facilities
(approximately $120 million), and (4) maximizing mine
production by accelerating mine development (approximately
$30 million).
After several months of working together with Falconbridge to
further evaluate potential opportunities to maximize the value
of the companies respective mining and processing
operations, Inco and Falconbridge have now jointly identified
the potential to realize estimated average annual pre-tax
run-rate operating and corporate synergies of approximately
$550 million,(2)
an increase of $200 million from the estimated synergies at
the time of the announcement of the Falconbridge Transaction.
This increase in the synergies estimate is attributable to
developed improvements in the Inco-Falconbridge integration plan
and to changes in commodity price assumptions as a result of the
improved commodity market outlook since October 2005. Inco
believes that it should be able to achieve synergies approaching
the average annual pre-tax run rate by approximately
24 months after completion of the Falconbridge Transaction.
The Inco and Falconbridge synergies/integration team has
developed a number of changes to its initial plans for New Inco
in order to further optimize material feeds and increase mine
production in the Sudbury basin. As a result, Inco is now able
to revise its estimate of average annual pre-tax run-rate
operating and corporate synergies upwards. This increase in the
estimate of synergies is attributable to (1) further cost
improvements from more efficient operations, streamlined
procurement practices and economies of scale (approximately
$10 million), (2) further optimization of material
feeds, intermediate product flows and processing facilities
(approximately $30 million), and (3) further
maximization of mine production by accelerating mine development
(approximately $80 million).
The bulk of the increase in value in the synergies from the
Falconbridge Transaction is driven by increased production of
copper, nickel and platinum group metals in the Sudbury basin.
Some of the key drivers of the additional identified synergies
include the following projects:
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proposed acceleration of the development of three additional
Inco North Range orebodies by utilizing the combined
infrastructure of Inco and Falconbridges existing
Coleman/McCreedy and Fraser/Strathcona mines; |
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proposed acceleration of the development of Incos Victor
orebody by up to five years by utilizing the infrastructure of
Falconbridges new Nickel Rim mine; |
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a proposed acceleration of the development of Incos
Blezard orebody by utilizing Falconbridges Thayer Lindsley
mine; and |
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a proposed reconfiguration of Falconbridges Strathcona
Mill to permit specialization in processing high copper ore,
which would increase recovery rates for the nickel, copper and
platinum group metals in that ore. |
Applying revised short and long-term commodity price assumptions
to these synergies, based on the improved outlook in commodity
markets since October 2005, yields a further increase in
the estimated synergies of approximately
$80 million.(3)
The net present value of the estimated average annual pre-tax
run-rate operating and corporate synergies of $550 million,
using a 7% discount rate, is approximately
$3.5 billion on an after-tax basis.
The Falconbridge Transaction has remained outstanding since
October 10, 2005 due to the extended time period required
to obtain regulatory clearances from the U.S. Department of
Justice and European Commission. These regulatory authorities
have raised antitrust/ competition concerns about the effect
that the Falconbridge Transaction could have on certain segments
of the nickel market. Inco has proposed a remedy to these
regulatory authorities to address these concerns, and believes
that the regulatory clearances will be obtained on a timely
basis in order to allow a closing of the Falconbridge
Transaction to take place as early as July 2006. See
Regulatory Matters.
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(2) |
Based on Incos Price Assumptions, as at May 2006.
Approximately $480 million using First Call Consensus
commodity price assumptions for 2006 to 2010 and long-term
commodity price assumptions based on an average of nine analyst
forecasts as at May 2006. |
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(3) |
Based on Incos Price Assumptions, as revised in
April 2006 to reflect the improved commodity market outlook. |
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REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
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5
On May 18, 2006, Xstrata Canada Inc., a wholly-owned
subsidiary of Xstrata plc, filed a take-over bid circular
relating to an unsolicited competing offer to purchase all of
the outstanding common shares of Falconbridge that it does not
already own for Cdn.$52.50 in cash (the Xstrata
Offer). Falconbridges Board of Directors is required
to mail a Directors Circular to Falconbridge Shareholders
responding to the Xstrata Offer by no later than June 2,
2006. The Xstrata Offer is conditional upon receipt of
regulatory approvals, including Investment Canada Act
approval, and the approval of the Xstrata shareholders at a
meeting scheduled for the end of June 2006. See
Regulatory Matters.
The foregoing discussion and estimates regarding synergies and
the regulatory clearance process for the Falconbridge
Transaction each contain forward-looking information and are
subject to various risks and assumptions. See Caution
Regarding Forward-Looking Statements.
UNANIMOUS RECOMMENDATION OF THE BOARD
The Board believes that the Teck Offer fails to provide full
value for Inco and is an attempt by Teck to acquire Inco without
offering adequate consideration to Inco Shareholders.
The Board unanimously recommends that Inco Shareholders
REJECT the Teck Offer and NOT TENDER their Inco Shares to the
Teck Offer.
NO NEED FOR IMMEDIATE ACTION
As an Inco Shareholder, there is no need for you to do anything
immediately. The Teck Offer is currently open until
July 24, 2006. Moreover, the Teck Offer is conditional
on the termination of the Falconbridge Transaction, which the
Board believes is superior to the Teck Offer and remains
committed to completing. The Board intends to communicate
further with Inco Shareholders on a timely basis prior to the
expiry of the Teck Offer.
If you have already tendered Inco Shares to the Teck Offer, you
should withdraw them as described on pages 39 to 41 of the
Teck Circular.
ANALYSIS AND REASONS FOR THE BOARDS CONCLUSION AND
RECOMMENDATION
The Board has carefully reviewed and considered the Teck Offer,
with the benefit of advice from its Financial Advisors and its
legal advisors. The following is a summary of the principal
reasons for the unanimous recommendation of the Board to Inco
Shareholders that they REJECT the Teck Offer and NOT
TENDER their Inco Shares to the Teck Offer.
The Boards analysis and reasons set forth herein contain
forward-looking information, and are subject to various risks
and assumptions. See Caution Regarding Forward-Looking
Information.
1. The Teck Offer fails to recognize the
strategic value of Incos world-class assets and growth
prospects
The Board believes that the Teck Offer fails to properly
compensate Inco Shareholders for Incos world-class assets
and growth prospects. Inco is a global leader in nickel, and is
poised for significant production growth at a time of highly
favourable nickel market fundamentals. The Teck Offer fails to
recognize the scarcity value and strategic nature of Incos
unique assets during a period of significant consolidation in
the global mining sector.
A global leader in nickel
Inco, on a stand-alone basis, is one of the worlds leading
metals and mining companies, with large-scale, long-life,
low-cost operations; a substantial resource base; and a robust
growth profile; which the Company believes will make it the
worlds largest producer of finished nickel by 2008. With a
leading marketing position and an enviable reputation for
technological innovation, Inco is one of the most attractive
mining companies for investors on a global basis.
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REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
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6
The following chart sets forth the 2005 actual and 2006
estimated finished primary nickel production of the worlds
leading global nickel producers:
Leading Global Nickel Producers,
by Finished Primary Nickel
Production(a)
(thousands of tonnes)
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(a) |
Source: Nickel Quarterly Report, CRU Analysis, April
2006, Chapter 2, Table 2.6 (Finished Primary
Nickel Production by Company
2005-2010) and
Table S.13. |
Long-life mines supported by significant ore
reserves
Inco has a leading nickel ore reserve and mineral resource base
with 7.8 million tonnes of contained nickel in ore
reserves, 3.1 million tonnes of contained nickel in
measured and indicated mineral resources and 9.0 million
tonnes of contained nickel in inferred mineral resources
estimated as at December 31,
2005.(4)(5)
Based on such ore reserves (and not taking into account measured
and indicated or inferred mineral resources), production is
expected to continue at each of Incos well-established
operations in Ontario, Manitoba and PT Inco for at least 15
to 29 years, at Incos Voiseys Bay for at least
14 years and at Incos Goro development project for at
least 30 years. In addition, Inco is actively pursuing the
significant potential for expansion or mine life extension at
each of these locations. Inco has an extensive inventory of
mineral resources and a proven track record of replacing ore
reserves over its 100 year history.
The following chart provides a summary of the estimates of
nickel contained in the ore reserves, measured and indicated
mineral resources, and inferred mineral resources at each of
Incos principal properties, as at December 31, 2005,
together with the current expected mine life based solely on ore
reserves estimated as at that date:
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(4) |
Please refer to Schedule B Important
Information Regarding Incos Ore Reserves and Mineral
Resources, including the cautionary note to U.S. and other
investors regarding the references to mineral
resources, measured mineral resources,
indicated mineral resources and inferred
mineral resources, which terms are not recognized by the
SEC. U.S. and other investors are cautioned not to
assume that part or all of the measured, indicated or inferred
mineral resources will ever be converted into ore reserves.
U.S. and other investors are cautioned that inferred
mineral resources have a great deal of uncertainty as to their
existence and their economic and legal feasibility.
U.S. and other investors are cautioned not to assume
that part or all of an inferred mineral resource exists, or is
economically or legally mineable. |
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(5) |
The estimates reflect 100% of the ore reserves and mineral
resources at each Inco operation or development project.
Incos share (determined by equity interest) is
6.3 million tonnes of contained nickel in ore reserves,
2.6 million tonnes of contained nickel in measured and
indicated mineral resources, and 6.3 million tonnes of
contained nickel in inferred mineral resources. |
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Incos Ore Reserves & Mineral
Resources(a)
(millions of tonnes of contained nickel)
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(a) |
Please refer to Schedule B Important
Information Regarding Incos Ore Reserves and Mineral
Resources, including the cautionary note to U.S. and other
investors regarding the references to mineral
resources, measured mineral resources,
indicated mineral resources and inferred
mineral resources, which terms are not recognized by the
SEC. U.S. and other investors are cautioned not to
assume that part or all of the measured, indicated or inferred
mineral resources will ever be converted into ore reserves.
U.S. and other investors are cautioned that inferred
mineral resources have a great deal of uncertainty as to their
existence and their economic and legal feasibility.
U.S. and other investors are cautioned not to assume
that part or all of an inferred mineral resource exists, or is
economically or legally mineable. |
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(b) |
At the Manitoba operations, mine life assumes operations of the
mine and mill only for the period from 2016 to 2022. |
|
(c) |
The ore reserves and mineral resources reflected in the charts
for PT Inco and Goro are the total ore reserves and total
mineral resources at these projects of which Inco owns 61% and
72%, respectively, as at March 31, 2006. |
|
(d) |
Production at the Ontario and Manitoba operations decreases over
the mine life stated above (based on ore reserves only).
However, Inco expects to continue to convert mineral resources
in its inventory into ore reserves and add additional mineral
resources through its ongoing exploration programmes to maintain
current production levels. |
Poised for significant growth
Inco currently has one of the most compelling growth profiles in
the mining business. There are only four announced development
projects in the world with a capacity of over 45,000 tonnes of
nickel per annum scheduled to start full production between 2006
and 2008 and two of these belong to Inco:
Voiseys Bay and Goro.
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8
Inco started initial commercial production of nickel concentrate
at Voiseys Bay in December 2005 and currently expects to
commence initial start-up at its Goro nickel project in late
2007 (See Material Changes and Recent Developments).
Together with planned expansions at the Companys existing
operations in Ontario, Manitoba and PT Inco, these
initiatives are expected to increase the Companys nickel
production by 48% on a stand-alone basis from 2005 to 2009, as
shown on the chart below.
Incos Planned Nickel Production
Growth(a)
(thousands of tonnes)
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(a) |
Source: Inco management estimates. Includes nickel intermediate
products sold to third parties, finished nickel produced by Inco
from third party feeds, and finished nickel returned to Inco
pursuant to third party toll smelting and refining arrangements.
Expressed in millions of pounds, the annual figures for the
period shown are: 487, 565, 600, 630 and 710, respectively. |
Profitability supported by high margins and declining cash
costs per unit
Incos global marketing reach and technological leadership
in the nickel industry have translated into higher margins, with
Incos average realized nickel prices consistently
exceeding LME cash nickel prices. Inco sells an above average
share of its products into higher value-added, differentiated
applications (such as alloys, plating and specialty products),
and with its global marketing network is able to direct its
products to the global regions with the most attractive market
dynamics.
While Inco is already a low-cost producer relative to other
major nickel producers, the Company expects this advantage to
strengthen as Voiseys Bay and Goro commence significant
production over the next three years. At a time when the global
mining industry is experiencing significant cost pressures,
including high oil prices, increasing labour costs and exchange
rate fluctuations, Inco believes that it will be the only major,
publicly traded mining company whose unit cash costs of sales
will actually decline in absolute terms in 2006. Inco currently
projects that its nickel unit cash cost of sales (after
by-product credits) for
2006 will decrease by between 9% and 11% compared with 2005, as
low-cost Voiseys
Bay nickel comes
on-stream.(6)
Attractive nickel industry fundamentals
Underpinning Incos leading market position and growth
profile are the attractive industry fundamentals for nickel.
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(6) |
Incos current guidance is that its nickel unit cash cost
of sales (after
by-product credits) for
2006 is expected to be in the range of $5,182 to $5,292 per
tonne ($2.35 to $2.40 per pound), compared to $5,842 per tonne
($2.65 per pound) in 2005. Nickel unit cash cost of sales (after
by- product credits) is a non-GAAP measurement. However, this
measurement facilitates the calculation of Incos
period-to-period changes in production costs using metrics that
reflect Incos key ongoing cash production costs which, in
turn, affect Incos profitability and cash flows. Nickel
unit cash cost of sales (after by-product credits) captures all
of the important cash components of Incos production and
related costs. For further information, including a
reconciliation of Incos nickel unit cash cost before and
after by-product credits for the periods ended December 31,
2005 and March 31, 2006, please see the Inco 2005 Annual
Report on Form 10-K at pages 139 and 140 and the Inco
March 31, 2006 Quarterly Report on Form 10-Q at
pages 26 and 27. |
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The stainless steel industry, a significant end-use market for
nickel, is expected to increase productive capacity to meet
projected demand growth, especially in China. However,
significant new supply of nickel has been slow to come on stream
and there are a limited number of world-class projects or
expansions expected to bring on new supply in the future. With
most nickel producers currently operating at or near full
capacity, and taking into account that any new large scale
nickel projects would be highly capital-intensive and typically
take seven to ten years to develop from conception to first
production, Inco believes the world nickel market will remain in
a deficit position until at least 2008 and possibly beyond.
The following chart sets forth Inco managements estimate
of global supply and demand for nickel from 2000 to 2004,
together with managements forecast for the period from
2000 to 2010, using 2004 as the base year:
World Nickel Supply/Demand
Forecast(a)(b)
(thousands of tonnes)
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(a) |
Source: Inco management estimates |
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(b) |
Inco estimates that actual results for 2005 produced a surplus
of 10 kilotonnes. Inco currently forecasts a deficit for
2006. The supply forecast is based on Inco management
projections for its own operations plus Inco managements
assessment of the additional supply that will come from existing
producers and the startup of new ones. The demand forecast
scenarios are based on 5%, 6%, and 6.5% annual growth rates,
which were selected as representative for the period given
Chinas rapid industrialization. |
2. The proposed Teck-Inco combination would
be dilutive to Incos asset quality
The Board believes that Incos assets offer substantially
better prospects for future growth and returns to shareholders
than Tecks current portfolio of assets. Inco Shareholders
would receive only approximately 40% of the economic interest in
the combined entity in the event the Teck Offer were completed.
As a result, a successful Teck Offer would result in a
significant dilution of Inco Shareholders ownership of
Incos world-class assets in favour of Tecks less
attractive asset portfolio.
Tecks short-lived copper assets
The Highland Valley copper mine, which accounted for
approximately 66% of Tecks copper
production(7)
and approximately 30% of Tecks total operating profit in
2005,(8)
is scheduled to close in just seven years (following a
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(7) |
Source: Teck 2005 Annual Report at page 36. |
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(8) |
Source: Teck 2005 Annual Report at page 37. |
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10
recently approved
five-year life
extension).(9)
Tecks only other copper investment is a 22.5% minority
interest in the Antamina mine in
Peru.(10)
Tecks economic interest in Antamina (in which Falconbridge
has a 33.75% interest) is diminished by a 1.67% net profits
royalty payable to Falconbridge on the operations total
net profit after certain
deductions.(11)
Teck has no significant mineral reserves or growth projects to
replenish this production, with its contained copper in mineral
reserves having decreased by approximately 4.2% from
December 31, 2000 to December 31,
2005.(12)
Tecks short-lived and declining-interest zinc
assets
Teck has seen a decrease in its contained zinc in mineral
reserves of approximately 27.5% from December 31, 2000 to
December 31,
2005.(13)
Tecks Pend Oreille zinc mine is scheduled to close in just
six years
(2012)(14)
and the Lennard Shelf zinc mine (in which it has a 50%
interest) has a mine life of only four to five
years.(15)
While Tecks largest zinc mine, the Red Dog mine in Alaska,
which accounted for approximately 86% of Tecks zinc
production and approximately 16% of Tecks total operating
profit in
2005,(16)
offers the prospect of longer-term production, Tecks
economic interest in Red Dog is scheduled to decline
substantially over
time.(17)
Teck operates Red Dog under an agreement with a local aboriginal
corporation, the NANA Regional Corporation Inc.
(NANA) and Tecks interest in the mine is
currently subject to an annual advance royalty of the greater of
$1 million or a 4.5% of net smelter return payable to NANA.
Once Teck has recovered certain capital investment and an
interest factor, Teck will be obliged to pay NANA 25% of the net
proceeds of production, increasing to 50% in increments of 5% at
five-year intervals. Teck has provided guidance that the royalty
will convert to 25% net proceeds interest in 2010, assuming
metal prices and capital expenditure levels are consistent with
those in
2005.(18)
However, Inco believes that the conversion could take place as
early as 2007 if current commodity prices are sustained.
Tecks relatively high-cost coal operations
Tecks coal operations consist of an effective 45.3%
interest in The Elk Valley Coal Partnership, which accounted for
approximately 26% of Tecks operating profit in
2005.(19)
The Elk Valley Coal Partnership produces hard coking coal (a
subset of metallurgical coal) for export, primarily to Japan.
The Elk Valley Coal Partnership has a substantial long-life
mineral reserve outlook, but remains a relatively high-cost
producer because of its distance from key markets in Asia and
its location 1,000 kilometres inland.
Tecks coal business is profitable under todays high
commodity prices, but would come under pressure in the event of
a reduction in coal prices, whether from greater than expected
increases in supply from operations in China or Australia or a
weakening of global demand growth. At prices realized in 2003
and 2004 of $43 and $52 per tonne, respectively, Tecks
share of The Elk Valley Coal Partnerships operating profit
averaged only 21% of 2005
levels.(20)
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(9) |
Source: Teck 2005 Annual Information Form at page 16. |
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(10) |
Source: Teck 2005 Annual Information Form at page 14. |
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(11) |
Source: Teck 2005 Annual Information Form at pages 14 and
15. |
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(12) |
Source: Teck 2005 Annual Information Form at page 22, Teck
Corporation 2000 Annual Information Form at page 31 and
Cominco Ltd. 2000 Annual Information Form at page 11. |
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(13) |
Source: Teck 2005 Annual Information Form at page 22, Teck
Corporation 2000 Annual Information Form at page 31 and
Cominco Ltd. 2000 Annual Information Form at page 11. |
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(14) |
Source: Teck 2005 Annual Information Form at page 9. |
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(15) |
Source: Teck March 31, 2006 Quarterly Report at
page 10. |
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(16) |
Source: Teck 2005 Annual Report at pages 36 and 37. |
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(17) |
Source: Teck 2005 Annual Report at page 19. |
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(18) |
Source: Teck 2005 Annual Report at page 19. |
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(19) |
Source: Teck 2005 Annual Report at pages 20 and 37. |
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(20) |
Source: Teck 2003 Annual Report at page 27, Teck 2004
Annual Report at page 27 and Teck 2005 Annual Report at
page 20. |
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Tecks lack of metal mining development
projects
Teck has no new publicly-announced long-term metal mining
projects that are expected to commence production in the near
term to make up for its declining production profile in copper
and zinc, requiring Teck to pursue growth through opportunistic
acquisitions. Tecks only significant exposure to
development projects is a 15% minority stake in the
Fort Hills Oil Sands project operated by Petro-Canada
(which has a 55% interest). As part of its earn-in agreement,
Teck is required to contribute 34%
(or Cdn.$850 million) of the first
Cdn.$2.5 billion of project expenditures made after
March 1, 2005 in order to obtain such 15% interest. The
project is currently not expected to commence production until
as late
as 2011.(21)
Market fundamentals for nickel are superior to Tecks
mix of products
Inco believes that zinc and hard coking coal, which together
constituted 61% of Tecks 2005
revenues,(22)
and would still constitute 27% of pro forma revenues under a
Teck-Inco
combination,(23)
do not offer the same attractive industry fundamentals as nickel
and copper.
In particular, both the zinc business and the hard coking coal
business are subject to new supply expected to come on stream
from China in the near future. China is currently the
worlds largest producer of zinc concentrate (25% of 2005
global supply), refined zinc (approximately 27% of 2005 global
supply), and metallurgical coal (approximately 50% of 2005
global
supply),(24)
while it is a minor producer of both nickel (approximately 5% of
2005 global
supply)(25)
and copper concentrate (5% of 2005 global
supply).(26)
Chinese production of zinc and metallurgical coal is largely
able to supply the needs of the Chinese domestic market and,
indeed, China is currently a net exporter of both of these
commodities.(27)
Chinese zinc concentrate production has grown by 22% since 2000,
and Chinese metallurgical coal production has grown by nearly
50% over the same time
period.(28)
Inco believes that the recent spike in zinc prices can be
attributed in large part to short-term supply constraints that
will resolve themselves over the medium-term, as new zinc
production can be brought on-line more quickly and at a lower
capital cost than new nickel or copper production. Inco believes
that the market for metallurgical coal has already started to
revert back towards long-term average prices, with prices of
hard coking coal (the subset of metallurgical coal produced by
Teck) expected to decline this year. The Elk Valley Coal
Partnership recently announced that it had settled substantially
all of its contracts for the 2006 coal year (April 1, 2006
to March 31, 2007) at an average price across all coal
products of approximately $107 per tonne, representing a
decrease of over 12% from the previous coal
year.(29)
By contrast, Inco believes that the fundamentals underpinning
the nickel market offer significantly greater promise. See
The Teck Offer fails to recognize the
strategic value of Incos world-class assets and growth
prospects Attractive nickel industry
fundamentals.
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(21) |
Source: Teck 2005 Annual Information Form at pages 19 and
20. |
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(22) |
Source: Teck 2005 Annual Report at page 89. |
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(23) |
Source: Teck 2005 Annual Report at page 89 and Inco 2005
Annual Report at page 31. |
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(24) |
Brook Hunt & Associates Ltd., The
Long-Term Outlook for
Zinc and McCloskeys Metallurgical Coal Forecaster
Issue No. 15 at pages 43, 119 and 123. |
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(25) |
Source: Nickel Quarterly Report, CRU Analysis,
April 2006, Chapter 1, Table 1.5. |
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(26) |
Source: Copper Quarterly Report, CRU Analysis,
April 2006, Chapter 2, Table 2.3. |
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(27) |
Source: McCloskeys Metallurgical Coal Forecaster Issue
No. 15 at page 43. |
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(28) |
Source: Macquarie Research Commodities Comment,
May 26, 2006, Strong Growth in Chinese Zinc
Production and McCloskeys Metallurgical Coal
Forecaster Issue No. 15 at pages 43 and 123. |
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(29) |
Source: Teck March 31, 2006 Quarterly Report at page 9. |
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12
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3. |
The Board believes that the Teck Offer does not reflect an
adequate premium for control of Inco |
Due to the rapid pace of consolidation in the global mining
industry, the global equity markets currently offer few
attractive alternatives to investors seeking exposure to the
nickel industry. Accordingly, the Board believes that any
premium offered for control of Inco needs to adequately reflect
the quality, stature, scarcity value and strategic importance of
Incos assets and the unique opportunity it would afford an
acquiror.
Inadequate premium compared to historical trading
ranges
The Implied Offer Price of the Teck Offer as of May 5,
2006, the last trading day prior to the announcement of
Tecks intention to make the Teck Offer, represented a
premium of only 20% to the closing price for Inco Shares on the
same day (the Original Teck Premium), which the
Board believes to be an inadequate premium for control of Inco,
particularly when compared to historical trading ranges of the
Inco Shares.
The Implied Offer Price of the Teck Offer as measured by the
average of the closing prices for the Teck Class B
Subordinate Voting Shares during the
10-day period prior to
the announcement of the Falconbridge Transaction on
October 10, 2005 (which Inco believes to be the last
unaffected trading price of the Inco Shares, in light of the
subsequent impact of arbitrage trading activity since that
time), constitutes a premium of only 12% (the Unaffected
Teck Premium) over the average of the closing prices of
the Inco Shares during that same period.
As of May 26, 2006, the last trading day on the TSX prior
to the date of this Directors Circular, the Implied Offer Price
of the Teck Offer was Cdn.$72.57, representing a premium of only
11% over the closing share price of the Inco Shares on the TSX
on May 5, 2006, the last trading day prior to the
announcement of the Teck Offer (the Current Teck
Premium).
For Inco shareholders that elect to receive Teck Class B
Subordinated Voting Shares under the Teck Offer, and actually
receive a non pro-rated amount of Teck Class B Subordinated
Voting Shares, they will be electing to receive a lower exchange
ratio than the historical exchange ratio implied by relative
market trading prices for virtually any time over the past five
years.
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The following chart sets forth the historical share exchange
ratio between the prices of the Teck Class B Subordinate
Voting Shares and the Inco Shares from June 30, 2001 to
May 26, 2006, and shows both the impact of the commencement
of the Falconbridge Transaction on October 10, 2005 on the
Inco Shares and the fact that the Teck Offer seeks to take
advantage of the subsequent anomalous dip in the ratio that took
place during that period:
Historical Share Exchange Ratio of the Inco Shares and the
Teck Class B Subordinate Voting Shares
Source: Fact Set.
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(a) |
Under the Teck Offer, Inco Shareholders would receive 0.9776
Teck Class B Subordinate Voting Shares plus Cdn.$0.05 in
cash for each Inco Share held. |
Inadequate premium compared to precedent
transactions
The premium implied by the Teck Offer measured in virtually any
manner is also substantially below average premiums offered in
take-overs in both the global mining and Canadian mining sectors
(as illustrated in the chart below) during the past six years.
In the mining sector, average premiums paid in unsolicited
take-overs have historically been higher than the average
premiums paid for all take-overs (both unsolicited and
otherwise).
The Board also considered the premiums paid in recent
unsolicited nickel transactions. In June 2005, BHP-Billiton paid
a 46% premium for WMC Resources, as measured relative to its
unaffected trading price on October 27, 2004, the day prior
to the announcement by Xstrata of its initial unsolicited
take-over bid that preceded the BHP-Billiton offer. In November
2005, Companhia Vale do Rio Doce (CVRD) paid a 56%
premium for Canico Resource Corp. (Canico), as
measured relative to its unaffected trading price on
September 14, 2005, the day prior to the announcement by
CVRD of its initial offer for the shares of Canico. At the time
of these transactions, WMC Resources was the worlds
third-largest nickel producer and Canico was a development-stage
company with a single major nickel project. The Board believes
that Incos assets and growth potential are more attractive
than those of WMC Resources and Canico, both of which were
acquired at significantly higher premiums than the one being
offered to Inco Shareholders under the Teck Offer.
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The following chart illustrates the average premiums paid over
the past six years, in transactions globally and in Canada
specifically, as well as the Canico and WMC Resources
transactions, relative to the Original Teck Premium, the
Unaffected Teck Premium, and the Current Teck Premium:
Average Take-Over Premiums
in Recent Precedent
Transactions(a)
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(a) |
Precedent take-over premiums based on targets unaffected
stock price, generally 20 trading days prior to announcement
date. |
|
(b) |
Source: Thomson Financial and other publicly available
information for transactions greater than $1.0 billion from
January 1, 2000 to May 16, 2006. |
|
(c) |
Source: Thomson Financial and other publicly available
information for transactions greater than $500 million from
January 1, 2000 to May 16, 2006. |
|
(d) |
Source: Thomson Financial and other publicly available
information. |
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(e) |
Premium represented by the Implied Offer Price of the Teck Offer
as at May 5, 2006 relative to the closing price of the Inco
Shares as at May 5, 2006, the last trading day prior to the
announcement of the Teck Offer. |
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(f) |
Premium represented by the average Implied Offer Price of the
Teck Offer relative to the price of the Inco Shares during the
10 day period prior to the announcement of the Falconbridge
Transaction on October 10, 2005 (which Inco believes to be
the last unaffected 10 day trading period of the Inco
Shares, in light of the subsequent impact of arbitrage trading
activity since that time). |
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(g) |
Premium represented by the Implied Offer Price of the Teck Offer
as of May 26, 2006, the last trading day on the TSX prior
to the date of this Directors Circular, relative to the
closing price of Inco Shares as at May 5, 2006, the day
prior to the announcement of the Teck Offer. |
Inadequate premium in view of the attributes of the Teck
Class B Subordinate Voting Shares
In addition, the premium implied by the Teck Offer does not take
into account the subordinate voting nature of the Teck
Class B Subordinate Voting Shares being offered to Inco
Shareholders in exchange for their Inco Shares. The Teck
Class B Subordinate Voting Shares deprive Inco Shareholders
of voting rights commensurate with their economic interest and
significantly reduce the possibility of realizing a future
take-over premium, except as may be determined by a small group
of holders of Teck Class A Multiple Voting Shares. In view
of the nature of the consideration under the Teck Offer, the
implied premium should be significantly higher.
The Teck Offer ascribes no value to the Falconbridge break
fee
Despite the fact that the Teck Offer is conditional on a
termination of the Falconbridge Transaction and of the
Falconbridge Support Agreement, it does not ascribe any value
nor provide for any particular treatment for the termination
payment of up to $450 million that would be payable to Inco
on the occurrence of various specified events set forth in the
Falconbridge Support Agreement. In particular, Teck has not
undertaken to increase its offer or otherwise provide value to
Inco Shareholders for the amount of the relevant termination
payment under such circumstances. The value of the full
$450 million termination payment on a per fully-diluted
Inco Share basis was
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15
approximately Cdn.$2.17 per share as at May 26, 2006. In
the event that circumstances giving rise to the payment of the
termination payment under the Falconbridge Support Agreement
support occur, the termination payment would in effect fund
approximately 30% of the Current Teck Premium that would be paid
to Inco Shareholders by Teck.
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4. |
The Falconbridge Transaction will create superior value for
Inco Shareholders compared with the Teck Offer |
The Board believes firstly, that the synergies offered by the
Falconbridge Transaction are clearly larger, more tangible and
realizable than those offered by the Teck Offer; secondly, that
the assets of a combined Inco-Falconbridge will have a longer
life and provide a significantly better growth platform than a
combined Teck-Inco entity; and thirdly, that nickel and copper
provide a more attractive asset mix than the group of products
represented by the current Teck portfolio. Unlike the
transaction proposed by the Teck Offer, the Falconbridge
Transaction offers real industrial logic, sizeable and tangible
synergies and an optimal mix of metal exposures and thus offers
real value for Inco Shareholders. See The Falconbridge
Transaction and The Falconbridge Transaction is
Superior to the Teck Offer.
Were Inco unable to complete the Falconbridge Transaction for
any reason, Inco is committed to exploring other strategic
alternatives which would result in superior value creation for
Inco Shareholders relative to the Teck Offer.
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5. |
The timing of the Teck Offer is opportunistic and
disadvantageous to Inco Shareholders |
The timing of the Teck Offer takes advantage of a recent
short-term period when the relative share price performance of
the Inco Shares and the Teck Class B Subordinate Voting
Shares has favoured Teck. Between October 7, 2005, the last
trading day prior to the announcement of Incos intention
to make an offer to acquire Falconbridge, and May 5, 2006,
the last trading day prior to the announcement of the Teck
Offer, the price of the Inco Shares has increased 26.0% on the
TSX, while the price of the Teck Class B Subordinate Voting
Shares has increased 60.3%. The Board believes this recent
discrepancy in the historical share price performance of the two
companies is due to two principal factors:
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the ongoing but temporary impact on the price of the Inco Shares
caused by the announcement and pending status of the
Falconbridge Transaction; and |
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the recent relative commodity price movements between
Incos principal commodity product, nickel, on the one
hand, and Tecks principal commodity products, copper, zinc
and coal, on the other. |
Temporary impact of Falconbridge Transaction on Inco share
price
Inco believes the temporary adverse impact of the announcement
of the Falconbridge Transaction on the price of the Inco Shares
has resulted in part from typical trading activities and hedging
strategies employed by arbitrageurs and other short-term
investors in similar share exchange transactions, as well as the
perceived uncertainty regarding the timing of completion of the
Falconbridge Transaction due to the ongoing regulatory review of
the Falconbridge Transaction. The Board expects Incos
share price to respond positively following a conclusion of the
Falconbridge Transaction.
Impact of recent price movements in metal prices
Inco believes that the recent spike in the price of Tecks
Class B Subordinate Voting Shares relative to the price of
the Inco Shares is also due in part to the recent short-term
surge in the price of copper and zinc, the principal metals
produced by Teck (representing collectively 74% of Tecks
2005 operating
profit),(30)
which have respectively increased by 101% and 155% from
October 10, 2005, the day of the announcement of the
Falconbridge Transaction to the date of this Directors
Circular. By way of contrast, the price of nickel, Incos
primary production metal (81% of net sales to customers), has
increased by only 76% over such period. Inco believes that the
recent outperformance of nickel by copper and zinc is a result
of temporary market conditions and volatility and that the
prospects for the nickel industry remain strong. See
The Teck Offer fails to recognize the
strategic value of Incos world-class assets and growth
prospects Attractive nickel industry
fundamentals, The proposed Teck-Inco
combination would be
|
|
(30) |
Source: Teck 2005 Annual Report at page 37. |
|
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|
REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
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16
significantly dilutive to Incos asset quality
Market fundamentals for nickel superior to Tecks mix of
products and Material Changes and Recent
Developments Recent nickel market and other
developments.
The Board believes the timing of the Teck Offer has been
opportunistically chosen by Teck in order to maximize the
short-term advantage provided by the anomalous pricing
difference in their respective metals.
Based on their respective market prices as of May 26, 2006,
zinc is trading at approximately 340% over its five year average
trading price and copper is trading at approximately 317% over
its five year average trading price. In contrast, nickel is
currently only trading at approximately 207% over its five year
average trading price.
The following chart sets forth the relative price performance of
zinc, copper and nickel since May 2001:
Relative Commodity Price Performance of Copper, Zinc and
Nickel
(May 25, 2001 to May 26, 2006)
Source: Data Stream, Thomson Financial.
Premium illusory due to circumstances
Inco believes therefore that the premium claimed by Teck is
largely illusory, as it is a product of
short-term and
temporary circumstances that are unlikely to endure. Inco
Shareholders should accordingly not tender to a bid that is
attempting to take advantage of
short-term factors, in
order to create the appearance of a premium that would otherwise
be largely absent.
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REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
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17
6. Tecks
dual-class share
structure prejudices Inco Shareholders
The consideration offered under the Teck Offer is largely in the
form of Teck Class B Subordinate Voting Shares. The Teck
Class B Subordinate Voting Shares carry one vote per share,
while the Teck Class A Multiple Voting Shares carry
100 votes per
share.(31)
As a result, the Teck Class A Multiple Voting Shares
currently represent an approximately 69% voting interest in
Teck, while representing only approximately a 2% equity
interest.(32)
An entity controlled by Keevil Holding Corporation currently
holds 46% of the Teck Class A Multiple Voting Shares,
representing an approximately 32% voting interest in Teck with
approximately 1% of the outstanding equity in the
company.(33)
This dual-class voting structure creates a governance structure
in which Teck is effectively controlled by a small group of
shareholders whose voting control is supported only by a
negligible economic interest in the company. This is to be
contrasted with Incos one share, one vote
capital structure, both prior to and following completion of the
Falconbridge Transaction, where there is a single class of
common shares in which each share carries equal voting
entitlements.
The following chart sets forth the pro forma dual-class share
capital structure that would result from a successful completion
of completion of the Teck Offer:
Pro Forma Teck-Inco Dual Class Structure
Notes to chart:
|
|
(a) |
Other includes institutional, retail and other shareholders. |
|
(b) |
Figures do not add to 100% due to rounding. |
|
(c) |
Based on fully diluted shares outstanding for both Teck
Class A Multiple Voting Shares and Teck Class B
Subordinate Voting Shares as disclosed in the Teck Offer.
Percentages depicted reflect pro forma voting and economic
interest in pro forma company. |
|
(d) |
In addition to the 209,440 Teck Class A Multiple Voting
Shares held directly by Dr. Keevil, this chart assumes that
Dr. Keevil controls the 2.15 million Teck Class A
Multiple Voting Shares held by an entity controlled by Keevil
Holding Corporation. |
|
(e) |
Assumes 143.1 million Teck Class B Subordinate Voting
Shares are issued to Inco Shareholders, based on full
pro ration under the Teck Offer. |
|
(f) |
Source: Teck Circular at page 45 and
Schedule A-9. |
The holders of the Teck Class A Multiple Voting Shares have
the ability to prevent the holders of the Teck Class B
Subordinate Voting Shares from entertaining an offer for control
of Teck and benefiting from any associated premium. Tecks
dual-class share structure will therefore deprive the holders of
the Teck Class B Subordinate Voting
|
|
(31) |
Source: Teck 2005 Annual Information Form at page 35. |
|
|
(32) |
Source: Teck Circular at page 45 and
Schedule A-9. |
|
|
(33) |
Source: Teck Management Proxy Circular dated March 1, 2006
at page 3 and Teck |
Circular at page 45 and
Schedule A-9.
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REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
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18
Shares of the possibility of any future control premium, except
to the extent that a small group of holders of the Teck
Class A Multiple Voting Shares decides otherwise.
Teck has not offered to amend or eliminate its dual-class voting
structure as a term of its offer, notwithstanding precedent
transactions in which other bidders employing similar dual-class
share structures have offered to do precisely this (such as the
recent amendment by Mittal Steel Company to its outstanding
take-over bid for Arcelor S.A.). On a pro forma basis, if the
Teck Offer were successful, the holders of the Teck Class A
Multiple Voting Shares would continue to control the combined
entity, controlling approximately 57.7% of the votes while
holding only approximately 1.3% of the equity in aggregate.
As a result, a successful Teck Offer would result in the Inco
Shareholders being effectively deprived of any meaningful way of
influencing the appointment of Teck directors or determining
matters brought before shareholders for consideration. The Teck
Class B Subordinate Voting Shares permit Teck management to
remain entrenched and prevent the marketplace from acting as a
check against management inefficiencies and failed corporate
initiatives. A successful Teck Offer would therefore represent a
substantial disenfranchisement of Inco Shareholders.
7. The proposed Teck-Inco combination lacks
industrial logic and offers few synergies
A Teck-Inco combination provides no apparent opportunities for
savings beyond certain general and administrative costs, given
that the companies respective operations produce different
metals and are located in geographically disparate locations.
Teck has claimed that, by combining with Inco, it could achieve
synergies of at least Cdn.$75 million by
entering into unspecified joint venture arrangements involving
the Falconbridge assets in the Sudbury basin. The synergies
which Teck has claimed will be available to it in the Sudbury
basin are in fact simply cost savings opportunities that Inco
and Falconbridge have already identified and would seek to
implement in the event that the Falconbridge Transaction did not
close for any reason. While less significant than the full
synergies available through a completion of the Falconbridge
Transaction, these more limited cost savings would accrue to the
benefit of the Inco Shareholders irrespective of the Teck Offer.
See The Falconbridge Transaction is Superior to the Teck
Offer.
Teck has also claimed that several hundreds of millions of
dollars in cost savings may be realized by applying its
hydrometallurgical process technology originally developed for
the refining of copper (the CESL Process) to
Incos nickel operations in Voiseys Bay and Thompson,
Manitoba. Despite Incos invitation to Teck to enter into a
confidentiality agreement to explore the basis for such claims,
Teck has not seen fit to do so.
Inco is a leader in nickel processing technology and, for over
ten years, has been developing its own patented hydromet process
which is specifically adapted for processing nickel-bearing
concentrates from the Voiseys Bay deposit (the Inco
Process). Incos technology, which is based on
pressure oxidative leaching (POL), has been put into practice at
its $80 million demonstration plant in Argentia,
Newfoundland. Based on a preliminary review of the CESL Process
using available information, Incos engineering staff
believe that there are no advantages in the CESL Process
relative to the Inco Process and that the Inco Process would
result in lower capital and operating costs than the CESL
Process. Teck has not indicated the basis on which it has
estimated the financial benefits of applying its technology, but
in the absence of any significant knowledge of the Inco Process,
Inco believes that any estimation of such benefits by Teck is
highly speculative.
Teck has also claimed that significant savings could accrue by
applying the CESL Process to Incos Thompson, Manitoba
operations in order to achieve lower atmospheric emissions. This
would involve replacing the entire existing Thompson smelter and
refinery with a new hydromet plant. In 2005, Inco management
conducted a study comparing the cost of a smelter modernization
and atmospheric emission abatement program to the cost of
constructing a new hydromet plant using the Inco Process. This
study showed that implementing the smelter modernization and
atmospheric emission abatement program would clearly be more
cost-effective than constructing a new hydromet plant at
Thompson.
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REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
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19
|
|
8. |
The Teck Class B Subordinate Voting Shares offered to
Inco Shareholders are not listed on a U.S. stock exchange
and are less liquid than the Inco Shares |
Tecks Class B Voting Shares are currently listed only
on the TSX, while the Inco Shares are listed on both the TSX and
the NYSE.
The NYSE has historically been an important source of liquidity
for the holders of the Inco Shares: over the past twelve months,
it represented 59% of the aggregate global trading in the Inco
Shares, and as of May 15, 2006 approximately 48.5% of the
Inco Shares are held in the United States.
Tecks shares are currently not traded on the NYSE; unlike
most other major Canadian mining companies of comparable size.
As a result, Teck has a significantly lower analyst following
and profile among U.S. investors.
The Inco Shares have approximately three times as much liquidity
as the Teck Class B Subordinate Voting Shares, as measured
by average daily dollar value volumes over the TSX and NYSE for
the 12-month period
prior to the announcement of the Falconbridge Transaction
($102 million (Cdn.$125 million) for Inco as compared
to $34 million (Cdn.$42 million) for
Teck).(34)
While Teck has stated that it intends to obtain a NYSE listing
for the Teck Class B Subordinate Voting Shares as part of
its offer for the Inco Shares, there is no assurance that it
will be successful, or that its shares will receive significant
analyst or investor interest once listed.
|
|
9. |
Incos Financial Advisors have each provided written
opinions to the Board that the consideration being offered
pursuant to the Teck Offer is, as of the date of such opinions,
inadequate from a financial point of view to the Inco
Shareholders |
The Board has received written opinions, dated May 29,
2006, from each of the financial advisors, Morgan Stanley, RBC
Capital Markets and Goldman Sachs, to the effect that, as of
such date and based upon and subject to the assumptions,
limitations and qualifications stated in their respective
opinions, the consideration offered by Teck under the Teck Offer
is inadequate, from a financial point of view, to Inco
Shareholders. Copies of the opinions of Morgan Stanley, RBC
Capital Markets and Goldman Sachs are attached to this
Directors Circular as Schedules C, D and E,
respectively.
The Board recommends that you read each of the opinions
carefully and in its entirety for a description of the
procedures followed, matters considered and limitations on the
review undertaken. The descriptions and opinions do not
constitute a recommendation to Inco Shareholders as to whether
they should tender their Inco Shares or if a decision is made to
tender, to elect to receive Teck Class B Subordinate Voting
Shares or cash or a combination thereof.
Conclusion and Recommendation
For the principal reasons outlined above, the Board believes
that the Teck Offer fails to provide full value for the Inco
assets and Inco Shares and is an attempt by Teck to acquire Inco
without offering adequate consideration to Inco Shareholders.
The Board unanimously recommends that holders of Inco Shares
REJECT the Teck Offer and NOT TENDER their Inco Shares to the
Teck Offer.
The foregoing summary of the information and factors considered
by the Board is not intended to be exhaustive of the factors
considered by the Board in reaching its conclusion and making
its recommendation, but includes the material information,
factors and analysis considered by the Board in reaching its
conclusion and recommendation. The members of the Board
evaluated the various factors summarized above in light of their
own knowledge of the business, financial condition and prospects
of Inco, and based upon the advice of the Boards Financial
Advisors and legal advisors. In view of the numerous factors
considered in connection with their evaluation of the Teck
Offer, the Board did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weight to
specific factors in
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REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
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20
reaching its conclusion and recommendation. In addition,
individual members of the Board may have given different weight
to different factors. The conclusion and unanimous
recommendation of the Board was made after considering all of
the information and factors involved.
THE FALCONBRIDGE TRANSACTION IS SUPERIOR TO THE TECK OFFER
In the summer of 2005, the Inco Board evaluated a number of
strategic alternatives, including merger proposals involving
each of Falconbridge and Teck. After careful consideration of
various options, the Inco Board determined that a transaction
with Falconbridge was the best alternative for the Company and
Inco Shareholders.
Following a review of the Teck Offer after its announcement in
May 2006, the Inco Board reaffirmed its view that a combination
of Inco and Falconbridge under the Falconbridge Transaction will
create superior value for Inco Shareholders compared with a
combination of Teck and Inco under the Teck Offer, for the
following principal reasons:
This discussion and estimates regarding synergies contain
forward-looking information, and are subject to various risks
and assumptions. See Caution Regarding Forward-looking
Statements.
The synergies offered by the Falconbridge Transaction are
clearly larger, more tangible and realizable than those offered
by the Teck Offer
While Teck speculates that it could achieve up to
$75 million in unspecified synergies through a joint
venture with Falconbridge, Inco and Falconbridge have jointly
identified the potential to realize unique and tangible
estimated annual average
pre-tax
run-rate operating and
corporate synergies of approximately
$550 million(35)
under the Falconbridge Transaction. Inco believes that it should
be able to achieve synergies approaching the average annual
pre-tax run rate by
approximately 24 months after completion of the
Falconbridge Transaction. The estimated net present value of
these synergies, using a 7% discount rate, is approximately
$3.5 billion on an after-tax basis. Only a merger of Inco
and Falconbridge can unlock the full value of the potential
synergies between our companies contiguous nickel and
copper operations in the Sudbury basin. Realizing the
significant synergies requires the combination of resources
bases, integration of infrastructure, major changes in material
flows and long-term commitments and investments, and the
cooperation and support of the workforce in Sudbury, which can
only be achieved through a merger of Inco and Falconbridge.
Inco believes that the revised estimate continues to have
considerable upside potential. For example, they do not include
the potential for additional operational and capital cost
savings across the operations of both companies, and, in
particular, between Incos Goro and Falconbridges
Koniambo development projects in New Caledonia, or between
Incos Voiseys Bay and Falconbridges Raglan
operations in north-eastern Canada, which operate in close
proximity to one another.
By contrast, combining the Teck and Inco operations offers no
apparent immediate operational synergies given that their
respective operations will be geographically dispersed and there
is relatively little overlap in metal production. See
Analysis and Reasons for the Boards Conclusion and
Recommendation The proposed
Teck-Inco combination
lacks industrial logic and offers few synergies.
New Incos assets would have a longer life and provide a
significantly better growth platform than a combined Teck-Inco
entity
The combination of Inco and Falconbridge would have
world-leading nickel and copper reserve bases, with an
attractive portfolio of long-life, low-cost development
opportunities.
New Inco would have the largest nickel ore reserve base in the
world (8.1 million tonnes based on 2005 pro forma figures),
and a significant use of contained copper in ore reserves base
(12.8 million tonnes based on 2005 pro forma
|
|
(35) |
Based on Incos internal short and long-term commodity
price assumptions used by the Company for management
decision-making purposes (Incos Price
Assumptions), as at May 2005. Approximately
$480 million using First Call Consensus commodity price
assumptions for 2006 to 2010 and long-term price assumptions for
nickel based on an average of nine analyst forecasts as at May
2006. See The Falconbridge Transaction Updated
synergies estimate. |
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REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
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21
figures).(36)
The combined asset portfolio of Inco and Falconbridge would be
uniquely positioned in the metals and mining industry, with
significant world-class greenfield projects (including
Voiseys Bay, Goro, Koniambo, Kabanga and Araguaia in
nickel and El Morro and El Pachon in copper) and
brownfield or expansion projects (including at PT Inco
(Bahadopi) and Ontario (Totten and Nickel Rim) in nickel and
Collahuasi and Lomas Bayas in copper). Based on its outstanding
project pipeline, management believes that New Incos
nickel production would be expected to increase by approximately
39% from 2005 to 2009, and New Incos copper production
would be expected to increase approximately 86% from 2005 to
2011.
In contrast, Tecks contained copper in mineral reserves
and contained zinc in mineral reserves have all decreased
between 2000 and
2005.(37)
Tecks production of copper and zinc is expected to decline
significantly over the next ten years due to the expected
closure of its Highland Valley copper mine (30% of 2005
operating
profit),(38)
as well as its smaller Pend Oreille and Lennard Shelf zinc
mines.(39)
Further, Tecks economic interest in the Red Dog zinc mine
(16% of 2005 operating profit) will decline to 75% in 2010 or
earlier, and ultimately to
50%.(40)
While Inco and Falconbridge each have a very strong pipeline of
quality, long-term projects, Tecks assets do not have an
attractive growth profile, requiring Teck to pursue growth
through opportunistic acquisitions. See Analysis and
Reasons for the Boards Conclusion and
Recommendation The proposed Teck-Inco combination
would be dilutive to Incos asset quality.
New Inco would be focussed on nickel and copper, providing a
more attractive asset mix than the group of products represented
by the current Teck portfolio.
New Inco will be primarily a producer of nickel and copper,
becoming the worlds largest nickel producer, with pro
forma combined 2005 output of 334,727 tonnes
(737 million pounds) of nickel and a leading copper
producer, with pro forma combined 2005 production of 587,595
tonnes (1.3 billion pounds). The Falconbridge Transaction would
enhance Inco and Falconbridges market leadership in each
of those metals, which the Board believes offer attractive
economic fundamentals over the next several years. See
Analysis and Reasons for the Boards Conclusion and
Recommendation The Teck Offer fails to recognize the
strategic value of Incos world-class assets and growth
prospects and Material Changes and Recent
Developments Nickel and Copper Market Updates.
|
|
(36) |
Source: Inco 2005 Annual Report at page 12 and Falconbridge
2005 Annual Report at page 105. Please refer to
Schedule B Important Information Relating to
Incos Ore Reserves and Mineral Resources. |
|
|
(37) |
Source: Teck 2005 Annual Information Form at page 22, Teck
Corporation 2000 Annual Information at page 31 and Cominco
Ltd. Annual Information Form at page 11. |
|
|
(38) |
Teck 2005 Annual Information Form at page 16 and Teck
Annual Report at page 37. |
|
|
(39) |
Source: Teck 2005 Annual Information Form at page 9 and
Teck March 31, 2006 Quarterly Report at page 10. |
|
|
(40) |
Source: Teck 2005 Annual Report at pages 19 and 37. |
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REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
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22
The chart below compares 2005 pro forma sales of
New Inco with a combination of Teck and Inco, and indicates
that New Incos nickel and copper revenues would be
significantly larger than those under a Teck-Inco combination,
on both an absolute and a relative basis.
Pro Forma Sales by Metal, 2005
(in millions)
|
|
(a) |
Inco 2005 Annual Report and Falconbridge 2005 Annual Report. |
|
(b) |
Inco 2005 Annual Report and Teck 2005 Annual Report. |
Inco believes that zinc and metallurgical coal, which together
constitute 61% of Tecks 2005
revenues,(41)
and would still constitute 27% of 2005 revenues on a pro forma
basis under a Teck-Inco
combination,(42)
do not offer the same attractive industry fundamentals as nickel
and copper. See Analysis and Reasons for the Boards
Conclusion and Recommendation The proposed Teck-Inco
combination would be dilutive to Incos asset
quality Market fundamentals for nickel are superior
to Tecks mix of products.
The proposed combination of Inco and Falconbridge upon the
successful completion of the Falconbridge Transaction is subject
to certain risks which are described in the section entitled
Risks Related to the Offer in the Falconbridge
Transaction Circular, which section is incorporated by reference
herein.
If Inco is unable to complete the Falconbridge Transaction for
any reason, the Board believes Inco has a number of other
strategic alternatives, including continuing to pursue the
Companys existing business plan, which would also result
in superior value creation for Inco Shareholders relative to the
Teck Offer.
NEW INCO SELECTED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION
The following selected pro forma consolidated financial
information has been delivered to Falconbridge shareholders in
connection with Incos offer to acquire Falconbridge and
should be read in conjunction with Incos unaudited pro
forma consolidated financial statements, the accompanying notes
thereto and the compilation report of PricewaterhouseCoopers LLP
thereon, included at Schedule H of this Directors
Circular. The pro forma consolidated balance sheet has been
prepared from the unaudited consolidated balance sheet of Inco
and Falconbridge as at March 31, 2006 and gives pro forma
effect to the successful completion of the Falconbridge
Transaction (including any
|
|
(41) |
Source: Teck 2005 Annual Report at page 89. |
|
|
(42) |
Source: Teck 2005 Annual Report at page 89 and Inco 2005
Annual Report at page 31. |
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REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
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23
Compulsory Acquisition or Subsequent Acquisition Transaction, as
defined in the Falconbridge Transaction Circular) as if the
transactions occurred on March 31, 2006. The pro forma
consolidated statements of earnings for the year ended
December 31, 2005 and the three month period ended
March 31, 2006 have been prepared, respectively, from the
audited consolidated statement of earnings of Inco and
Falconbridge for the year ended December 31, 2005 and the
unaudited interim consolidated statement of earnings of Inco and
Falconbridge for the three month period ended March 31,
2006, and gives pro forma effect to the successful completion of
the Falconbridge Transaction (including any Compulsory
Acquisition or Subsequent Acquisition Transaction, as defined in
the Falconbridge Transaction Circular) as if the transactions
occurred on January 1, 2005.
The selected pro forma consolidated financial information is not
intended to be indicative of the operating results or financial
condition of the consolidated entities that would actually have
occurred, or the results expected in future periods, had the
events reflected herein occurred on the dates indicated. Actual
amounts recorded upon consummation of the transactions
contemplated by the Falconbridge Transaction will differ from
the pro forma information presented in Schedule H. The pro
forma consolidated financial information does not reflect and
does not give effect to (1) any special items such as
payments pursuant to change of control provisions or integration
costs which may be incurred as a result of the Falconbridge
Transaction, (2) operating efficiencies, cost savings and
synergies that are expected to result from the Falconbridge
Transaction, or (3) the impact of undertakings that Inco is
prepared to make in order to address regulatory clearance
requirements, as there are no current agreements providing for
implementation of such undertakings which, however, are expected
to be carried out after the completion of the Falconbridge
Transaction.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Year Ended | |
|
|
March 31 | |
|
December 31 | |
|
|
| |
|
| |
|
|
|
|
Pro forma | |
|
|
|
Supplementary | |
|
|
Inco | |
|
Pro forma | |
|
Cdn.$(b) | |
|
Inco | |
|
Pro forma | |
|
Pro forma | |
(in millions of U.S.$) |
|
2006 | |
|
2006 | |
|
2006 | |
|
2005 | |
|
2005 | |
|
Cdn.$(b) 2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Statement of Earnings Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
1,211 |
|
|
$ |
4,069 |
|
|
$ |
4,749 |
|
|
$ |
4,518 |
|
|
$ |
12,666 |
|
|
$ |
14,782 |
|
Total costs and operating expenses
|
|
|
886 |
|
|
|
3,183 |
|
|
|
3,715 |
|
|
|
3,284 |
|
|
|
10,450 |
|
|
|
12,196 |
|
Earnings before minority interest
|
|
|
220 |
|
|
|
611 |
|
|
|
713 |
|
|
|
909 |
|
|
|
1,577 |
|
|
|
1,841 |
|
Minority interest
|
|
|
18 |
|
|
|
24 |
|
|
|
28 |
|
|
|
73 |
|
|
|
105 |
|
|
|
123 |
|
Net earnings
|
|
|
202 |
|
|
|
587 |
|
|
|
685 |
|
|
|
836 |
|
|
|
1,464 |
|
|
|
1,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31 | |
|
|
| |
|
|
|
|
Supplementary | |
|
|
Inco | |
|
Pro forma | |
|
Pro forma | |
(in millions of U.S.$) |
|
2006 | |
|
2006 | |
|
Cdn.$(b) 2006 | |
|
|
| |
|
| |
|
| |
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
751 |
|
|
$ |
1,692 |
|
|
$ |
1,975 |
|
Other current assets
|
|
|
1,925 |
|
|
|
5,447 |
|
|
|
6,357 |
|
Unallocated purchase price
|
|
|
|
|
|
|
4,508 |
|
|
|
5,261 |
|
Property, plant and equipment and other non-current assets
|
|
|
9,575 |
|
|
|
34,102 |
|
|
|
39,800 |
|
Current liabilities excluding current portion of long-term debt
|
|
|
1,132 |
|
|
|
2,925 |
|
|
|
3,414 |
|
Total
debt(a)
|
|
|
1,915 |
|
|
|
10,135 |
|
|
|
11,829 |
|
Minority interest
|
|
|
768 |
|
|
|
1,150 |
|
|
|
1,342 |
|
Total shareholders equity
|
|
|
5,383 |
|
|
|
18,483 |
|
|
|
21,572 |
|
|
|
(a) |
Included in total debt are $750 million of junior
preference shares (series 1, 2, and 3). Falconbridge
redeemed $500 million of these junior preference shares on
April 26, 2006 and announced that the remainder will be
redeemed on June 28, 2006. |
|
(b) |
The supplementary information represents the translation of pro
forma data into Canadian dollars using the exchange rate at the
end of March 2006 of 1.1671. Such translation should not be
construed as representations that the United States dollar
amounts represent or have been or could be converted into,
Canadian dollars at that or any other particular rate. These
amounts are of limited usefulness and should be used with
caution as the functional currency for Inco is the United States
dollar. The Canadian dollar amounts are shown only for the
convenience of certain readers. |
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REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
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24
REGULATORY MATTERS
The Falconbridge Transaction
The remaining regulatory clearances for the Falconbridge
Transaction relate to clearances from the antitrust/ competition
authorities at the European Commission (the EC) and
the U.S. Department of Justice (the DOJ). Inco
has been pursuing these clearances since October 2005, and, as
discussed below, is working towards a final resolution of the
remaining clearances as soon as possible, with an expectation of
conclusion by not later than
mid-July 2006. A
no action letter was obtained from the Canadian
Competition Bureau on January 27, 2006. Since Inco is a
Canadian entity, clearance under the Investment Canada
Act is not required.
The EC and the DOJ have been reviewing the combined market share
of Inco and Falconbridge in certain segments of the nickel
markets. Inco and Falconbridge have proposed a remedy to address
the concerns identified by the EC and DOJ, which comprises the
divestiture of Falconbridges Nikkelverk refinery located
in Norway and related marketing organizations which sell the
finished nickel and other metal products produced at Nikkelverk,
as well as a possible long-term agreement under which Inco would
supply nickel-in-matte as feed for Nikkelverk equivalent to the
volumes that Falconbridge would have supplied absent the
completion of the transaction.
On May 8, 2006, Inco and Falconbridge received a Statement
of Objections from the EC to the Falconbridge Transaction, a
normal step in a second phase review of an acquisition with the
profile of the Falconbridge Transaction. Inco responded to this
Statement on May 22, 2006 in accordance with the applicable
timetable for this process.
Both the EC and the DOJ have raised certain issues with respect
to the adequacy of the possible remedy that Inco and
Falconbridge have discussed with each regulatory authority. Inco
and Falconbridge have been evaluating how those issues can be
addressed through changes to the remedy developed by them that
would be acceptable to both of them as well as to the EC and to
the DOJ. It is currently expected that the EC will complete that
review and render its decision on the transaction by
July 12, 2006. The DOJ is currently required, based upon
understandings previously reached among the DOJ, Inco and
Falconbridge, to indicate its final position on the Falconbridge
Transaction by early July 2006. Management is confident that it
will be able to agree upon the terms of a remedy with both these
authorities and receive regulatory clearance.
Managements expectations with respect to satisfaction of
the regulatory clearances to the completion of the Falconbridge
Transaction and the anticipated timing of achievement of the
relevant milestones in the regulatory clearance process are
subject to various risks and assumptions. See Caution
Regarding Forward-Looking Statements.
The Xstrata Offer
Xstrata announced the Xstrata Offer on May 17, 2006.
Xstrata has not indicated when (or whether) it commenced the
regulatory clearance process relating to the Xstrata Offer. Inco
has received no indication that it has done so. Similarly,
Xstrata has not announced receipt of any of its required
clearances. As described in the Xstrata Circular, the Xstrata
Offer is subject to antitrust/ competition clearances in Canada,
the United States and Europe. Since Xstrata is a non-Canadian
entity, an acquisition of Falconbridge by Xstrata also requires
pre-clearance and approval of the Minister of Industry under the
Investment Canada Act, based on the Minister being
satisfied that Xstratas acquisition of Falconbridge would
be of net benefit to Canada. Further, the Xstrata
Offer is subject to obtaining the approval of its shareholders,
and has stated that it expects a shareholder meeting for that
purpose to occur by the end of June 2006.
The Teck Offer
Teck announced the Teck Offer on May 8, 2006 and commenced
its regulatory clearance process in the United States on
May 16, 2006 and in Canada on May 17, 2006. Teck has
not, as of the date of this Directors Circular, announced
receipt of any of its required clearances. As described in the
Teck Circular, the Teck Offer is subject to antitrust/
competition clearances in Canada, the United States and Europe.
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REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
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25
BACKGROUND TO THE TECK OFFER AND RESPONSE OF INCO
Since 2003, Inco has evaluated a number of external growth and
strategic transaction opportunities on an ongoing basis. Inco
has focussed on external opportunities in nickel based on its
belief in strong nickel market fundamentals to enhance
Incos position and to create value for Inco Shareholders.
These opportunities included discussions between Inco and
Falconbridge that took place in the spring and summer of 2004 as
part of the Noranda auction process undertaken by Brascan
Corporation (the predecessor to what is now Brookfield Asset
Management Inc.) and its affiliates and including reviews of
other external acquisition possibilities in the nickel industry.
In July 2005, Incos management committee, chaired by the
Companys Chairman and Chief Executive Officer,
Mr. Scott M. Hand, asked the Companys Strategic
Planning and Corporate Development Department, along with two of
Incos external advisers, Morgan Stanley and RBC Capital
Markets, to review potential external growth opportunities,
including merger and acquisition candidates, and to report back
on the relative attractiveness of these opportunities to the
management committee and the Board of Directors in September
2005. Falconbridge was one of the merger and acquisition
possibilities included within the mandate of the strategic
review process, as was Teck.
During August and early September of 2005, discussions took
place between senior management of Inco and Falconbridge with
respect to how they could work together on potential joint
commercial opportunities that would create additional operating
efficiencies and other mutually desirable cost savings. As the
investigation of joint commercial opportunities continued, Inco
concluded that opportunities to create even greater efficiencies
might exist in the context of a combination of the two
companies. As a result, an examination of a potential
acquisition of Falconbridge by Inco was restarted, following
earlier discussions between the two companies that had taken
place in 2004 as part of the Noranda auction process. This
examination included updated analyses of the potential operating
and other synergies from such a combination. By early September
2005 discussions between Inco and Falconbridge began to focus on
whether Inco would be interested in pursuing an acquisition of
the newly merged Falconbridge (following the amalgamation of
Noranda and Falconbridge Limited, a predecessor corporation of
Falconbridge, that took place as of June 30, 2005).
On August 15, 2005, Mr. Donald L. Lindsay, Chief
Executive Officer of Teck, raised the notion with Mr. Hand
of a merger of equals transaction with Inco.
Mr. Lindsay also suggested the concept of a three-way
merger involving Teck, Inco and Falconbridge. Mr. Hand
advised Mr. Lindsay that Inco would be considering various
alternatives with its Board of Directors at its September
meeting and that he would raise these proposals with the Inco
Board.
On August 16, 2005, the Inco Board of Directors met to
discuss, among other things, the ongoing work to enhance
shareholder value and certain strategic opportunities that Inco
would be evaluating, which included a possible transaction
involving Falconbridge. Mr. Hand also discussed the
contacts made by representatives of Teck and the concepts that
they had described to him directly and through their financial
advisors. Mr. Hand indicated that presentations would be
made at the next Board meeting on September 18, 2005 with
respect to these considerations.
On September 14, 2005, Mr. Hand received a letter
dated September 13, 2005 from Dr. Norman B.
Keevil, the Chairman of Teck, which indicated that Teck would be
interested in a possible combination between Inco and Teck.
Dr. Keevil noted that in addition to a merger of
equals Teck would also consider an arrangement which would
involve a premium for Inco Shareholders, including a substantial
cash component.
On September 18, 2005, the Inco Board held its meeting and
received presentations from the management committee, the
Strategic Planning and Corporate Development Department and the
Financial Advisors. The Board discussed the ongoing discussions
with Falconbridge and the proposal raised by Teck in
Dr. Keevils letter to Mr. Hand. Following the
presentations and discussions regarding the strategic review
process and the various options identified, the Inco Board of
Directors unanimously determined that the Falconbridge
discussions represented the most attractive opportunity to the
Company among these options, which had included a possible
business combination with Teck. Accordingly, the Board
authorized senior management of Inco to continue to pursue
preliminary discussions with Falconbridge and to conduct further
investigations into the merits of an acquisition of Falconbridge.
On September 26, 2005, Mr. Hand informed
Dr. Keevil in a telephone conversation that his letter of
September 13, 2005 had been discussed with the Board during
a regularly scheduled meeting on September 18, 2005
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26
and although the Board was appreciative of Tecks interest
in Inco, it did not have an interest in pursuing a transaction
involving the combination of the companies due in part to the
low synergy potential between those two companies.
On October 10, 2005, representatives of Inco met with
representatives of Falconbridge and advised that, subject to
final approval by the Board, Inco was prepared to proceed with
the Falconbridge Transaction on the basis of Cdn.$34.00 in cash
per Falconbridge Share or 0.6713 of an Inco Share per
Falconbridge common share and Cdn.$0.05 in cash, in each case at
the election of the Falconbridge shareholder, subject to a
maximum amount of cash consideration available under the
Falconbridge Transaction of Cdn.$2,872,648,913 and subject to a
maximum of 200,702,404 Inco Shares issuable under the offer, and
to reaching final agreement on the terms of the Falconbridge
Support Agreement. On October 10, 2005, the Board of
Directors of each of Falconbridge and Inco met separately to
consider the Falconbridge Transaction and to receive advice from
their respective financial and legal advisors. The Board
reviewed the proposed final terms of the Falconbridge
Transaction and the Falconbridge Support Agreement and discussed
various financial and legal matters relating to the Falconbridge
Transaction. Following discussions, the Board unanimously
approved the Falconbridge Transaction and authorized Incos
senior management to enter into the Falconbridge Support
Agreement on behalf of Inco. On October 10, 2005, the
Falconbridge Support Agreement was finalized and executed by
Inco and Falconbridge and the Falconbridge Transaction was
publicly announced prior to the opening of the financial markets
on the morning of October 11, 2005. The background to the
Falconbridge Transaction is described in more detail in the
Falconbridge Transaction Circular.
On December 9, 2005, Mr. Hand met with
Mr. Lindsay. Mr Lindsay confirmed that Teck had
previously been considering making an offer for the Inco Shares,
but that it had decided not to proceed with such a transaction.
On February 10, 2006, Mr. David OBrien, a
director and a member of the Corporate Governance and Nominating
Committee of Inco, received a letter from Dr. Keevil in
which Dr. Keevil reiterated Tecks interest in a
potential combination of Teck and Inco and its willingness to
consider proposing a significant premium with a cash component
as high as 50%, in the event Inco were to be released from its
covenants and obligations under the Falconbridge Support
Agreement as a result of the passage of time. On
February 21, 2006, Mr. Hand replied to Dr. Keevil
reaffirming Incos commitment to the Falconbridge
Transaction.
On February 27, 2006, Mr. Hand met with
Mr. Lindsay at a mining conference in Tampa, Florida, and
discussed Incos continued commitment to the Falconbridge
Transaction. The concept of a three-way merger was discussed but
Mr. Hand expressed reservations, among others, about the
issues created by Tecks multiple voting shares and
indicated he would like to talk to Dr. Keevil about the
matter. Mr. Lindsay stated that Teck did not intend to
intervene in the Falconbridge Transaction or make a proposal on
an unsolicited basis but that a combination of Teck and Inco
would be worth pursuing, in the event that Inco was unable to
complete the Falconbridge Transaction for any reason.
Mr. Hand reported this discussion to the Board at its
meeting on March 4, 2006.
On May 8, 2006, Teck announced its intention to make the
Teck Offer. On that same date, Incos Board met by
conference call to discuss the Teck Offer and Inco issued a
press release announcing that it had reviewed Tecks
announcement of its intention to offer to acquire Inco and that
the Board would review and evaluate a formal offer from Teck
when it became available.
On May 10, 2006, the Board met and considered the announced
intention of Teck to make the Teck Offer and reports were
received from Incos legal advisors, the Financial
Advisors, and Inco management regarding both the Teck Offer and
the Falconbridge Transaction.
On May 10, 2006, Mr. Hand met with Mr. Lindsay
and Mr. Derek Pannell, the Chief Executive Officer of
Falconbridge to discuss the possibility of a transaction
involving all three of their companies.
On May 11 and 12, 2006, the Board convened to further
consider the announced Teck Offer as well as a proposal to
revise the Falconbridge offer to increase the cash consideration
offered to Falconbridge shareholders pursuant to the terms of
that offer. Mr. Hand called Dr. Keevil after the board
meeting on May 12, 2006 to discuss Tecks interest in
a transaction involving the three companies and was told that
Dr. Keevil was unable to take the call and would return the
call at a later time.
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REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
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27
On May 13, 2006, the Board met to receive reports from its
financial advisors, Morgan Stanley, RBC Capital Markets and
Goldman Sachs, with respect to the proposed increase in the
consideration offered in the Falconbridge Transaction, and to
further consider the announced Teck Offer. Following receipt of
legal and financial advice on the proposed revised transaction
with Falconbridge, the Inco Board met in an executive session
with its legal advisors to discuss the proposed transaction
after the representatives of management (including
Messrs. Hand, Jones and Fish) had recused themselves.
Following a unanimous determination by the non-management
directors to approve the transaction, the full Board reconvened
to approve the revised Falconbridge offer. The Board resolved
to, among other things: increase the maximum amount of cash
available under the Falconbridge Transaction and thereby
increase the consideration payable under the Falconbridge
Transaction for the Falconbridge common shares (i) from
Cdn.$34.00 in cash to Cdn.$51.17 in cash, and (ii) from
0.6713 of an Inco Share and Cdn.$0.05 in cash to 0.6927 of an
Inco Share and Cdn.$0.05 in cash, in each case, at the election
of holders of Falconbridge Shares and subject to pro ration.
Following the approval by the Board, the terms of the Fourth
Amending Agreement to the Falconbridge Support Agreement were
negotiated and ultimately settled by Inco and Falconbridge and
their respective legal advisors. Upon the conclusion of the
negotiations by Inco and Falconbridge, and the execution and
delivery by Inco and Falconbridge of, the Fourth Amending
Agreement later that day on May 13, 2006, Inco and
Falconbridge announced the increased offer.
On May 17, 2006, Xstrata announced its intention to make an
unsolicited offer, through a subsidiary, to acquire all of the
outstanding common shares of Falconbridge not already held by it
for Cdn.$52.50 in cash per Falconbridge share. On May 18,
2006, Xstrata filed a take-over bid circular with the securities
regulatory authorities in Canada and the United States.
On May 22, 2006, the Board passed a written resolution
pursuant to which it resolved to postpone the Separation
Time (as defined in the Rights Plan) under the amended and
restated shareholders rights plan dated April 20, 2006
between Inco and CIBC Mellon Trust Corporation (the
Rights Plan) to a later date to be determined by the
Board
On May 23, 2006, Teck filed the Teck Circular with the
securities regulatory authorities in Canada and the United
States.
On May 25, 2006, a meeting of the Board took place at which
the Board received reports from its Financial Advisors and its
legal advisors regarding the terms of the formal Teck Offer. In
addition to instructing management of the Company to continue
working to complete the Falconbridge Transaction, the Board
considered and reviewed the feasibility and desirability of
exploring and investigating certain types of possible
transactions or combinations thereof, including corporate
transactions that would allow the Company to remain as an
independent, publicly held company, a merger, amalgamation or
other combination involving the Company, including without
limitation certain possible three-way transactions including a
transaction with both Falconbridge and Teck, the issuance of
equity or other securities of the Company and the acquisition by
the Company or others of Inco Shares by take-over bid or
otherwise, all subject to compliance with its obligations under
the Falconbridge Support Agreement. After considerable
discussion, the Board resolved that it was desirable and in the
best interests of the Company and the Inco Shareholders to
continue to explore and investigate, with the assistance and
advice of its Financial Advisors and legal advisors, one or more
of such transactions, while continuing to comply with its
obligations under the Falconbridge Support Agreement. The Board
noted that the initiation or continuation of such activities may
be dependent upon future actions with respect to the Teck Offer
and the Falconbridge Transaction.
On May 29, 2006, a meeting of the Board took place, at
which each of the Financial Advisors presented their respective
opinions addressed to the Board that, as of the date of such
opinions and based upon and subject to the assumptions,
limitations and qualifications stated therein, the consideration
to be paid pursuant to the Teck Offer is inadequate, from a
financial point of view, to the Inco Shareholders. The Board
unanimously resolved to recommend to Inco Shareholders that they
reject the Teck Offer and not tender their Inco Shares. The
Board also approved the Directors Circular and its mailing
to the Inco Shareholders.
As part of the process of exploring alternatives to the Teck
Offer, representatives of the Company have had discussions, and
expect to have discussions and negotiations after the date
hereof with third parties with respect to certain of the matters
referred to in the preceding paragraphs. As and when deemed
advisable by management, the
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REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
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28
Board has authorized management of the Company to provide
confidential information relating to the Company to third
parties, upon the execution by such third parties of a
confidentiality agreement satisfactory to the Company.
The Board has determined that other than the disclosure set
forth in this document, disclosure as to the substance of
discussions and negotiations concerning, or the possible terms
of, or potential parties to, any transaction or proposal of the
type referred to above prior to reaching an agreement in
principle with respect thereto would jeopardize the initiation
or continuation of negotiations with respect to such
transactions and has, accordingly, adopted a resolution
directing that no such disclosure with respect to any such
transaction shall be made until an agreement has been reached.
OPINIONS OF THE FINANCIAL ADVISORS
Each of Morgan Stanley, RBC Capital Markets and Goldman Sachs
was retained to assess the Teck Offer and to provide advice to
the Board in connection with the Teck Offer. Each of Morgan
Stanley, RBC Capital Markets and Goldman Sachs has delivered a
written opinion addressed to the Board concluding that, on the
basis of the assumptions, limitations and qualifications set
forth in the opinion delivered by each of them, as of the date
thereof, the consideration to be paid pursuant to the Teck Offer
is inadequate, from a financial point of view, to the Inco
Shareholders.
The full texts of the written opinions of each of Morgan
Stanley, RBC Capital Markets and Goldman Sachs are attached
as Schedules C, D and E, respectively, to this document.
You are urged to read each of the opinions carefully and in its
entirety for a description of the procedures followed, matters
considered and limitations on the review undertaken. The
opinions address only the adequacy of the consideration offered
under the Teck Offer from a financial point of view to the Inco
Shareholders. The descriptions and the opinions do not
constitute a recommendation to any Inco Shareholder as to
whether they should tender their Inco Shares or, if a decision
is made to tender, elect to receive Teck Class B
Subordinate Voting Shares or cash or a combination thereof.
INTENTIONS OF DIRECTORS AND SENIOR OFFICERS
The Board has made reasonable enquiries of each director and
senior officer of Inco. The directors and senior officers of
Inco have each indicated their intention, and the intention of
their respective associates, to reject the Teck Offer and not
tender the respective Inco Shares of which they are the record
or beneficial owner to the Teck Offer.
SHAREHOLDER RIGHTS PLAN
Incos Rights Plan is set out in a Shareholder Rights Plan
Agreement, as amended and restated as noted below, entered into
between Inco and CIBC Mellon Trust Company, as Rights
Agent, and is designed to (i) encourage the fair and equal
treatment of Inco Shareholders in connection with any bid for
control of Inco by providing them with more time than the
minimum statutory period during which such bid must remain open
in order to fully consider their options, and (ii) provide
Incos Board with additional time, if appropriate, to
pursue other alternatives to maximize shareholder value.
The Rights Plan was initially approved by Incos Board in
September 1998 and became effective in October 1998. It was
amended in certain respects by Incos Board in February
1999 to ensure that it was consistent with rights plans which
had been recently adopted by other Canadian companies. The
amended plan was approved by the Inco Shareholders at our 1999
Annual and Special Meeting of Inco Shareholders in April 1999.
In February 2002, Incos Board approved certain minor
amendments to the Rights Plan to ensure that its terms remained
consistent with other rights plans in Canada and unanimously
recommended that the Rights Plan, as proposed to be amended, be
reconfirmed, as amended and restated, by the Inco Shareholders.
Such reconfirmation was obtained at our Annual and Special
Meeting of Inco Shareholders in April 2002. In February 2005,
the Board approved certain further minor amendments to the
Rights Plan to reflect, among other things, changes in
Incos capital structure since April 2002, including the
issuance of convertible debt securities, and unanimously
recommended that the Rights Plan, as proposed to be amended, be
reconfirmed, as amended and restated, by the shareholders. Such
reconfirmation was obtained at our Annual and Special Meeting of
Inco Shareholders in April 2005. The plan remains in effect
until October 2008.
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REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
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29
The Rights Plan was not proposed or implemented in response to,
or in anticipation of, any pending, threatened or proposed
acquisition or take-over. A summary of the Rights Plan is set
out in the attached Schedule G. That summary only includes
the material terms and conditions of the Rights Plan, the full
text of which is contained in the Shareholder Rights Plan
Agreement. The summary is qualified by and is subject to the
full terms and conditions of such agreement, a copy of which is
publicly available on www.sedar.com.
The Rights Plan is designed to ensure that the Board has
adequate and sufficient time to seek enhanced shareholder value
in circumstances where an unsolicited take-over bid has been
made. Teck has not made a Permitted Bid. In
addition, Teck has made the Teck Offer conditional on the Rights
Plan or its effect being terminated through, for example, a
waiver by the Board of the application of the Rights Plan to the
purchase of the Inco Shares by Teck pursuant to the Teck Offer.
The Board intends to use the Rights Plan only to advance Inco
Shareholder interests and, accordingly, has deferred the
Separation Time (as defined in the Rights Plan)
under the Rights Plan and continues to evaluate the application
of the Rights Plan to the Teck Offer in light of its obligations
to Inco Shareholders.
OWNERSHIP OF SECURITIES OF INCO
As at May 26, 2006, the issued and outstanding capital of
the Company consisted of 198,207,231 Inco Shares. The
Company also had certain additional securities convertible into
or exercisable for Inco Shares, as set forth below:
|
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|
|
|
|
|
|
|
|
|
|
|
Total Number of | |
|
|
|
|
Inco Shares into | |
|
|
|
|
which Securities are | |
|
|
Total Issued and | |
|
Convertible or | |
|
|
Outstanding | |
|
Exercisable | |
Security |
|
(as at May 26, 2006) | |
|
(as at May 26, 2006) | |
|
|
| |
|
| |
Inco Share Purchase Warrants
|
|
|
10,773,245 |
|
|
|
10,773,245 |
|
Convertible Debentures due 2023
|
|
$180,670,000 (amount payable at maturity) |
|
|
5,769,769 |
|
31/2
% Subordinated Convertible Debentures due 2052
|
|
$225,545,000 (principal amount) |
|
|
8,670,469 |
|
Zero Coupon Convertible Notes due 2021 (LYONS)
|
|
$194,212,000 (amount payable at maturity) |
|
|
5,156,911 |
|
Options
|
|
|
2,538,539 |
|
|
|
2,034,913 |
|
The names of the directors and senior officers of Inco, the
positions held by them with Inco and the designation, percentage
of class and number of outstanding securities of Inco
beneficially owned, directly or indirectly, or over which
control or direction is exercised by each of them and, where
known after reasonable enquiry, by their respective associates,
are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities of Inco Beneficially Owned, | |
|
|
|
|
|
|
|
|
Directly or Indirectly(a) | |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Inco Share | |
|
|
|
Deferred | |
|
PT Inco | |
|
|
|
|
Inco | |
|
Purchase | |
|
|
|
% Options | |
|
Share | |
|
Common | |
Name |
|
Position with Inco |
|
Shares(b) | |
|
Warrants(c) | |
|
Options | |
|
Outstanding | |
|
Units(d) | |
|
Shares(e) | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Ronald C. Aelick
|
|
President, Asia Pacific |
|
|
24,706 |
|
|
|
|
|
|
|
74,000 |
|
|
|
2.92 |
% |
|
|
|
|
|
|
|
|
Stephanie E. Anderson
|
|
Vice President and Treasurer |
|
|
1,410 |
|
|
|
|
|
|
|
29,000 |
|
|
|
1.14 |
% |
|
|
|
|
|
|
|
|
Glen A. Barton
|
|
Director |
|
|
21,432 |
(f) |
|
|
|
|
|
|
10,000 |
|
|
|
0.39 |
% |
|
|
8,000 |
|
|
|
|
|
Edward H. Bassett
|
|
Vice President, Capital Projects and Engineering |
|
|
2,890 |
(g) |
|
|
|
|
|
|
17,000 |
|
|
|
0.67 |
% |
|
|
|
|
|
|
|
|
Subhash Bhandari
|
|
Vice President and Chief Information Officer |
|
|
3,662 |
|
|
|
|
|
|
|
8,315 |
|
|
|
0.33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities of Inco Beneficially Owned, | |
|
|
|
|
|
|
|
|
Directly or Indirectly(a) | |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Inco Share | |
|
|
|
Deferred | |
|
PT Inco | |
|
|
|
|
Inco | |
|
Purchase | |
|
|
|
% Options | |
|
Share | |
|
Common | |
Name |
|
Position with Inco |
|
Shares(b) | |
|
Warrants(c) | |
|
Options | |
|
Outstanding | |
|
Units(d) | |
|
Shares(e) | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Angus A. Bruneau
|
|
Director |
|
|
5,745 |
|
|
|
1,125 |
|
|
|
|
|
|
|
|
|
|
|
13,740 |
|
|
|
|
|
Ronald C. Cambre
|
|
Director |
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
0.39 |
% |
|
|
13,661 |
|
|
|
|
|
Mark Cutifani
|
|
President, North America/ Europe |
|
|
1,834 |
|
|
|
|
|
|
|
28,000 |
|
|
|
1.10 |
% |
|
|
|
|
|
|
|
|
Mark J. Daniel
|
|
Vice President, Human Resources |
|
|
10,943 |
|
|
|
|
|
|
|
14,500 |
|
|
|
0.57 |
% |
|
|
|
|
|
|
|
|
Robert D. J. Davies
|
|
Executive Vice-President and Chief Financial Officer |
|
|
758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce R. Drysdale
|
|
Vice President, Government and Public Affairs |
|
|
1,142 |
|
|
|
|
|
|
|
11,500 |
|
|
|
0.45 |
% |
|
|
|
|
|
|
|
|
Philippus F. du Toit
|
|
Managing Director, Voiseys Bay Nickel Company Limited |
|
|
3,401 |
|
|
|
|
|
|
|
15,000 |
|
|
|
0.59 |
% |
|
|
|
|
|
|
|
|
Anthony O. Filmer
|
|
Vice President, Research and Development |
|
|
185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Simon A. Fish
|
|
Executive Vice President, General Counsel and Secretary |
|
|
3,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter J. Goudie
|
|
Executive Vice President, Marketing |
|
|
21,135 |
|
|
|
|
|
|
|
301,000 |
|
|
|
11.86 |
% |
|
|
|
|
|
|
248,000 |
|
Scott M. Hand
|
|
Chairman and Chief Executive Officer |
|
|
222,579 |
(h) |
|
|
|
|
|
|
308,000 |
|
|
|
12.13 |
% |
|
|
|
|
|
|
200,000 |
|
Janice K. Henry
|
|
Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,271 |
|
|
|
|
|
Samantha Hogg
|
|
Vice President, Marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chaviva M. Hosek
|
|
Director |
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
0.39 |
% |
|
|
12,394 |
|
|
|
|
|
John B. Jones
|
|
Vice President, Business Development-Asia |
|
|
4,704 |
|
|
|
|
|
|
|
68,000 |
|
|
|
2.68 |
% |
|
|
|
|
|
|
|
|
Peter C. Jones
|
|
President and Chief Operating Officer |
|
|
61,354 |
|
|
|
|
|
|
|
155,800 |
|
|
|
6.14 |
% |
|
|
|
|
|
|
76,000 |
|
Gary G. D. Kaiway
|
|
Vice President, Taxation |
|
|
2,278 |
|
|
|
|
|
|
|
9,438 |
|
|
|
0.37 |
% |
|
|
|
|
|
|
|
|
William B. Kipkie
|
|
Vice President, Inco Special Products |
|
|
2,549 |
|
|
|
|
|
|
|
32,500 |
|
|
|
1.28 |
% |
|
|
|
|
|
|
|
|
Ronald A. Lehtovaara
|
|
Vice President and Comptroller |
|
|
4,742 |
|
|
|
|
|
|
|
36,000 |
|
|
|
1.42 |
% |
|
|
|
|
|
|
|
|
John T. Mayberry
|
|
Director |
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,065 |
|
|
|
|
|
Francis Mer
|
|
Director |
|
|
788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,633 |
|
|
|
|
|
William A. Napier
|
|
Vice President, Environment and Health |
|
|
3,516 |
|
|
|
|
|
|
|
38,000 |
|
|
|
1.50 |
% |
|
|
|
|
|
|
|
|
David P. OBrien
|
|
Director |
|
|
7,942 |
|
|
|
225 |
|
|
|
10,000 |
|
|
|
0.39 |
% |
|
|
12,410 |
|
|
|
|
|
Roger Phillips
|
|
Director |
|
|
7,000 |
|
|
|
|
|
|
|
5,000 |
|
|
|
0.20 |
% |
|
|
10,411 |
|
|
|
|
|
S. Nicholas Sheard
|
|
Vice President, Exploration |
|
|
1,943 |
|
|
|
|
|
|
|
10,000 |
|
|
|
0.39 |
% |
|
|
|
|
|
|
|
|
Richard E. Waugh
|
|
Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,184 |
|
|
|
|
|
|
|
(a) |
The information as to securities of Inco beneficially owned,
directly or indirectly, or over which control or direction is
exercised, not being within the knowledge of Inco, has been
furnished by the respective directors and senior officers. |
|
|
|
|
REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
|
31
|
|
(b) |
The number of Inco Shares indicated in the column represents, in
each case, less than 1% of the outstanding Inco Shares. |
|
(c) |
The number of Warrants indicated in the column represents, in
each case, less than 1% of the outstanding Warrants. |
|
(d) |
Inco awards deferred share units (DSUs) to its
non-employee directors pursuant to its Non-Employee Director
Share Ownership Plan (the Ownership Plan). The DSUs
awarded under the Ownership Plan are bookkeeping entries on the
books of Inco that represent the value of an Inco Share at the
time of the award. In conjunction with a directors
retirement from the Board, the DSUs are cashed out by Inco based
upon the fair market value of the Inco Shares at such time. |
|
(e) |
PT Inco common shares indicated in this column were
purchased by Mr. Goudie, Mr. Hand and Mr. Jones
on the Jakarta Stock Exchange as private investments. |
|
(f) |
17,993 Inco Shares are held by Glen A. Barton Revocable Trust
with Glen A. Barton as trustee. |
|
(g) |
Mr. Bassett holds 2,590 Inco Shares in his own name and 300
Inco Shares are registered in the name of Mona Noreen Bassett. |
|
(h) |
There are 48,241 Inco Shares registered in Mr. Hands
name, 222 Inco Shares registered in the name of Katherine Hand,
his daughter and 174,116 Inco Shares registered in the name of
Scott M. Hand and Ellen M. Hand, his wife. |
To the knowledge of the directors and senior officers of Inco,
after reasonable enquiry, no person owns, directly or
indirectly, or exercises control or direction over, more than
10% of any class of securities of Inco, and no person or company
acting jointly or in concert with Inco owns any securities of
Inco.
ARRANGEMENTS BETWEEN INCO AND ITS DIRECTORS AND SENIOR
OFFICERS
Except as described herein, or in Part IV
Director and Executive Compensation in Incos Proxy
Circular and Statement, dated February 17, 2006, which was
sent to Shareholders in connection with Incos 2006 Annual
Meeting of Shareholders, which Part IV is incorporated
herein by reference except to the extent the disclosure herein
supersedes certain information contained in Part IV, there
are (i) no material arrangements, agreements or
understandings between Inco or its affiliates and any of the
directors, senior officers or affiliates of Inco, nor are there
any arrangements, agreements or understandings made or proposed
to be made pursuant to which a payment or other benefit is to be
made or given by way of compensation for loss of office or as to
Incos directors or senior officers remaining in or
retiring from office if the Teck Offer is successful, and
(ii) no actual or potential conflicts of interest between
Inco or its affiliates and the senior officers, directors or
affiliates of Inco.
Executive Employment Agreements
In order to encourage them to remain in the Companys
service, the Company has entered into agreements
(Executive Employment Agreements) with each of
(i) Scott M. Hand, (ii) Peter C. Jones,
(iii) Peter J. Goudie and (iv) Robert D.J. Davies
(collectively, the Senior Officers) which entitle
them, in the event of (a) involuntary termination of
employment (except for cause) or resignation under circumstances
making such resignation not wholly voluntary (Good Cause
Resignation) or (b) involuntary termination of
employment (except for cause) or a Good Cause Resignation within
two years following a change in control of the Company (as
defined in such agreements), to continue to receive salary and
certain other payments and benefits (including payments to which
they would be entitled under certain incentive plans as a result
of a change in control and participation in medical, insurance
and certain other benefit plans) for a severance period not
exceeding 36 months, and to exercise for a period of up to
five years any vested or unvested share options and related SARs
outstanding as of the date of an involuntary termination of
employment or Good Cause Resignation. Assuming that the
conditions in the Teck Offer are satisfied and Teck takes up and
pays for Inco Shares, the Teck Offer would result in a
change of control. These agreements also provide
that, during such severance period, each such Senior Officer
will continue to receive applicable age and service credits
under the Companys non-qualified retirement plans but such
retirement benefits would generally not be payable until the
expiration of such severance period, and will also be entitled
to certain gross up payments in respect of certain
U.S. excise taxes, if applicable, payable under these
Executive Employment Agreements as a result of an involuntary
termination or Good Cause Resignation following a change in
control under (b) above. The rights outlined in this
paragraph are in lieu of any rights which such individual would
have had at common law and are in addition to rights which such
individual may have upon an involuntary termination of
employment pursuant to other benefit plans (other than severance
plans) of the Company.
The Company has also entered into agreements with each of Ronald
C. Aelick, Stephanie E. Anderson, Edward
H. Bassett, Subhash Bhandari, Mark Cutifani, Mark
J. Daniel, Bruce R. Drysdale, Anthony O. Filmer,
Simon A. Fish,
|
|
|
|
REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
|
32
Samantha Hogg, John B. Jones, Gary G.D. Kaiway,
William B. Kipkie, Ronald A. Lehtovaara, William
A. Napier and S. Nicholas Sheard (the Other
Officers) under which such Other Officers will be
entitled, in the event of involuntary termination of employment
(except for cause) or Good Cause Resignation within two years
following a change in control of the Company (as defined in such
agreements), to receive substantially the same compensation and
other benefits as those referred to in the preceding paragraph.
Such rights are in lieu of any rights which such Other Officers
would have had at common law and are in addition to rights which
they may have upon an involuntary termination of employment
pursuant to other benefit plans (other than severance plans) of
the Company.
The Company has also agreed to provide standard relocation
expenses to Scott M. Hand and Peter J. Goudie should
they elect to relocate from Canada to their country of origin
following (i) involuntary termination of employment (except
for cause) or Good Cause Resignation or (ii) retirement. In
addition to standard relocation expenses, the Company has also
agreed to provide supplemental assistance to Mr. Hand,
including a transition allowance and certain financial
assistance with respect to Canadian departure taxes, if any. The
Company has also agreed to provide normal transportation
expenses to Robert D.J. Davies should he elect to relocate
from Canada to his country of origin in the event of involuntary
termination of employment (except for cause) or Good Cause
Resignation.
All outstanding options and related share appreciation rights
which have been granted under the 2001 Key Employee Incentive
Plan and the 2005 Key Employee Incentive Plan (collectively, the
KEIPs) will become vested and exercisable in full in
the event of a change of control (as defined in the KEIPs).
Personnel Retention Program
Following the announcement of the Teck Offer, Inco evaluated
various matters relevant to personnel retention to ensure that
its ability to maintain its business and achieve an optimal
outcome for the Inco Shareholders would not be damaged by the
loss of critical personnel during the period of extreme
uncertainty caused by the Teck Offer. In addition, the Board
considered that the Company had previously deferred its annual
grant of stock options until the completion of the Falconbridge
Transaction. On May 11, 2006, the Board determined that it
was in the best interests of the Company to put in place certain
initiatives designed to ensure that the commitment and job
performance of the personnel in question do not suffer as a
result of the distractions created by the Teck Offer.
Accordingly, the Board approved (i) guaranteed severance
arrangements (the Severance Arrangements) for
approximately 25 key employees of the Company not named above
(the Key Employees) and (ii) cash retention
payments (the Retention Arrangements) for a broader
group of employees of the Company. The Retention Arrangements
were provided to each of Scott M. Hand, Peter J. Goudie,
Robert D.J. Davies, Ronald C. Aelick, Mark Cutifani
and Simon A. Fish on May 29, 2006, and to the remaining
Other Officers, Key Personnel and other employees of the
Company, generally corresponding to the group of employees of
the Company and its subsidiaries who are eligible to receive
option awards each year. Payments under the Retention
Arrangements are payable in cash upon the earlier of
(i) March 31, 2007, and (ii) the occurrence of a
change of control (as that term is defined in the Retention
Arrangements). Inco believes that the initiatives described
above are consistent with industry practice. Furthermore, the
Board has determined, in the aggregate, that the incremental
costs of the Severance Arrangements and the Retention
Arrangements would not be a material cost to Inco nor a
deterrent to the Company being able to pursue and potentially
realize upon other strategic alternatives.
ARRANGEMENTS BETWEEN TECK, INCO AND
THE DIRECTORS AND SENIOR OFFICERS OF INCO
To the knowledge of Inco, there are (i) no arrangements or
agreements made or proposed to be made, nor any understandings
between, Teck and any of its directors, senior officers or
affiliates, on the one hand, and Inco and any of its directors,
senior officers or affiliates, on the other hand, including any
arrangements, agreements or understandings pursuant to which a
payment or other benefit is to be made or given by way of
compensation for loss of office or as to Incos directors
or senior officers remaining in or retiring from office if the
Teck Offer is successful; and (ii) no actual or potential
conflicts of interest between Teck, its directors, senior
officers or affiliates, on the one hand, and Inco, its
directors, senior officers or affiliates, on the other hand. No
directors or senior officers of Inco are also directors or
senior officers of Teck or any of its subsidiaries.
|
|
|
|
REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
|
33
TRADING IN SECURITIES OF INCO
Neither Inco nor any of the directors, senior officers,
affiliates or subsidiaries of Inco and, to the knowledge of the
directors and senior officers, after reasonable enquiry, none of
such persons respective associates has engaged in any
transaction in securities of Inco during the six-month period
preceding the date of this Directors Circular and except
for the trades listed below and under the heading entitled
Issuances of Securities of Inco to the Directors and
Senior Officers of Inco.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Designation and No. | |
|
Price per | |
Name |
|
Nature of Trade | |
|
Date of Trade | |
|
of Securities | |
|
Security | |
|
|
| |
|
| |
|
| |
|
| |
Stephanie E. Anderson
|
|
Disposition in Public Market |
|
|
March 3, 2006 |
|
|
|
7,000 Inco Shares |
|
|
|
$51.50 |
|
Glen A. Barton
|
|
Acquisition in Public Market |
|
|
December 1, 2005 |
|
|
|
22 Inco Shares |
|
|
|
$45.22 |
|
|
|
Acquisition under Purchase/ Ownership Plan |
|
|
February 16, 2006 |
|
|
|
375 Inco Shares |
|
|
|
$47.28 |
|
|
|
Acquisition under Purchase/ Ownership Plan |
|
|
February 16, 2006 |
|
|
|
281 Inco Shares |
|
|
|
$47.44 |
|
|
|
Acquisition in Public Market |
|
|
March 2, 2006 |
|
|
|
38 Inco Shares |
|
|
|
$50.35 |
|
Subhash Bhandari
|
|
Disposition in Public Market |
|
|
March 2, 2006 |
|
|
|
700 Inco Shares |
|
|
|
$50.13 |
|
|
|
Disposition in Public Market |
|
|
March 2, 2006 |
|
|
|
100 Inco Shares |
|
|
|
$50.15 |
|
|
|
Disposition in Public Market |
|
|
March 2, 2006 |
|
|
|
385 Inco Shares |
|
|
|
$50.16 |
|
Mark J. Daniel
|
|
Disposition in Public Market |
|
|
February 27, 2006 |
|
|
|
1,200 Inco Shares |
|
|
|
$49.44 |
|
|
|
Disposition in Public Market |
|
|
March 3, 2006 |
|
|
|
3,000 Inco Shares |
|
|
|
$51.50 |
|
Philippus F. du Toit
|
|
Disposition in Public Market |
|
|
March 3, 2006 |
|
|
|
2,500 Inco Shares |
|
|
|
$51.50 |
|
Peter J. Goudie
|
|
Disposition in Public Market |
|
|
March 7, 2006 |
|
|
|
500 Inco Shares |
|
|
|
$48.10 |
|
|
|
Disposition in Public Market |
|
|
March 7, 2006 |
|
|
|
7,500 Inco Shares |
|
|
|
$48.07 |
|
Gary G. D. Kaiway
|
|
Disposition in Public Market |
|
|
March 3, 2006 |
|
|
|
2,062 Inco Shares |
|
|
|
$51.23 |
|
|
|
Disposition in Public Market |
|
|
March 3, 2006 |
|
|
|
815 Inco Shares |
|
|
C |
dn.$58.70 |
|
Francis Mer
|
|
Acquisition under Purchase/ Ownership Plan |
|
|
February 16, 2006 |
|
|
|
325 Inco Shares |
|
|
|
$47.28 |
|
|
|
Acquisition under Purchase/ Ownership Plan |
|
|
February 16, 2006 |
|
|
|
75 Inco Shares |
|
|
|
$47.44 |
|
|
|
|
|
REJECT THE TECK OFFER AND DO NOT TENDER YOUR INCO SHARES |
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Designation and No. | |
|
Price per | |
Name |
|
Nature of Trade | |
|
Date of Trade | |
|
of Securities | |
|
Security | |
|
|
| |
|
| |
|
| |
|
| |
David P. OBrien
|
|
Acquisition under Purchase/ Ownership Plan |
|
|
February 16, 2006 |
|
|
|
325 Inco Shares |
|
|
C |
dn.$54.82 |
|
S. Nicholas Sheard
|
|
Disposition in Public Market |
|
|
March 3, 2006 |
|
|
|
300 Inco Shares |
|
|
|
$51.67 |
|
|
|
Disposition in Public Market |
|
|
March 3, 2006 |
|
|
|
700 Inco Shares |
|
|
|
$51.62 |
|
ISSUANCES OF SECURITIES OF INCO TO THE DIRECTORS AND SENIOR
OFFICERS OF INCO
No Inco Shares or securities convertible into Inco Shares have
been issued to the directors and senior officers of Inco during
the two-year period preceding the date of this Directors
Circular except as set out in Schedule F.
OWNERSHIP OF SECURITIES OF TECK
None of Inco or the directors or senior officers of Inco or, to
their knowledge after reasonable enquiry, any of their
respective associates owns, directly or indirectly, or exercises
control or direction over, any securities of Teck.
INTERESTS IN MATERIAL CONTRACTS OF TECK
None of Inco or the directors or senior officers of Inco or, to
their knowledge after reasonable enquiry, any of their
respective associates has an interest in any material contract
of Teck.
MATERIAL CHANGES AND RECENT DEVELOPMENTS
Amendment to the Falconbridge Offer
The directors and senior officers of Inco are not aware of any
other information that indicates any material change in the
affairs of Inco since March 31, 2006, the date of the last
published unaudited interim financial statements of Inco, except
as described herein.
On May 15, 2006, Inco filed a material change report with
Canadian securities regulatory authorities, on SEDAR, reporting
Inco entering into a fourth amending agreement (the
Amending Agreement) with Falconbridge dated
May 13, 2006, to amend the Falconbridge Support Agreement
originally entered into by Inco and Falconbridge on
October 10, 2005, as subsequently amended on
January 12, 2006, February 20, 2006 and March 21,
2006, respectively. Under the terms of the Amending Agreement,
Inco agreed to increase the cash consideration offered to
holders of Falconbridge common shares to Cdn.$51.17 per
Falconbridge common share pursuant to the Falconbridge
Transaction. As a result, Falconbridge shareholders will be
entitled to elect to receive either Cdn.$51.17 in cash for each
share held or 0.6927 of a common share of Inco plus Cdn.$0.05 in
cash for each Falconbridge common share held, subject in each
case to pro ration based upon the maximum amount of cash
available and the maximum number of Inco Shares issuable, under
the Falconbridge Transaction.
The full text of this report is available on SEDAR at
www.sedar.com.
Inco expects to mail a notice of variation to holders of
Falconbridge common shares reflecting the revised Falconbridge
offer on or about May 31, 2006.
Nickel and Copper Market Updates
In Incos view, four key factors account for nickels
projected future market strength: (i) strong rebounding
world stainless steel output; (ii) a tighter stainless
steel scrap market; (iii) persistent strength in
non-stainless nickel demand; and (iv) limited nickel supply
growth. These four factors are expected to translate into a
nickel supply/ demand deficit for the next several years.
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35
During the first quarter of 2006, the LME benchmark cash nickel
price rose, averaging $14,811 per tonne ($6.72 per pound), as
compared with a fourth quarter 2005 average of $12,628 per tonne
($5.73 per pound). Inco believes that this rise was due
principally to strong nickel demand from a sharp recovery in the
production of nickel-containing stainless steel, the principal
end-use for primary nickel, and due to a strong inflow of buying
by hedge funds. This upturn in LME cash nickel prices has
continued in April and May with the April price averaging
$17,942 per tonne ($8.14 per pound) and with the benchmark price
for the period from May 1, 2000 to May 26, 2006,
averaging $20,868 per tonne ($9.47 per pound). The LME cash
nickel price was $20,705 per tonne ($10.30 per pound) on
May 26, 2006, the last trading day on the TSX before the
date of this Directors Circular.
Inco believes that nickel demand strengthened in the first
quarter of 2006 principally due to the recovery in stainless
steel production but also from the other sectors of nickel
demand. The oversupply condition that existed in
nickel-containing stainless steel during the second half of 2005
has ended, and producers are ramping up stainless steel output
to meet stronger demand. Stainless steel prices have improved
significantly and continue to rise. There was also continued
strong demand for nickel from non-stainless steel applications
such as the aerospace, oil and gas, construction and plating
markets. On the nickel supply side, growth has continued to be
slow as production disruptions have curtailed output from
several producers, including seven to eight week production
disruptions of approximately 2,200 tonnes (1,000,000
pounds) per week at PT Inco, as of May 24, 2006, due
to a temporary shutdown of one of its four furnaces. See
PT Inco Fire. Nickel producer
inventories remain at low levels and, if there are additional
supply disruptions, supply would be further tightened. In line
with these tight nickel market conditions, LME cash nickel
prices have been rising and this has been accompanied by
decreases in LME nickel stocks/ inventory. Inco currently
believes that the market will remain strong throughout the
balance of 2006 led by a recovery in stainless steel production.
The LME benchmark cash copper price has averaged $4,944 per
tonne ($2.24 per pound) for the first quarter of 2006, as
compared with a fourth quarter 2005 average of $4,297 per tonne
($1.95 per pound). For the month of April 2006, the LME cash
copper price averaged $6,388 per tonne ($2.90 per pound) and
from May 1 to 19, 2006, the price has averaged $8,016 per
tonne ($3.64 per pound). The LME cash price set a new record of
$8,788 per tonne ($3.99 per pound) on May 12, 2006. The LME
cash copper price was $8,301 per tonne ($3.77 per pound) on
May 26, 2006, the last trading day on the TSX before the
date of this Directors Circular.
Copper prices continue to be driven by strong demand, very low
inventories, supply constraints, operating disruptions and
strong hedge fund buying. Demand has been supported by ongoing
economic growth in the United States, notwithstanding the recent
difficult hurricane season. Demand for copper and copper
products is expected to remain strong over the next
18 months driven by strong global economic growth and
continued strong demand in China and India.
Inco believes that the worlds refined copper production
capacity expansions currently in the planning pipeline will be
barely sufficient to meet forecast demand. This supply-demand
balance would imply high utilization rates for existing
operations and the continuation of low levels of inventory which
when combined with the risk of further unexpected supply
disruptions is expected to result in volatile copper prices over
the next few years.
Incos Management expectations with respect to nickel
prices, copper prices, the recovery in stainless steel
production, nickel supply, and demand for nickel, nickel from
non-stainless steel applications, copper and copper products are
subject to various risks and assumptions. See Caution
Regarding Forward-Looking Statements.
Actions Against Goro Development Project
On the evening of April 1, 2006, protesters committed a
series of actions against Incos Goro development project
in New Caledonia. Various public roads leading to the Goro
project site were blocked and trucks, excavators and building
materials were vandalized. In addition, the main water supply to
the project site was cut off and pipes that were to have been
used in the water supply pipeline to the project were damaged.
French military police were mobilized to remove the protesters
and secure the site, having particular regard to the safety of
workers. The construction site was shut down over a three-week
period, with a phased remobilization that commenced in late
April.
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36
Inco is currently assessing the extent of the damage to the site
and estimating the remediation and other costs to the project
which will be attributable to these actions. Inco is also
currently assessing the extent to which these actions will
affect the schedule for the initial start-up of the project.
Construction of New
UTILITY®
Nickel Plant in China
On May 5, 2006, Inco confirmed its plans to proceed with
the construction of a new facility in Dalian, Liaoning Province,
China for the production of UTILITY nickel, a refined form of
nickel product for the special needs of the stainless steel
industry. The new plant will have a nominal capacity of
32,000 tonnes per year. Feed for the new plant, consisting
of intermediate forms of nickel, will be supplied by Incos
Goro development project and other sources. Construction work on
the $63 million facility is expected to commence in the
third quarter of 2006, with commissioning expected to take place
in the first half of 2008.
Managements expectations and estimates with respect to the
construction of a new facility in China are subject to various
risks and assumptions. See Caution Regarding
Forward-Looking Statements.
PT Inco Fire
On May 24, 2006, a fire occurred at one of the four
electric furnaces at PT Incos Sorowako operations.
While PT Inco is currently investigating the causes of the
fire and assessing its impact, preliminary indications are that
it will be approximately seven to eight weeks before the
electric furnace returns to normal operating levels. PT Inco
estimates that, until the electric furnace is operating at
normal levels, PT Incos production of nickel-in-matte, an
intermediate nickel product, will be reduced by approximately
2,200 tonnes (one million pounds) per week.
Managements estimates and expectations with respect to
operations at PT Inco are subject to various risks and
assumptions. See Caution Regarding Forward-Looking
Statements.
Ontario Operations Tentative Labour Agreement
On May 29, 2006, Inco reached a tentative agreement with
the United Steelworkers union, which represents employees at its
mining and processing operations in Sudbury, Ontario and Port
Colborne, Ontario. Details of the proposed new three-year
agreement will not be made public until the union has had the
opportunity to present the tentative agreement to its
membership. Voting to approve the contract has been scheduled
for May 31, 2006.
OTHER INFORMATION
Except as disclosed in this Directors Circular, no
information is known to the directors of Inco that would
reasonably be expected to affect the decision of the holders of
Inco Shares to accept or reject the Teck Offer.
OTHER MATTERS
The principal office of Inco is located at 145 King Street
West, Suite 1500, Toronto, Ontario, M5H 4B7 and the
telephone number at such office is (416) 361-7511. The
principal office of Teck is located at 600 200
Burrard Street, Vancouver, British Columbia, V6C 3L9.
Inco is a reporting issuer or equivalent in all provinces of
Canada and in the United States. Inco makes regulatory filings
with the Canadian provincial securities authorities, which
documents are available under the Companys profile at
www.sedar.com, and with the SEC, which documents are available
at www.sec.gov.
This document will be filed with the SEC as an exhibit to
Incos Solicitation/ Recommendation Statement on
Schedule 14D-9.
Inco Shareholders are advised to read this Directors
Circular and the Solicitation/ Recommendation Statement on
Schedule 14D-9
(including the other exhibits thereto) in their entirety because
they contain important information. Copies of the Solicitation/
Recommendation Statement on
Schedule 14D-9
are, and any other documents filed by Inco in connection with
the Teck Offer will be, available free of charge at the
SECs website at www.sec.gov, from Inco at www.inco.com or
from Georgeson Shareholder.
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37
PERSONS OR ASSETS EMPLOYED, COMPENSATED OR USED
Each of Morgan Stanley, RBC Capital Markets and Goldman Sachs
was retained to render financial advisory services to the Board
in connection with the analysis and consideration of, and
response to, the Teck Offer and the Falconbridge Transaction.
The Company will pay each of the Financial Advisors reasonable
and customary compensation for their services and will reimburse
each of them for their reasonable out-of-pocket expenses. The
Company has agreed to indemnify each of the Financial Advisors
against certain liabilities arising out of or in connection with
their engagement.
The Company has retained Georgeson Shareholder to assist it in
connection with the Companys communications with Inco
Shareholders with respect to the Teck Offer. Georgeson
Shareholder will receive reasonable and customary compensation
for its services and reimbursement for its reasonable
out-of-pocket expenses. The Company has agreed to indemnify
Georgeson Shareholder against certain liabilities arising out of
or in connection with the engagement.
The Company has also retained Kekst and Company and Lute &
Company as its public relations advisors (the Public
Relations Advisors) in connection with the Teck Offer and
certain related matters. The Company will pay each of its Public
Relations Advisors reasonable and customary compensation for
their services and will reimburse each of them for their
reasonable out-of-pocket expenses. The Company has agreed to
indemnify each of its Public Relations Advisors against certain
liabilities arising out of or in connection with the engagement.
Except as set forth above, neither Inco nor any person acting on
its behalf has employed, retained or agreed to compensate any
person making solicitations or recommendations to Inco
Shareholders in connection with the Teck Offer.
STATUTORY RIGHTS
Securities legislation in certain of the provinces and
territories of Canada provides security holders of the Company
with, in addition to any other rights they may have at law,
rights of rescission or to damages, or both, if there is a
misrepresentation in a circular or notice that is required to be
delivered to such security holders. However, such rights must be
exercised within prescribed time limits. Security holders should
refer to the applicable provisions of the securities legislation
of their province or territory for particulars of those rights
or consult with a lawyer.
DIRECTORS APPROVAL
The contents of this Directors Circular have been approved
and the delivery thereof has been authorized by the Board.
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38
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
We hereby consent to the reference to our opinion, dated
May 29, 2006, in the cover letter to the circular of the
Board of Directors of Inco Limited, dated May 29, 2006 (the
Circular), and under the captions Questions
and Answers about the Inadequate Offer from Teck Cominco
Limited, Summary, Analysis and Reasons
for the Boards Conclusion and Recommendation,
Background to the Teck Offer and Response of Inco
and Opinions of the Financial Advisors and to the
inclusion of the foregoing opinion in the Circular.
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New York, New York
May 29, 2006 |
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Morgan Stanley & Co.
Incorporated
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(signed) William J. Dotson,
Jr. Managing Director |
39
CONSENT OF RBC CAPITAL MARKETS
We hereby consent to the reference to our opinion, dated
May 29, 2006, in the cover letter to the circular of the
Board of Directors of Inco Limited, dated May 29, 2006 (the
Circular), and under the captions Questions
and Answers about the Inadequate Offer from Teck Cominco
Limited, Summary, Analysis and Reasons
for the Boards Conclusion and Recommendation,
Background to the Teck Offer and Response of Inco
and Opinions of the Financial Advisors and to the
inclusion of the foregoing opinion in the Circular.
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Toronto, Ontario |
RBC Dominion Securities Inc. |
May 29, 2006
40
CONSENT OF GOLDMAN, SACHS & CO.
PERSONAL AND CONFIDENTIAL
May 29, 2006
Board of Directors
Inco Limited
145 King Street West
Suite 1500
Toronto, Ontario M5H 4B7
Re: Directors Circular, dated May 29,
2006, and related Schedule 14D-9 of Inco Limited
Ladies and Gentlemen:
Reference is made to our opinion letter, dated May 29,
2006, with respect to whether the Consideration (as defined in
the opinion letter) proposed to be paid pursuant to the offer
made by Teck Cominco Limited to purchase all of the outstanding
common shares (the Company Shares) of Inco Limited
(the Company) is inadequate from a financial point
of view to the holders of Company Shares.
The foregoing opinion letter is provided for the information and
assistance of the Board of Directors of the Company in
connection with its consideration of the transaction
contemplated therein and is not to be used, circulated, quoted
or otherwise referred to for any other purpose, nor is it to be
filed with, included in or referred to in whole or in part in
any registration statement, proxy statement, directors
circular or any other document, except in accordance with our
prior written consent. We understand that the Company has
determined to include our opinion in the above-referenced
Directors Circular and Schedule 14D-9.
In that regard, we hereby consent to the reference to our
opinion in the cover letter to the above-referenced
Directors Circular and under the captions Questions
and Answers about the Inadequate Offer from Teck Cominco
Limited, Summary, Analysis and Reasons
for the Boards Conclusion and Recommendation,
Background to the Teck Offer and Response of Inco
and Opinions of the Financial Advisors and to the
inclusion of the foregoing opinion in the above-referenced
Directors Circular and to the inclusion of the foregoing
opinion in the above-mentioned Schedule 14D-9.
Very truly yours,
Goldman, Sachs & Co.
41
CERTIFICATE
DATED: May 29, 2006
The foregoing contains no untrue statement of a material fact
and does not omit to state a material fact that is required to
be stated or that is necessary to make a statement not
misleading in the light of the circumstances in which it was
made. The foregoing does not contain any misrepresentation
likely to affect the value of the market price of the securities
subject to the Teck Offer within the meaning of the
Securities Act (Québec).
On behalf of the Board of Directors
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(Signed) Chaviva M. Hosek
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(Signed) Janice K. Henry
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Director |
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Director |
42
SCHEDULE A GLOSSARY
Unless the context otherwise requires or where otherwise
provided, the following words and terms shall have the meanings
set forth below when used in this Directors Circular:
Amending Agreement means the amending
agreement entered into by Inco and Falconbridge on May 13,
2006, to amend the Falconbridge Support Agreement;
Board means the board of directors of Inco;
Cash Alternative has the meaning set forth in
the Teck Circular;
CESL Process has the meaning set forth under
Analysis and Reasons for the Boards Conclusion and
Recommendation The proposed Teck-Inco combination
lacks industrial logic and offers few synergies;
China means the Peoples Republic of
China;
Current Premium has the meaning set forth
under Analysis and Reasons for the Boards Conclusion
and Recommendation The Teck Offer does not reflect
an adequate premium for control of Inco;
Executive Employment Agreement has the
meaning set forth under Agreements between Inco and its
Directors and Senior Officers Executive Employment
Agreements;
Falconbridge means Falconbridge Limited;
Falconbridge Support Agreement means the
support agreement entered into by Inco and Falconbridge on
October 10, 2005, as subsequently amended on
January 12, 2006, February 20, 2006, March 21,
2006 and May 13, 2006;
Falconbridge Transaction means the proposed
acquisition by Inco of all of the issued and outstanding common
shares of Falconbridge by way of a take-over bid made pursuant
to the Falconbridge Support Agreement;
Falconbridge Transaction Circular means the
take-over bid circular in respect of the Falconbridge
Transaction dated October 24, 2005, as amended or
supplemented by the Notice of Extension dated December 14,
2005, Notice of Extension dated January 19, 2006, Notice of
Extension dated February 27, 2006 and Notice of Variation
dated May 29, 2006;
Financial Advisors means Morgan Stanley, RBC
Capital Markets and Goldman Sachs;
Georgeson Shareholder means Georgeson
Shareholder Communications Inc.;
Goldman Sachs means Goldman, Sachs & Co.;
Good Cause Resignation has the meaning set
forth under Arrangements Between Inco and Its Directors
and Officers Executive Employment Agreements;
Implied Offer Price of the Teck Offer as of a
particular date, means the amount that is equal to
(i) Cdn.$28.00 plus (ii) 0.6293 multiplied by the
closing price of the Teck Class B Subordinate Voting Shares
as at that date on the TSX;
Inco or the Company means
Inco Limited, a corporation incorporated under the laws of
Canada and, where the context requires, its consolidated
subsidiaries, incorporated units and divisions and joint
ventures;
Inco Process has the meaning set forth under
Analysis and Reasons for the Boards Conclusion and
Recommendation The proposed Teck-Inco combination
lacks industrial logic and offers few synergies;
Inco Shareholders means the shareholders of
Inco and Inco Shareholder means any one of
them;
Inco Shares means the common shares of Inco;
KEIPs has the meaning set forth under
Arrangements Between Inco and its Directors and Senior
Officers-Executive Employment Agreements;
LME means the London Metal Exchange;
Morgan Stanley means Morgan Stanley & Co.
Incorporated;
New Inco means the corporation that will
result from the successful completion of the Falconbridge
Transaction;
Noranda means Noranda Inc., a predecessor
corporation of Falconbridge that existed prior to the
amalgamation of Noranda and Falconbridge Limited to form
Falconbridge effective June 30, 2005;
A-1
NYSE means the New York Stock Exchange Inc.;
Officer has the meaning set forth under
Agreements between Inco and its Directors and Senior
Officers Executive Employment Agreements;
Original Teck Premium has the meaning set
forth under Analysis and Reasons for the Boards
Conclusion and Recommendation The Teck Offer
does not reflect an adequate premium for control of Inco;
Other Officers has the meaning set forth
under Arrangements Between Inco and its Directors and
Officers Executive Employment Agreements;
Public Relations Advisors means,
collectively, Kekst and Company and Lute & Company;
RBC Capital Markets means RBC Dominion
Securities Inc.;
Rights Agent means CIBC Mellon
Trust Company;
Rights Plan means the Shareholder Rights Plan
Agreement dated as of September 14, 1998, as amended and
restated as of April 20, 2005, between Inco and CIBC Mellon
Trust Company;
SEC means the United States Securities and
Exchange Commission;
senior officer has the meaning assigned to it
in the Securities Act (Ontario);
Teck means Teck Cominco Limited, a
corporation continued under the laws of Canada;
Teck Circular means the take-over bid
circular accompanying the Teck Offer;
Teck Class A Multiple Voting Shares
means the Class A common shares of Teck;
Teck Class B Subordinate Voting Shares
means the Class B subordinate voting shares of Teck;
Teck Offer means the offer made by Teck dated
May 23, 2006 to purchase all of the outstanding Inco Shares;
TSX means the Toronto Stock Exchange;
Xstrata means Xstrata plc, a corporation
incorporated under the laws of England and Wales;
Xstrata Circular means the take-over bid
circular accompanying the Xstrata Offer; and
Xstrata Offer means the offer made by Xstrata
dated May 18, 2006 to purchase all of the outstanding
common shares of Falconbridge.
A-2
SCHEDULE B IMPORTANT INFORMATION REGARDING
INCOS ORE RESERVES AND MINERAL RESOURCES
CAUTIONARY NOTE TO U.S. AND OTHER INVESTORS CONCERNING
ESTIMATES OF MEASURED, INDICATED AND INFERRED MINERAL
RESOURCES
Cautionary note to U.S. and other investors
This document uses the terms measured,
indicated and inferred mineral
resources. We advise U.S. and other investors that
while these terms are recognized and required by Canadian
regulations, the SEC does not recognize them. U.S. and
other investors are cautioned not to assume that any part or all
of the measured, indicated or inferred mineral resources will
ever be converted into ore reserves. Inferred mineral
resources have a great amount of uncertainty as to their
existence, and great uncertainty as to their economic and legal
feasibility. It cannot be assumed that all or any part of an
inferred mineral resource will ever be upgraded to a higher
category. Under Canadian rules, estimates of inferred mineral
resources may not form the basis of feasibility or other
economic studies, except in special cases.
U.S. investors are cautioned not to assume that part or
all of an inferred mineral resource exists or is economically or
legally mineable. While the SEC permits registered
U.S. mining companies, in their filings with the SEC, to
disclose only those mineral deposits that a company can
economically and legally extract or produce at the time of the
reserve determination, it does permit Canadian companies such as
Inco to disclose information about their mineral resources in
their filings with the SEC in accordance with Canadian
regulatory requirements.
As required by National Instrument 43-101 Standards of
Disclosure for Mineral Projects of the Canadian Securities
Administrators (NI 43-101), estimates of measured,
indicated and inferred mineral resources conform to the Canadian
Institute of Mining, Metallurgy and Petroleum (CIM)
definitions of those terms as at the date of estimation.
Mineral resources that are not mineral reserves do not have
demonstrated economic viability. Investors are cautioned not to
assume that any part or all of mineral deposits in these
categories of mineral resources will ever be upgraded to a
higher category of mineral resources or converted into mineral
reserves. Inferred mineral resources have a great
amount of uncertainty as to their existence, and great
uncertainty as to their economic and legal feasibility. Under NI
43-101, issuers must not make any disclosure of results of an
economic evaluation that includes inferred mineral resources,
except in rare cases. Investors are cautioned not to assume that
part or all of an inferred mineral resource exists, or is
economically or legally mineable.
ORE RESERVES/ MINERAL RESERVES
Inco estimates its ore reserves in accordance with applicable
rules and regulations of the SEC, including the definitions
thereunder, including proven ore reserves and
probable ore reserves.
In accordance with NI 43-101, Inco also estimates its mineral
reserves in compliance with the CIM definitions, including
mineral reserve, proven mineral reserve
and probable mineral reserve. If Incos ore
reserve estimates as of December 31, 2005 were prepared in
accordance with the CIM definitions for mineral
reserve, probable mineral reserve and
proven mineral reserve, there would be no
substantive difference in such estimates from the total
estimates for proven and probable ore reserves referred to in
this Directors Circular.
Definitions of all of these terms are included in Incos
Annual Report on
Form 10-K for the
year ended December 31, 2005.
ASSUMPTIONS, PARAMETERS AND METHODS
Incos ore reserve and mineral resource estimates contained
in this Directors Circular are all as at December 31,
2005. These estimates, as well as details relating to key
assumptions, parameters, and methods used to estimate
Incos ore reserves and mineral resources, as well as a
general discussion of relevant factors, are included in
Incos Annual Report to Inco Shareholders and Annual Report
on Form 10-K for the
year ended December 31, 2005. Please refer to the notes
associated with the estimates contained in these documents for
important related information. These documents may be found on
Incos website at www.inco.com or on SEDAR at www.sedar.com
or on the SECs website at www.sec.gov.
QUALIFIED PERSONS
In accordance with applicable Canadian securities regulatory
requirements, including
NI 43-101,
Mr. S. Nicholas Sheard,
Vice-President of
Exploration, Dr. Olivier Tavchandjian, Principal Geologist,
Mineral Reserves and Mineral
B-1
Resources, and Dr. Lawrence B. Cochrane, Director of
Mines Exploration, each as a qualified person within the meaning
of such National Instrument, indirectly supervised the
preparation of the ore reserves and mineral resource estimates
as of December 31, 2005 and each has, in accordance with
the requirements of
NI 43-101,
conducted either directly by himself or indirectly through
employees of Inco reporting directly or indirectly to him, a
comprehensive review and confirmation of the application of the
detailed procedures, systems and processes the Company has
developed and implemented for the purpose of verifying such
data. Each of Mr. Sheard, Dr. Tavchandjian and
Dr. Cochrane, as well as the responsible persons described
in the notes of the Incos 2005 Annual Report to Inco
Shareholders and in the notes Incos Annual Report on
Form 10-K for year
ended December 31, 2005 also periodically check the
adequacy of such procedures, systems and processes which are
intended to provide sufficient verification of such data based
upon recognized sampling, analytical testing, modelling and
other procedures in the mining industry.
INCOS ESTIMATED ORE RESERVES AND MINERAL RESOURCES
The following are Incos estimates of ore reserves and
mineral resources as of December 31, 2005, which are
reproduced from Incos Annual Report on
Form 10-K for the
year ended December 31, 2005. Please see the Annual Report
on Form 10-K for
detailed notes and other information regarding these estimates.
Total Estimated Ore Reserves as of December 31, 2005
(in millions of tonnes (Mt) except as
indicated)(a)(b)(f)
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tonne) | |
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tonne) | |
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tonne) | |
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ONTARIO
OPERATIONS(c)
(100% owned)
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Operating Mines
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Proven |
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69 |
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1.22 |
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1.32 |
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0.04 |
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0.6 |
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0.7 |
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0.2 |
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Probable |
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42 |
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1.30 |
|
|
|
1.71 |
|
|
|
0.03 |
|
|
|
1.1 |
|
|
|
1.1 |
|
|
|
0.4 |
|
|
|
|
Total/Average |
|
|
|
111 |
|
|
|
1.25 |
|
|
|
1.47 |
|
|
|
0.04 |
|
|
|
0.8 |
|
|
|
0.8 |
|
|
|
0.3 |
|
Non-Operating Mines
|
|
|
Proven |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Probable |
|
|
|
48 |
|
|
|
1.13 |
|
|
|
0.98 |
|
|
|
0.04 |
|
|
|
0.7 |
|
|
|
0.8 |
|
|
|
0.3 |
|
|
|
|
Total/Average |
|
|
|
48 |
|
|
|
1.12 |
|
|
|
0.98 |
|
|
|
0.04 |
|
|
|
0.7 |
|
|
|
0.8 |
|
|
|
0.3 |
|
Undeveloped Properties
|
|
|
Proven |
|
|
|
1 |
|
|
|
1.09 |
|
|
|
0.50 |
|
|
|
0.03 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
Probable |
|
|
|
3 |
|
|
|
1.41 |
|
|
|
0.97 |
|
|
|
0.05 |
|
|
|
0.5 |
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
|
Total/Average |
|
|
|
4 |
|
|
|
1.38 |
|
|
|
0.93 |
|
|
|
0.05 |
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
0.1 |
|
Total
|
|
|
Proven |
|
|
|
69 |
|
|
|
1.22 |
|
|
|
1.32 |
|
|
|
0.04 |
|
|
|
0.6 |
|
|
|
0.7 |
|
|
|
0.2 |
|
|
|
|
Probable |
|
|
|
94 |
|
|
|
1.22 |
|
|
|
1.31 |
|
|
|
0.04 |
|
|
|
0.9 |
|
|
|
0.9 |
|
|
|
0.3 |
|
|
|
|
Total/Average |
|
|
|
163 |
|
|
|
1.22 |
|
|
|
1.31 |
|
|
|
0.04 |
|
|
|
0.8 |
|
|
|
0.8 |
|
|
|
0.3 |
|
MANITOBA
OPERATIONS(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100% owned)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Mines
|
|
|
Proven |
|
|
|
14 |
|
|
|
1.94 |
|
|
|
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Probable |
|
|
|
11 |
|
|
|
1.86 |
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Average |
|
|
|
25 |
|
|
|
1.90 |
|
|
|
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PT INCO(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61% owned)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining Areas
|
|
|
Proven |
|
|
|
59 |
|
|
|
1.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Probable |
|
|
|
88 |
|
|
|
1.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Average |
|
|
|
147 |
|
|
|
1.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VOISEYS BAY
PROJECT(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100% owned)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Mine
|
|
|
Proven |
|
|
|
29 |
|
|
|
2.99 |
|
|
|
1.73 |
|
|
|
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Probable |
|
|
|
3 |
|
|
|
0.64 |
|
|
|
0.37 |
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Average |
|
|
|
32 |
|
|
|
2.75 |
|
|
|
1.59 |
|
|
|
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
B-2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Platinum | |
|
Palladium | |
|
Gold | |
|
|
|
|
Quantity | |
|
Nickel | |
|
Copper | |
|
Cobalt | |
|
(grams/ | |
|
(grams/ | |
|
(grams/ | |
|
|
Class | |
|
(Mt) | |
|
(per cent) | |
|
(per cent) | |
|
(per cent) | |
|
tonne) | |
|
tonne) | |
|
tonne) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
GORO
PROJECT(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(72% owned)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development Property
|
|
|
Proven |
|
|
|
96 |
|
|
|
1.34 |
|
|
|
|
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Probable |
|
|
|
24 |
|
|
|
2.01 |
|
|
|
|
|
|
|
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Average |
|
|
|
120 |
|
|
|
1.48 |
|
|
|
|
|
|
|
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES:
|
|
(a) |
The ore reserves at each operation or project represent 100% of
the ore reserves at such operation or project. Incos share
(determined by equity interest) of such ore reserves is set out
in brackets by operation or project. |
|
(b) |
The estimates shown in the above tables may reflect rounding
differences and accordingly, may not be consistent with certain
of the subtotals or total numbers shown. |
|
(c) |
The ore reserve estimates for the Ontario and Manitoba
operations and the Voiseys Bay project are of
in-place material after
adjustments for mining dilution and mining recovery. No
adjustments have been made to these estimates for metal losses
due to processing (beneficiation, smelting and refining at the
Ontario and Manitoba operations and beneficiation at the
Voiseys Bay project). |
|
(d) |
The ore reserve estimates for PT Inco Sorowako Mine
represent Dry Kiln Product and include factors for dilution and
ore losses due to mining and screening recovery during ore
preparation. The estimated ore reserves do not include nickel
losses due to smelting. For the PT Inco Pomalaa Mine, where
the ore is sold under a Cooperative Resource Agreement with
PT Aneka Tambang Tbk, the estimated ore reserves are
adjusted for dilution and ore losses due to mining only. |
|
(e) |
For the Goro project, the ore reserve estimates include factors
for dilution due to mining and for ore losses due to mining
recovery and screening recovery during feed preparation. The ore
reserve is estimated using a screened fraction recovered of
minus 50 millimetres. The ore reserve estimates do not
include the nickel or cobalt losses due to processing.
Incos ownership interest in the Goro Project is 72% as at
March 31, 2006. |
|
(f) |
The ore reserve classification is dependent on drill spacing,
mining method and mining selectivity. |
Total Estimated Measured and Indicated Mineral Resources as
of December 31, 2005
(in millions of tonnes (Mt) except as
indicated)(a)(b)(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantity | |
|
Nickel | |
|
Copper | |
|
Cobalt | |
|
Platinum | |
|
Palladium | |
|
Gold | |
|
|
Class | |
|
(Mt) | |
|
(per cent) | |
|
(per cent) | |
|
(per cent) | |
|
(grams/tonne) | |
|
(grams/tonne) | |
|
(grams/tonne) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
ONTARIO OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100% owned)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Mines
|
|
|
Measured |
|
|
|
11 |
|
|
|
1.20 |
|
|
|
1.09 |
|
|
|
0.05 |
|
|
|
0.6 |
|
|
|
0.7 |
|
|
|
0.3 |
|
|
|
|
Indicated |
|
|
|
18 |
|
|
|
1.42 |
|
|
|
1.63 |
|
|
|
0.05 |
|
|
|
0.9 |
|
|
|
1.1 |
|
|
|
0.4 |
|
|
|
|
Total/Average |
|
|
|
29 |
|
|
|
1.34 |
|
|
|
1.43 |
|
|
|
0.05 |
|
|
|
0.8 |
|
|
|
1.0 |
|
|
|
0.3 |
|
Non-Operating Mines
|
|
|
Measured |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indicated |
|
|
|
13 |
|
|
|
1.45 |
|
|
|
0.54 |
|
|
|
0.05 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
Total/Average |
|
|
|
13 |
|
|
|
1.45 |
|
|
|
0.54 |
|
|
|
0.05 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
|
Undeveloped Properties
|
|
|
Measured |
|
|
|
0.4 |
|
|
|
1.03 |
|
|
|
0.35 |
|
|
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indicated |
|
|
|
4.3 |
|
|
|
1.16 |
|
|
|
0.89 |
|
|
|
0.05 |
|
|
|
0.6 |
|
|
|
1.2 |
|
|
|
0.2 |
|
|
|
|
Total/Average |
|
|
|
5 |
|
|
|
1.15 |
|
|
|
0.85 |
|
|
|
0.05 |
|
|
|
0.5 |
|
|
|
1.1 |
|
|
|
0.2 |
|
Total
|
|
|
Measured |
|
|
|
11 |
|
|
|
1.19 |
|
|
|
1.07 |
|
|
|
0.05 |
|
|
|
0.7 |
|
|
|
0.7 |
|
|
|
0.2 |
|
|
|
|
Indicated |
|
|
|
36 |
|
|
|
1.40 |
|
|
|
1.14 |
|
|
|
0.05 |
|
|
|
0.6 |
|
|
|
0.8 |
|
|
|
0.2 |
|
|
|
|
Total/Average |
|
|
|
47 |
|
|
|
1.36 |
|
|
|
1.12 |
|
|
|
0.05 |
|
|
|
0.6 |
|
|
|
0.8 |
|
|
|
0.2 |
|
MANITOBA OPERATIONS |
(100% owned)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Mines
|
|
|
Measured |
|
|
|
1 |
|
|
|
1.94 |
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indicated |
|
|
|
3 |
|
|
|
2.56 |
|
|
|
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Average |
|
|
|
4 |
|
|
|
2.41 |
|
|
|
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating Mines
|
|
|
Measured |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indicated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Measured |
|
|
|
1 |
|
|
|
1.94 |
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indicated |
|
|
|
3 |
|
|
|
2.56 |
|
|
|
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Average |
|
|
|
4 |
|
|
|
2.41 |
|
|
|
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantity | |
|
Nickel | |
|
Copper | |
|
Cobalt | |
|
Platinum | |
|
Palladium | |
|
Gold | |
|
|
Class | |
|
(Mt) | |
|
(per cent) | |
|
(per cent) | |
|
(per cent) | |
|
(grams/tonne) | |
|
(grams/tonne) | |
|
(grams/tonne) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
PT INCO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61% owned)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining Areas
|
|
|
Measured |
|
|
|
0.4 |
|
|
|
1.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indicated |
|
|
|
0.5 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Average |
|
|
|
1 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Properties
|
|
|
Measured |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indicated |
|
|
|
27 |
|
|
|
1.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Average |
|
|
|
27 |
|
|
|
1.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Measured |
|
|
|
0.4 |
|
|
|
1.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indicated |
|
|
|
28 |
|
|
|
1.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Average |
|
|
|
28 |
|
|
|
1.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VOISEYS BAY PROJECT |
(100% owned)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Properties
|
|
|
Measured |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indicated |
|
|
|
40 |
|
|
|
1.89 |
|
|
|
0.9 |
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Average |
|
|
|
40 |
|
|
|
1.89 |
|
|
|
0.9 |
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
GORO
PROJECT(d) |
(72% owned)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development Property
|
|
|
Measured |
|
|
|
39 |
|
|
|
1.31 |
|
|
|
|
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indicated |
|
|
|
36 |
|
|
|
1.68 |
|
|
|
|
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Average |
|
|
|
75 |
|
|
|
1.49 |
|
|
|
|
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Measured and indicated mineral resource estimates as reported
are in addition to the estimated ore reserves and do not include
diluting material and allowances for losses that may occur when
the material is mined. |
|
(b) |
The estimated measured and indicated mineral resources at each
operation or project represent 100% of the measured and
indicated mineral resources at such operation or project.
Incos share (determined by equity interest) of such
measured and indicated mineral resources is set out in brackets
by operation or project. |
|
(c) |
The estimates shown in the above tables may reflect rounding
differences and accordingly, may not be consistent with certain
of the subtotals or total numbers shown. |
|
(d) |
Incos ownership interest in the Goro Project is 72% as at
March 31, 2006. |
Total Estimated Inferred Mineral Resources as of
December 31, 2005
(in millions of tonnes (Mt) except as
indicated)(a)(b)(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantity | |
|
Nickel | |
|
Copper | |
|
Cobalt | |
|
Platinum | |
|
Palladium | |
|
Gold | |
|
|
Class | |
|
(Mt) | |
|
(per cent) | |
|
(per cent) | |
|
(per cent) | |
|
(grams/tonne) | |
|
(grams/tonne) | |
|
(grams/tonne) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
ONTARIO OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100% owned)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Mines
|
|
|
Inferred |
|
|
|
23 |
|
|
|
1.9 |
|
|
|
1.8 |
|
|
|
0.04 |
|
|
|
1.2 |
|
|
|
1.4 |
|
|
|
0.5 |
|
Non-Operating Mines
|
|
|
Inferred |
|
|
|
13 |
|
|
|
1.6 |
|
|
|
3.2 |
|
|
|
0.03 |
|
|
|
1.5 |
|
|
|
1.5 |
|
|
|
0.5 |
|
Undeveloped Properties
|
|
|
Inferred |
|
|
|
12 |
|
|
|
1.6 |
|
|
|
0.9 |
|
|
|
0.02 |
|
|
|
0.5 |
|
|
|
0.7 |
|
|
|
0.1 |
|
Total
|
|
|
Inferred |
|
|
|
48 |
|
|
|
1.8 |
|
|
|
1.9 |
|
|
|
0.03 |
|
|
|
1.1 |
|
|
|
1.2 |
|
|
|
0.4 |
|
MANITOBA OPERATIONS |
(100% owned)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Mines
|
|
|
Inferred |
|
|
|
6 |
|
|
|
1.8 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating Mines
|
|
|
Inferred |
|
|
|
24 |
|
|
|
0.8 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Inferred |
|
|
|
30 |
|
|
|
1.0 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PT INCO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61% owned)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining Areas
|
|
|
Inferred |
|
|
|
2 |
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Properties
|
|
|
Inferred |
|
|
|
319 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Inferred |
|
|
|
322 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantity | |
|
Nickel | |
|
Copper | |
|
Cobalt | |
|
Platinum | |
|
Palladium | |
|
Gold | |
|
|
Class | |
|
(Mt) | |
|
(per cent) | |
|
(per cent) | |
|
(per cent) | |
|
(grams/tonne) | |
|
(grams/tonne) | |
|
(grams/tonne) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
VOISEYS BAY PROJECT |
(100% owned)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Properties
|
|
|
Inferred |
|
|
|
6 |
|
|
|
2.3 |
|
|
|
1.0 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
GORO
PROJECT(c) |
(72% owned)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development Property
|
|
|
Inferred |
|
|
|
128 |
|
|
|
1.7 |
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Inferred mineral resource estimates as reported are in addition
to the estimated ore reserves and do not include diluting
material and allowances for losses that may occur when the
material is mined. |
|
(b) |
The estimated inferred mineral resources at each operation or
project represent 100% of the inferred mineral resources at such
operation or project. Incos share (determined by equity
interest) of such inferred mineral resources is set out in
brackets by operation or project. |
|
(c) |
Incos ownership interest in the Goro Project is 72% as at
March 31, 2006. |
B-5
SCHEDULE C OPINION OF MORGAN STANLEY & CO.
INCORPORATED
May 29, 2006
Board of Directors
Inco Limited
145 King Street West, Suite 1500
Toronto, Ontario M5H 4B7
Members of the Board of Directors:
We understand that on May 23, 2006, Teck Cominco Limited
(Teck) filed with securities regulators in the
United States and Canada documents relating to its offer to
purchase (the Offer) all of the outstanding common
shares (the Company Shares) of Inco Limited (the
Company), other than those owned directly or
indirectly by Teck, at a price per Company Share of, at the
election of holders of the Company Shares (a) Cdn. $78.50
in cash or (b) 0.9776 of a Class B subordinate voting
share of Teck (each a Teck Subordinate Voting Share)
and Cdn. $0.05 in cash, in each case subject to pro ration as
described in the Offer Documents (as defined below), including a
maximum amount payable of Cdn. $6,366,482,332 in cash and an
aggregate maximum of 143,082,936 Teck Subordinate Voting Shares
(collectively, the Consideration), upon the terms
and subject to the conditions set forth in the in the Offer to
Purchase contained in the Circular filed by Teck on May 23,
2006, and the related Letter of Transmittal (together, the
Offer Documents). The Offer Documents further
provide that if the Offer is completed, Teck intends to effect
an amalgamation, statutory arrangement, amendment to articles,
consolidation, capital reorganization or other transaction (a
Subsequent Acquisition Transaction, and together
with the Offer, the Transaction) to enable Teck or
an affiliate of Teck to acquire the remaining Company Shares.
The terms and conditions of the Transaction are more fully set
forth in the Offer Documents.
We also understand that the Company and Falconbridge Limited
(Falconbridge) have entered into a Support
Agreement, dated October 10, 2005, as amended by the
Amending Agreement, dated January 12, 2006, the Second
Amending Agreement, dated February 20, 2006, the Third
Amending Agreement, dated March 21, 2006, and the Fourth
Amending Agreement, dated May 13, 2006 (as so amended, the
Falconbridge Support Agreement), which provides,
among other things, for (i) the Company, or a directly or
indirectly wholly owned subsidiary of the Company, to make,
either alone or jointly, an offer (the Amended
Falconbridge Offer) to purchase all outstanding common
shares of Falconbridge (the Falconbridge Shares),
other than those owned directly or indirectly by the Company, at
a price per share of (a) Cdn. $51.17 in cash or
(b) 0.6927 of a Company Share and Cdn. $0.05 in cash, at
the election of the holder of the Falconbridge Shares, but
subject to an aggregate maximum of Cdn. $4,786,678,875 in cash
and an aggregate maximum of 200,657,578 Company Shares, and
(ii) subsequent to the Amended Falconbridge Offer, an
amalgamation, statutory arrangement, amendment to articles,
consolidation, capital reorganization or other transaction
involving Falconbridge and the Company or an affiliate of the
Company that the Company may, in its sole discretion, undertake
to pursue (a Subsequent Falconbridge Acquisition
Transaction, and together with the Amended Falconbridge
Offer, the Falconbridge Transaction) to acquire the
remaining Falconbridge Shares.
You have asked for our opinion as to whether the Consideration
to be received by the holders of the Company Shares pursuant to
the Offer is adequate from a financial point of view to such
holders.
For purposes of the opinion set forth herein, we have:
|
|
|
|
i) |
reviewed certain publicly available financial statements and
other business and financial information, including certain
research analyst reports and estimates, of the Company and Teck,
respectively; |
|
|
ii) |
reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared by
the management of the Company; |
C-1
|
|
|
|
iii) |
reviewed certain financial projections with respect to the
Company and Teck prepared by the management of the Company; |
|
|
iv) |
discussed the past and current operations and financial
condition and the prospects of the Company, including
information relating to certain strategic, financial and
operational plans, with senior executives of the Company; |
|
|
v) |
reviewed the reported prices and trading activity for the
Company Shares and the Teck Subordinate Voting Shares; |
|
|
vi) |
compared the financial performance of the Company and Teck and
the prices and trading activity of the Company Shares and the
Teck Subordinate Voting Shares with that of certain other
publicly traded companies comparable to the Company and Teck,
respectively, and their securities; |
|
|
vii) |
reviewed the financial terms, to the extent publicly available,
of certain precedent acquisition transactions; |
|
|
viii) |
reviewed the pro forma impact of the Transaction on Tecks
projected earnings per share, consolidated capitalization and
other financial ratios; |
|
|
ix) |
reviewed the Offer Documents and certain related documents, and
the draft of the Companys Directors Circular, dated
May 29, 2006; and |
|
|
x) |
performed such other analyses and considered such other factors
as we have deemed appropriate. |
In addition, we have reviewed certain information with respect
to the Falconbridge Transaction, including (a) the
Falconbridge Support Agreement and certain related documents,
(b) the Companys Offer to Purchase and the
Falconbridge Directors Circular, each dated
October 24, 2005, the related notices of extension, dated
December 14, 2005, January 27, 2006 and
February 27, 2006, and a draft of the notice of variation
dated May 29, 2006, (c) certain publicly available
financial and other information regarding Falconbridge,
(d) certain financial statements and financial projections
prepared by the managements of Falconbridge and the Company, and
(e) information relating to certain strategic, financial
and operational benefits of the Falconbridge Transaction
prepared by the managements of Falconbridge and the Company.
We have assumed and relied upon without independent verification
the accuracy and completeness of the information supplied or
otherwise made available to us by the Company for the purposes
of this opinion. With respect to the financial projections and
the information relating to certain strategic, financial and
operational plans of the Company, we have assumed that they have
been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial
performance of the Company. As you know, we have not been
provided with access to the management or internal financial
information or projections of future financial performance of
Teck, and instead have relied upon the assessments of the
management of the Company, certain research analyst estimates
for Teck and discussions with the management of the Company
regarding such estimates, and the information provided by the
Company with respect to such matters.
With respect to our review of information supplied or otherwise
made available to us by the managements of Falconbridge and the
Company relevant to our consideration of the Falconbridge
Transaction, we have assumed and relied upon without independent
verification the accuracy and completeness of such information.
With respect to the financial projections and the information
relating to certain strategic, financial and operational
benefits anticipated from the Falconbridge Transaction, we have
assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments
of the future financial performance of Falconbridge and the
Company.
We are not legal, tax or regulatory advisors and have relied
upon, without independent verification, the assessment of the
Company and its legal, tax or regulatory advisors with respect
to legal, tax or regulatory matters. We have not made any
independent valuation or appraisal of the assets or liabilities
of the Company, Teck or Falconbridge, nor have we been furnished
with any such appraisals. Executive management of the Company
has provided to us, in a certificate delivered as of the date
hereof, representations regarding, among other things, the
accuracy of the information, data and other material (financial
and otherwise) provided to us by or on behalf of the Company and
the absence of any changes thereto. Our opinion is necessarily
based on financial, economic, market and other conditions as in
effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof may affect
this opinion and the assumptions used in preparing it, and we do
not assume any obligation to update, revise or reaffirm this
opinion.
C-2
Our opinion does not address the relative merits of the Offer as
compared to the Falconbridge Transaction or any other
alternative business transaction, or other alternatives, or
whether or not such alternatives could be achieved. Although we
considered the Falconbridge Transaction as one of the many
factors in our analysis, our opinion does not address the
Falconbridge Transaction. Our opinion only addresses whether the
Consideration pursuant to the Offer is adequate from a financial
point of view to the holders of the Company Shares and does not
address any other matters.
We have acted as financial advisor to the Board of Directors of
the Company in connection with the Offer and will receive a fee
for our services. In the past, Morgan Stanley & Co.
Incorporated (Morgan Stanley) and its affiliates
have provided financial advisory and financing services to the
Company and have received fees for the rendering of these
services. In addition, we are currently providing financial
advisory and financing services to the Company for which we
expect to receive fees in connection with the Falconbridge
Transaction. In the ordinary course of our trading, brokerage,
investment management and financing activities, Morgan Stanley
or its affiliates may at any time hold long or short positions,
and may trade or otherwise effect transactions, for our own
account or the accounts of customers, in debt or equity
securities or senior loans of the Company, Teck or any other
company or any currency or commodity that may be involved in the
Offer.
It is understood that this letter is for the information of the
Board of Directors of the Company and may not be used for any
other purpose without our prior written consent, except that a
copy of our opinion may be included in its entirety in any
Directors Circular or Solicitation/ Recommendation
Statement on
Schedule 14D-9
required to be filed by the Company with the United States
Securities and Exchange Commission or with applicable Canadian
regulatory authorities with respect to the Offer. This opinion
is not intended to be and shall not constitute a recommendation
to any holder of the Company Shares as to whether to tender any
such Company Shares pursuant to the Offer or whether to elect
Teck Subordinate Voting Shares or cash. In addition, this
opinion does not in any manner address the prices at which the
Company Shares or the Teck Subordinate Voting Shares will
actually trade at any point in time.
Based on and subject to the foregoing, we are of the opinion on
the date hereof that the Consideration to be received by the
holders of the Company Shares pursuant to the Offer is
inadequate from a financial point of view to such holders.
|
|
|
Very truly yours, |
|
|
MORGAN STANLEY & CO. INCORPORATED |
|
|
(signed) Stephen R. Munger |
|
Managing Director |
C-3
SCHEDULE D OPINION OF RBC CAPITAL MARKETS
May 29, 2006
The Board of Directors
Inco Limited
145 King Street West
Suite 1500
Toronto, Ontario M5H 4B7
To the Board of Directors:
RBC Dominion Securities Inc. (RBC), a member company
of RBC Capital Markets, understands that Teck Cominco Limited
(Teck) has made an offer (the Teck
Offer) to purchase all of the outstanding common shares
(the Inco Shares) of Inco Limited (the
Company), other than any Inco Shares owned directly
or indirectly by Teck, for consideration consisting of, at the
election of each holder of Inco Shares (collectively, the
Inco Shareholders): (i) C$78.50 in cash per
Inco Share held or (ii) 0.9776 of a Class B
subordinate voting share of Teck (the Teck Class B
Shares) plus C$0.05 in cash for each Inco Share held,
subject in each case to pro ration based on an aggregate maximum
of C$6,366,482,332 in cash and an aggregate maximum of
143,082,936 Teck Class B Shares. The terms of the Teck
Offer are more fully described in a take-over bid circular dated
May 23, 2006 (the Teck Circular), which has
been mailed to Inco Shareholders.
On October 10, 2005, the Company and Falconbridge Limited
(Falconbridge) entered into a support agreement, as
subsequently amended on January 12, 2006 (the
Amending Agreement), February 20, 2006 (the
Second Amending Agreement), March 21, 2006 (the
Third Amending Agreement) and May 13, 2006 (the
Fourth Amending Agreement) (as so amended, the
Support Agreement), pursuant to which the Company
agreed to offer to purchase (the Original Falconbridge
Offer) all of the outstanding common shares of
Falconbridge (the Falconbridge Shares), other than
those owned directly or indirectly by the Company, on terms more
fully described in a take-over bid circular dated
October 24, 2005, which has been mailed to holders of
Falconbridge Shares. Pursuant to the Fourth Amending Agreement,
among other things, the Company agreed to increase the cash
consideration under the Original Falconbridge Offer. As a
result, holders of Falconbridge Shares will be entitled to elect
to receive either: (i) C$51.17 in cash per Falconbridge
Share held or (ii) 0.6927 of an Inco Share plus C$0.05 in
cash for each Falconbridge Share held, subject in each case to
pro ration based on an aggregate maximum of C$4,786,678,875 in
cash and an aggregate maximum of 200,657,578 Inco Shares. The
terms of the increased offer (the Amended Falconbridge
Offer) will be more fully described in a notice of
variation to be mailed to holders of Falconbridge Shares in
connection with the Amended Falconbridge Offer.
The board of directors of the Company (the Board)
has retained RBC to provide advice and assistance to the Board
in evaluating the Teck Offer, including the preparation and
delivery to the Board of RBCs opinion as to the fairness
of the consideration offered under the Teck Offer from a
financial point of view to Inco Shareholders other than Teck and
its affiliates (the Opinion). RBC has not prepared a
valuation of the Company, Falconbridge or Teck or any of their
respective securities or assets and the Opinion should not be
construed as such.
Engagement
RBC was formally engaged by the Board through an agreement
between the Company and RBC dated August 30, 2005 (the
Engagement Agreement). The terms of the Engagement
Agreement provide that RBC is to be paid a fee for its services
as financial advisor, including fees that are contingent on a
change of control of the Company or certain other events. In
addition, pursuant to the Engagement Agreement, RBC is to be
reimbursed for its reasonable
out-of-pocket expenses
and is to be indemnified by the Company in certain
circumstances. RBC consents to the inclusion of
D-1
the Opinion in its entirety and a summary thereof in the
directors circular to be mailed to the Inco Shareholders
in connection with the Teck Offer and to the filing thereof, as
necessary, by the Company with the securities commissions or
similar regulatory authorities in Canada and the United States.
Pursuant to an agreement entered into between the Company and
RBC dated October 9, 2005 in respect of a potential
transaction between the Company and Falconbridge: (i) on
October 10, 2005, RBC delivered to the Board, RBCs
opinion that the consideration to be paid under the Original
Falconbridge Offer was fair from a financial point of view to
the Company and (ii) on May 13, 2006, RBC delivered to
the Board, RBCs opinion that the consideration to be paid
under the Amended Falconbridge Offer was fair from a financial
point of view to the Company.
RBC acts as a trader and dealer, both as principal and agent, in
major financial markets and, as such, may have had and may in
the future have positions in the securities of the Company,
Falconbridge, Teck or any of their respective associates or
affiliates and, from time to time, may have executed or may
execute transactions on behalf of such companies or clients for
which it received or may receive compensation. As an investment
dealer, RBC conducts research on securities and may, in the
ordinary course of its business, provide research reports and
investment advice to its clients on investment matters,
including with respect to the Company, Falconbridge, Teck, the
Teck Offer, the Original Falconbridge Offer or the Amended
Falconbridge Offer.
Credentials of RBC Capital Markets
RBC is one of Canadas largest investment banking firms,
with operations in all facets of corporate and government
finance, corporate banking, mergers and acquisitions, equity and
fixed income sales and trading and investment research. RBC
Capital Markets also has significant operations in the United
States and internationally. The Opinion expressed herein
represents the opinion of RBC and the form and content herein
have been approved for release by a committee of its directors,
each of whom is experienced in merger, acquisition, divestiture
and fairness opinion matters.
Scope of Review
In connection with our Opinion, we have reviewed and relied upon
or carried out, among other things, the following:
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1. |
the Teck Circular; |
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2. |
the most recent draft, dated May 28, 2006, of the
directors circular of the Company recommending rejection
of the Teck Offer (the Draft Directors
Circular); |
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3. |
audited financial statements of the Company for each of the
three years ended December 31, 2003, 2004 and 2005; |
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4. |
the unaudited interim report on
Form 10-Q of the
Company for the three months ended March 31, 2006; |
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5. |
annual reports of the Company for each of the two years ended
December 31, 2004 and 2005; |
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6. |
the annual report on
Form 10-K of the
Company for each of the two years ended December 31, 2004
and 2005; |
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7. |
the Notices of Annual and Special Meetings of Shareholders and
Proxy Statements of the Company for each of the two years ended
December 31, 2004 and 2005; |
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8. |
historical segmented financial information of the Company for
each of the three years ended December 31, 2003, 2004 and
2005; |
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9. |
unaudited projected financial statements for the Company
prepared by management of the Company for the years ending
December 31, 2006 through December 31, 2023; |
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10. |
audited financial statements of Teck for each of the three years
ended December 31, 2003, 2004 and 2005; |
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11. |
the unaudited interim report of Teck for the three months ended
March 31, 2006; |
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12. |
annual reports of Teck for each of the two years ended
December 31, 2004 and 2005; |
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13. |
annual information forms of Teck for each of the two years ended
December 31, 2004 and 2005; |
D-2
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14. |
the Notices of Annual and Special (as the case may be) Meetings
of Shareholders and Management Proxy Circulars of Teck for each
of the two years ended December 31, 2004 and 2005; |
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15. |
unaudited projected financial information by operating asset and
exploration/ development project for Teck prepared by management
of the Company for life-of-mine/ life-of-operation; |
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16. |
the Support Agreement; |
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17. |
the Fourth Amending Agreement; |
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18. |
the Third Amending Agreement; |
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19. |
the Second Amending Agreement; |
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20. |
the Amending Agreement; |
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21. |
the most recent draft, dated May 28, 2006, of the notice of
variation relating to the Amended Falconbridge Offer; |
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22. |
the notice of change to the directors circular of
Falconbridge dated May 26, 2006 recommending acceptance of
the Amended Falconbridge Offer; |
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23. |
the notice of extension dated February 27, 2006 relating to
the Original Falconbridge Offer; |
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24. |
the notice of extension dated January 19, 2006 relating to
the Original Falconbridge Offer; |
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25. |
the notice of extension dated December 14, 2005 relating to
the Original Falconbridge Offer; |
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26. |
the take-over bid circular dated October 24, 2005 relating
to the Original Falconbridge Offer; |
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27. |
the directors circular of Falconbridge dated
October 24, 2005 recommending acceptance of the Original
Falconbridge Offer; |
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28. |
audited financial statements of Falconbridge for the year ended
December 31, 2005; |
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29. |
the unaudited interim report of Falconbridge for the three
months ended March 31, 2006; |
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30. |
the annual report of Falconbridge for the year ended
December 31, 2005; |
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31. |
the annual information form of Falconbridge for the year ended
December 31, 2005; |
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32. |
segmented financial information of Falconbridge for the year
ended December 31, 2005; |
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33. |
presentations prepared by management of Falconbridge dated
March/ April 2005, June 6, 2005, July 29, 2005 and
September 2005, respectively, regarding the operations and
financial performance of Falconbridge; |
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34. |
unaudited projected financial information by operating asset and
exploration/ development project for Falconbridge prepared by
management of Falconbridge for
life-of-mine/life-of-operation; |
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35. |
audited financial statements of each of Noranda Inc.
(Noranda) and the predecessor company to
Falconbridge Limited (Old Falconbridge),
respectively, for each of the three years ended
December 31, 2002, 2003 and 2004; |
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36. |
the unaudited interim reports of each of Noranda and Old
Falconbridge, respectively, for the three months ended
March 31, 2005; |
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37. |
annual reports of each of Noranda and Old Falconbridge,
respectively, for each of the two years ended December 31,
2003 and 2004; |
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38. |
the Notice of Annual Meeting of Shareholders and Management
Information Circulars of each of Noranda and Old Falconbridge,
respectively, for each of the two years ended December 31,
2003 and 2004; |
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39. |
annual information forms of each of Noranda and Old
Falconbridge, respectively, for each of the two years ended
December 31, 2003 and 2004; |
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40. |
historical segmented financial information of each of Noranda
and Old Falconbridge, respectively, for each of the three years
ended December 31, 2002, 2003 and 2004; |
D-3
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41. |
the terms, conditions and provisions of each of the debt and
preferred securities of each of Noranda and Old Falconbridge,
respectively; |
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42. |
the Noranda take-over bid circular dated March 24, 2005
describing the offer to purchase Old Falconbridge; |
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43. |
the directors circular of Old Falconbridge dated
March 24, 2005 recommending acceptance of the Noranda
take-over bid dated March 24, 2005; |
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44. |
the Notice of Special Meeting of Shareholders and arrangement
circular dated June 2, 2005 pertaining to the amalgamation
of Noranda and Old Falconbridge; |
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45. |
discussions with senior management of each of the Company and
Falconbridge; |
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46. |
discussions with the legal counsel of each of the Company and
Falconbridge; |
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47. |
public information relating to the business, operations,
financial performance and stock trading history of the Company,
Falconbridge, Teck and other selected public companies
considered by us to be relevant; |
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48. |
public information with respect to other transactions of a
comparable nature considered by us to be relevant; |
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49. |
public information regarding the global mining industry; |
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50. |
representations contained in a certificate addressed to us,
dated as of the date hereof, from senior officers of the Company
as to the completeness and accuracy of the information upon
which the Opinion is based; and |
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51. |
such other corporate, industry and financial market information,
investigations and analyses as RBC considered necessary or
appropriate in the circumstances. |
RBC has not, to the best of its knowledge, been denied access by
the Company to any information requested by RBC. As the auditors
of the Company declined to permit RBC to rely upon information
provided by them as a part of any due diligence review, RBC did
not meet with the auditors of the Company and has assumed the
accuracy and fair presentation of and relied upon the audited
consolidated financial statements of the Company and the reports
of the auditors thereon.
Assumptions and Limitations
With the Boards approval and as provided for in the
Engagement Agreement, RBC has relied upon the completeness,
accuracy and fair presentation of all of the financial and other
information, data, advice, opinions or representations obtained
by it from public sources, senior management of the Company and
their consultants and advisors (collectively, the
Information). The Opinion is conditional upon the
completeness, accuracy and fair presentation of such Information
in all material respects as determined by RBC. Subject to the
exercise of professional judgment and except as expressly
described herein, we have not attempted to verify independently
the completeness, accuracy or fair presentation of any of the
Information.
Senior officers of the Company have represented to RBC in a
certificate delivered as of the date hereof, among other things,
that (i) the Information (as defined above) provided orally
by, or in the presence of, an officer or employee of the Company
or in writing by the Company or any of its subsidiaries (as such
term is defined in the Securities Act (Ontario)) or their
respective agents to RBC for the purpose of preparing the
Opinion was, at the date the Information was provided to RBC,
and is at the date hereof complete, true and correct in all
material respects, and did not and does not contain any untrue
statement of a material fact in respect of the Company, its
subsidiaries or the Teck Offer and did not and does not omit to
state a material fact in respect of the Company and its
subsidiaries, taken as a whole, or the Teck Offer necessary to
make the Information or any statement contained therein not
misleading in light of the circumstances under which the
Information was provided or any statement was made; and
(ii) since the dates on which the Information was provided
to RBC, except as disclosed in writing to RBC, there has been no
material change, financial or otherwise, in the financial
condition, assets, liabilities (contingent or otherwise),
business, operations or prospects of the Company, or any of its
subsidiaries and no material change has occurred in the
Information or any part thereof which would have or which would
reasonably be expected to have a material effect on the Opinion.
In preparing the Opinion, RBC has made several assumptions,
including that all of the conditions required to implement the
Teck Offer will be met and that the disclosure provided or
incorporated by reference in the Teck Circular and the Draft
Directors Circular with respect to the Company, Teck and
their respective subsidiaries and
D-4
affiliates and the Teck Offer is accurate in all material
respects. As you are aware, RBC has not been provided with
access to the management, internal financial information or
projections of future financial performance of Teck. As a
result, RBCs review of such matters has been limited to
discussions with management of the Company about their
assessment of such matters and RBCs review of certain
publicly available information and certain research analyst
estimates of the future financial performance of Teck. RBC has
relied upon, without independent verification, the
Companys estimates of the reserve base, production profile
and cash and total cost estimates of the Company. In addition,
RBC has not made an independent evaluation, appraisal or
geological or technical assessment of the assets and liabilities
(including any contingent, derivative or off-balance-sheet
assets and liabilities) of the Company, Falconbridge, Teck or
any of their respective subsidiaries and RBC has not been
furnished with any such valuation, appraisal or assessment.
The Opinion is rendered on the basis of securities markets,
economic, financial and general business conditions prevailing
as at the date hereof and the condition and prospects, financial
and otherwise, of the Company, Teck and their respective
subsidiaries and affiliates, as they were reflected in the
Information and as they have been represented to RBC in
discussions with management of the Company. In its analyses and
in preparing the Opinion, RBC made numerous assumptions with
respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the
control of RBC or any party involved in the Teck Offer. The
Opinion does not address the relative merits of the Teck Offer
as compared to the Amended Falconbridge Offer or any other
alternative business transaction, or any other alternatives, or
whether or not such alternatives could be achieved. Although RBC
considered the Amended Falconbridge Offer as one of the many
factors in its analysis, the Opinion does not address the
Amended Falconbridge Offer. The Opinion addresses only whether
the consideration under the Teck Offer is fair from a financial
point of view to the Inco Shareholders other than Teck and its
affiliates.
The Opinion has been provided for the use of the Board and may
not be used by any other person or relied upon by any other
person other than the Board without the express prior written
consent of RBC. The Opinion is given as of the date hereof and
RBC disclaims any undertaking or obligation to advise any person
of any change in any fact or matter affecting the Opinion which
may come or be brought to RBCs attention after the date
hereof. Without limiting the foregoing, in the event that there
is any material change in any fact or matter affecting the
Opinion after the date hereof, RBC reserves the right to change,
modify or withdraw the Opinion.
RBC believes that its analyses must be considered as a whole and
that selecting portions of the analyses or the factors
considered by it, without considering all factors and analyses
together, could create a misleading view of the process
underlying the Opinion. The preparation of an opinion is a
complex process and is not necessarily susceptible to partial
analysis or summary description. Any attempt to do so could lead
to undue emphasis on any particular factor or analysis. The
Opinion is not to be construed as a recommendation to any Inco
Shareholder as to whether to tender their Inco Shares to the
Teck Offer.
Conclusion
Based upon and subject to the foregoing, RBC is of the opinion
that, as of the date hereof, the consideration offered under the
Teck Offer is inadequate from a financial point of view to the
Inco Shareholders other than Teck and its affiliates.
Yours very truly,
RBC DOMINION SECURITIES INC.
D-5
PERSONAL AND CONFIDENTIAL
May 29, 2006
Board of Directors
Inco Limited
145 King Street West
Suite 1500
Toronto, Ontario M5H 4B7
Ladies and Gentlemen:
You have requested our opinion with respect to whether the
Consideration (as defined below) proposed to be paid pursuant to
the offer (the Offer) made by Teck Cominco Limited
(Teck Cominco) to purchase all of the outstanding
common shares (the Company Shares) of Inco Limited
(the Company) (other than those Company Shares owned
directly or indirectly by Teck Cominco), as described in the
offer to purchase and circular and associated documents filed by
Teck Cominco on May 23, 2006 (together, the
Circular), is adequate from a financial point of
view to the holders of Company Shares. The consideration under
the Offer is, at the election of each holder of the Company
Shares, (i) Canadian Dollars 78.50 in cash or
(ii) 0.9776 of a Teck Cominco Class B subordinate
voting share (a Teck Cominco Share) plus Canadian
Dollars 0.05 in cash, for each Company Share accepted, but
subject to pro ration as described in the Circular, including
maximum amounts payable of Canadian Dollars 6,366,482,332 in
cash and 143,082,936 Teck Cominco Shares (the
Consideration), as to which pro ration procedures
and limitations we are expressing no opinion. We note that if
the Offer is completed, Teck Cominco intends to pursue an
amalgamation, statutory arrangement, amendment to articles,
consolidation, capital reorganization, or other transaction
involving Teck Cominco or an affiliate of Teck Cominco and the
Company in order to acquire the Company Shares not accepted in
the Offer.
We also understand that the Company and Falconbridge Limited
(Falconbridge) have entered into a Support
Agreement, dated October 10, 2005, as amended by the
Amending Agreement, dated January 12, 2006, the Second
Amending Agreement, dated February 20, 2006, the Third
Amending Agreement, dated March 21, 2006, and the Fourth
Amending Agreement, dated May 13, 2006 (as so amended, the
Falconbridge Agreement). The Falconbridge Agreement
provides for an offer made by the Company (the
Falconbridge Offer) to purchase all of the
outstanding common shares of Falconbridge (the
Falconbridge Shares) (other than those Falconbridge
Shares owned directly or indirectly by the Company) pursuant to
which the Company or a wholly owned subsidiary of the Company
will, at the election of each holder of the Falconbridge Shares,
either (i) pay Canadian Dollars 51.17 in cash or
(ii) exchange 0.6927 of a Company Share and pay Canadian
Dollars 0.05 in cash, for each Falconbridge Share accepted, but
subject to an aggregate maximum of Canadian Dollars
4,786,678,875 in cash and an aggregate maximum of
200,657,578 Company Shares. We note that the Falconbridge
Agreement further provides that subsequent to the completion of
the Falconbridge Offer, the Company may, in its sole discretion,
pursue an amalgamation, statutory arrangement, consolidation,
capital reorganization or other transaction involving
Falconbridge and the Company or an affiliate of the Company in
order to acquire the Falconbridge Shares not accepted in the
Falconbridge Offer.
Goldman, Sachs & Co. and its affiliates, as part of their
investment banking business, are continually engaged in
performing financial analyses with respect to businesses and
their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private
placements and other transactions as well as for estate,
corporate and other purposes. We have acted as financial
E-1
Board of Directors
Inco Limited
May 29, 2006
Page Two
advisor to the Company in connection with its consideration of
the Offer pursuant to our engagement by the Company. In
addition, we have acted as financial advisor to the Company, and
have participated in certain of the negotiations leading to, the
transaction contemplated by the Falconbridge Agreement (the
Falconbridge Transaction). We expect to receive fees
from the Company for our services in connection with the
Falconbridge Transaction. We also expect to receive fees from
the Company in connection with the Companys consideration
of the Offer. The Company has agreed to reimburse our expenses
and indemnify us against certain liabilities arising out of such
engagements. In addition, we have provided, and are currently
providing, certain investment banking services to the Company,
including having acted as an underwriter in connection with the
Companys $750,000,000 five-year revolving credit facility.
We have also acted as counterparty in certain foreign exchange
hedging transactions for the Company in connection with the
Falconbridge Transaction. Goldman Sachs Canada Credit Partners
Co., an affiliate of Goldman, Sachs & Co., expects to act as
(1) a joint lead arranger in connection with the
Companys $2,150,000,000 term loan to be underwritten in
connection with the Falconbridge Transaction, (2) as
underwriter in connection with the Companys $1,850,000,000
bridge loan facility in connection with the Falconbridge
Transaction, (3) as joint lead arranger in connection with
the Companys $750,000 term loan to be underwritten in
connection with the Falconbridge Transaction and (4) as
underwriter in connection with the Companys $750,000
bridge loan facility in connection with the Falconbridge
Transaction (the bridge loan facilities referred to in
clauses (2) and (4) above, together, the Bridge
Facilities), as well as joint lead manager and joint
bookrunner with respect to the indebtedness that may be issued
to replace the Bridge Facilities. We also may provide investment
banking services to the Company, Teck Cominco, and Falconbridge
in the future. In connection with the above-described services
we have received, and may receive, compensation.
Goldman, Sachs & Co. is a full service securities firm
engaged, either directly or through its affiliates, in
securities trading, investment management, financial planning
and benefits counseling, risk management, hedging, financing and
brokerage activities for both companies and individuals. In the
ordinary course of these activities, Goldman, Sachs & Co.
and its affiliates may provide such services to the Company,
Teck Cominco, Falconbridge and their respective affiliates, may
actively trade the debt and equity securities (or related
derivative securities) of the Company, Teck Cominco, and
Falconbridge for their own account and for the accounts of their
customers and may at any time hold long and short positions of
such securities.
In connection with this opinion, we have reviewed, among other
things, the Circular; a draft of the Directors Circular of
the Company relating to the Offer; annual reports to
stockholders and Annual Reports on Form 10-K of the Company
for the five fiscal years ended December 31, 2005; certain
interim reports to stockholders and Quarterly Reports on
Form 10-Q of the
Company; annual reports to stockholders and the Annual
Information Forms of Teck Cominco and its predecessors for the
five fiscal years ended December 31, 2005; certain interim
unaudited financial statements of Teck Cominco; certain other
communications from the Company and Teck Cominco to their
respective stockholders; and certain internal financial analyses
and forecasts for the Company and Teck Cominco prepared by the
Companys management (collectively, the
Forecasts). We also have held discussions with
members of the senior management of the Company regarding their
assessment of the past and current business operations,
financial condition and future prospects of the Company and Teck
Cominco, as well as the Companys assessment of the
achievability of the synergies described in the Circular.
In addition, we have reviewed the Falconbridge Agreement and
certain related documents; the Companys offer to purchase
and the Falconbridge directors circular, each dated
October 24, 2005, and the related notices of extension,
dated December 14, 2005, January 19, 2006 and
February 27, 2006, and a draft of the related notice of
variation, dated May 29, 2006; annual reports to
stockholders and the Annual Information Forms of Falconbridge
and Falconbridges predecessors, Noranda Inc.
(Noranda) and Falconbridge Limited (Old
Falconbridge), for the five fiscal years ended
December 31, 2005; the takeover-bid circular of Noranda
relating to Norandas offer to purchase all of the
outstanding shares of Old Falconbridge and the subsequent proxy
circular detailing the amalgamation of Noranda and Old
Falconbridge; certain interim unaudited financial statements of
Falconbridge; certain other communications from Falconbridge to
its stockholders; and certain internal financial analyses and
forecasts for the Company prepared by its
E-2
Board of Directors
Inco Limited
May 29, 2006
Page Three
management and certain financial analyses and forecasts for
Falconbridge prepared by the management of the Company,
including certain synergies projected by the management of the
Company to result from the Falconbridge Transaction. We also
have held discussions with members of the senior managements of
the Company and Falconbridge regarding their assessment of the
strategic rationale for, and the potential benefits of, the
Falconbridge Transaction and the past and current business
operations, financial condition and future prospects
of Falconbridge.
We also have reviewed the reported price and trading activity
for the Company Shares, the Teck Cominco Shares, and the
Falconbridge Shares, compared certain financial and stock market
information for the Company, Teck Cominco, and Falconbridge with
similar information for certain other companies the securities
of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the metals and mining
industry specifically and in other industries generally and
performed such other studies and analyses, and considered such
other factors, as we considered appropriate.
We have relied without independent verification upon the
accuracy and completeness of all of the financial, accounting,
legal, tax and other information discussed with or reviewed by
us and have assumed such accuracy and completeness for purposes
of rendering this opinion. In that regard, we have assumed that
the Forecasts have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments
of the Company. As you are aware, we have not been provided with
access to the management, internal financial information or
projections of future financial performance of Teck Cominco. As
a result, with your consent, our review of such matters,
including the Forecasts, has been limited to discussions with
management of the Company about their assessment of such matters
and our review of certain publicly available information and
certain research analyst estimates of the future financial
performance of Teck Cominco. We have relied upon, without
independent verification, the Companys estimates of the
reserve base, production profile and cash and total cost
estimates of the Company. In addition, we have not made an
independent evaluation, appraisal or geological or technical
assessment of the assets and liabilities (including any
contingent, derivative or
off-balance-sheet
assets and liabilities) of the Company, Teck Cominco,
Falconbridge, or any of their respective subsidiaries and we
have not been furnished with any such valuation, appraisal or
assessment. Senior management of the Company has provided to us,
in a certificate delivered as of the date hereof,
representations regarding, among other things, the accuracy of
the information, data and other material (financial or
otherwise) provided to us by or on behalf of the Company and the
absence of changes thereto.
Our opinion is necessarily based on economic, monetary, market
and other conditions as in effect on, and the information made
available to us as of, the date hereof. Our opinion does not
address the relative merits of the Offer as compared to the
Falconbridge Offer or any other alternative business
transaction, or any other alternatives, or whether or not such
alternatives could be achieved. Our opinion addresses only
whether the Consideration is adequate from a financial point of
view to holders of the Company Shares. Our advisory services and
the opinion expressed herein are provided for the information
and assistance of the Board of Directors of the Company in
connection with its consideration of the Offer, and such opinion
does not constitute a recommendation as to whether or not any
holder of Company Shares should tender such Company Shares in
connection with the Offer or make any election with respect to
the Offer. In addition, we are not expressing any opinion as to
the prices at which Company Shares or Teck Cominco Shares will
trade at any time.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Consideration to be paid pursuant to
the Offer is inadequate from a financial point of view to the
holders of Company Shares.
Very truly yours,
Goldman, Sachs & Co.
E-3
SCHEDULE F ISSUANCE OF SECURITIES OF INCO SINCE
MAY 1, 2004
Inco Shares
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Inco Shares | |
|
Price per Inco | |
|
|
Name |
|
Nature of Issue | |
|
Issued(a) | |
|
Share | |
|
Date Issued | |
|
|
| |
|
| |
|
| |
|
| |
Ronald C. Aelick
|
|
|
Exercise of Options |
|
|
|
8,000 |
|
|
|
$27.44 |
|
|
|
November 5, 2004 |
|
|
|
|
Exercise of Options |
|
|
|
22,500 |
|
|
|
$16.96 |
|
|
|
November 5, 2004 |
|
|
|
|
Exercise of Options |
|
|
|
38,000 |
|
|
|
$17.62 |
|
|
|
November 5, 2004 |
|
|
|
|
Exercise of Options |
|
|
|
4,500 |
|
|
|
$16.96 |
|
|
|
November 10, 2004 |
|
|
|
|
Restricted Share Award |
|
|
|
3,589 |
|
|
C |
dn.$48.76 |
|
|
|
February 22, 2005 |
|
|
|
|
Restricted Share Award |
|
|
|
4,283 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
|
|
|
Exercise of Options |
|
|
|
2,074 |
|
|
|
$34.31 |
|
|
|
March 3, 2006 |
|
|
|
|
Exercise of Options |
|
|
|
3,176 |
|
|
|
$20.85 |
|
|
|
March 3, 2006 |
|
Stephanie E. Anderson
|
|
|
Exercise of Options |
|
|
|
4,000 |
|
|
|
$27.44 |
|
|
|
November 29, 2004 |
|
|
|
|
Restricted Share Award |
|
|
|
513 |
|
|
C |
dn.$48.76 |
|
|
|
February 22, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
5,000 |
|
|
|
$32.57 |
|
|
|
September 7, 2005 |
|
|
|
|
Restricted Share Award |
|
|
|
873 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
|
|
|
Exercise of Options |
|
|
|
7,000 |
|
|
|
$20.85 |
|
|
|
March 3, 2006 |
|
Edward H. Bassett
|
|
|
Exercise of Options |
|
|
|
4,500 |
|
|
|
$20.85 |
|
|
|
March 4, 2005 |
|
|
|
|
Restricted Share Award |
|
|
|
890 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
Subhash Bhandari
|
|
|
Exercise of Options |
|
|
|
3,500 |
|
|
|
$20.85 |
|
|
|
September 7, 2004 |
|
|
|
|
Exercise of Options |
|
|
|
4,500 |
|
|
|
$36.40 |
|
|
|
November 29, 2004 |
|
|
|
|
Restricted Share Award |
|
|
|
841 |
|
|
C |
dn.$48.76 |
|
|
|
February 22, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
4,500 |
|
|
|
$20.85 |
|
|
|
February 25, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
3,000 |
|
|
|
$20.85 |
|
|
|
March 4, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
4,500 |
|
|
|
$36.40 |
|
|
|
September 8, 2005 |
|
|
|
|
Restricted Share Award |
|
|
|
961 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
|
|
|
Exercise of Options |
|
|
|
1,185 |
|
|
|
$39.67 |
|
|
|
March 2, 2006 |
|
Angus A. Bruneau
|
|
|
Exercise of Options |
|
|
|
5,000 |
|
|
|
$21.13 |
|
|
|
September 2, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
5,000 |
|
|
|
$19.39 |
|
|
|
September 2, 2005 |
|
Mark Cutifani
|
|
|
Restricted Share Award |
|
|
|
952 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
Mark J. Daniel
|
|
|
Exercise of Options |
|
|
|
7,000 |
|
|
|
$34.31 |
|
|
|
November 5, 2004 |
|
|
|
|
Restricted Share Award |
|
|
|
2,543 |
|
|
C |
dn.$48.76 |
|
|
|
February 22, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
6,500 |
|
|
|
$36.40 |
|
|
|
March 7, 2005 |
|
|
|
|
Restricted Share Award |
|
|
|
2,812 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
|
|
|
Exercise of Options |
|
|
|
3,000 |
|
|
|
$36.40 |
|
|
|
March 3, 2006 |
|
Robert D.J. Davies
|
|
|
Restricted Share Award |
|
|
|
758 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
Bruce Drysdale
|
|
|
Restricted Share Award |
|
|
|
410 |
|
|
C |
dn.$48.76 |
|
|
|
February 22, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
1,750 |
|
|
|
$20.85 |
|
|
|
March 3, 2005 |
|
|
|
|
Restricted Share Award |
|
|
|
732 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
Philippus F. du Toit
|
|
|
Exercise of Options |
|
|
|
15,000 |
|
|
|
$18.41 |
|
|
|
August 18, 2004 |
|
|
|
|
Restricted Share Award |
|
|
|
1,302 |
|
|
C |
dn.$48.76 |
|
|
|
February 22, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
15,500 |
|
|
|
$36.40 |
|
|
|
September 7, 2005 |
|
|
|
|
Restricted Share Award |
|
|
|
1,437 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
|
|
|
Exercise of Options |
|
|
|
2,500 |
|
|
|
$36.40 |
|
|
|
March 3, 2006 |
|
Anthony Filmer
|
|
|
Restricted Share Award |
|
|
|
185 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
Simon F. Fish
|
|
|
Restricted Share Award |
|
|
|
3,966 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
Peter J. Goudie
|
|
|
Restricted Share Award |
|
|
|
4,799 |
|
|
C |
dn.$48.76 |
|
|
|
February 22, 2005 |
|
|
|
|
Restricted Share Award |
|
|
|
5,394 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
|
|
|
Exercise of Options |
|
|
|
8,000 |
|
|
|
$32.57 |
|
|
|
March 7, 2006 |
|
F-1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inco Shares | |
|
Price per Inco | |
|
|
Name |
|
Nature of Issue | |
|
Issued(a) | |
|
Share | |
|
Date Issued | |
|
|
| |
|
| |
|
| |
|
| |
Scott M. Hand
|
|
|
Exercise of Options |
|
|
|
1,000 |
|
|
|
$27.44 |
|
|
|
October 28, 2004 |
|
|
|
|
Restricted Share Award |
|
|
|
16,468 |
|
|
C |
dn.$48.76 |
|
|
|
February 22, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
20,000 |
|
|
|
$17.62 |
|
|
|
June 3, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
16,000 |
|
|
|
$18.16 |
|
|
|
August 2, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
1,000 |
|
|
|
$32.57 |
|
|
|
August 26, 2005 |
|
|
|
|
Restricted Share Award |
|
|
|
21,285 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
John B. Jones
|
|
|
Exercise of Options |
|
|
|
8,000 |
|
|
|
$27.44 |
|
|
|
November 29, 2004 |
|
|
|
|
Exercise of Options |
|
|
|
8,000 |
|
|
|
$32.57 |
|
|
|
November 29, 2004 |
|
|
|
|
Restricted Share Award |
|
|
|
964 |
|
|
C |
dn.$48.76 |
|
|
|
February 22, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
16,000 |
|
|
|
$15.03 |
|
|
|
February 25, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
8,000 |
|
|
|
$34.31 |
|
|
|
February 25, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
16,000 |
|
|
|
$11.56 |
|
|
|
March 4, 2005 |
|
Peter C. Jones
|
|
|
Restricted Share Award |
|
|
|
1,084 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
|
|
|
Exercise of Options |
|
|
|
28,000 |
|
|
|
$15.03 |
|
|
|
February 21, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
38,500 |
|
|
|
$11.56 |
|
|
|
February 21, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
26,000 |
|
|
|
$34.31 |
|
|
|
February 21, 2005 |
|
|
|
|
Restricted Share Award |
|
|
|
8,716 |
|
|
C |
dn.$48.76 |
|
|
|
February 22, 2005 |
|
|
|
|
Restricted Share Award |
|
|
|
7,756 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
Gary G. D. Kaiway
|
|
|
Exercise of Options |
|
|
|
5,000 |
|
|
|
$36.40 |
|
|
|
February 22, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
6,500 |
|
|
|
$20.85 |
|
|
|
February 22, 2005 |
|
|
|
|
Restricted Share Award |
|
|
|
800 |
|
|
C |
dn.$48.76 |
|
|
|
February 22, 2005 |
|
|
|
|
Restricted Share Award |
|
|
|
899 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
|
|
|
Exercise of Options |
|
|
|
2,062 |
|
|
|
$36.40 |
|
|
|
March 3, 2006 |
|
William B. Kipkie
|
|
|
Exercise of Options |
|
|
|
4,000 |
|
|
|
$27.44 |
|
|
|
November 5, 2004 |
|
|
|
|
Exercise of Options |
|
|
|
10,000 |
|
|
|
$17.62 |
|
|
|
November 12, 2004 |
|
|
|
|
Restricted Share Award |
|
|
|
861 |
|
|
C |
dn.$48.76 |
|
|
|
February 22, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
7,000 |
|
|
|
$18.16 |
|
|
|
February 25, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
5,000 |
|
|
|
$20.85 |
|
|
|
February 28, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
6,000 |
|
|
|
$32.57 |
|
|
|
September 1, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
3,500 |
|
|
|
$20.85 |
|
|
|
September 2, 2005 |
|
|
|
|
Restricted Share Award |
|
|
|
996 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
Ronald A. Lehtovaara
|
|
|
Restricted Share Award |
|
|
|
984 |
|
|
C |
dn.$48.76 |
|
|
|
February 22, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
4,000 |
|
|
|
$34.31 |
|
|
|
March 7, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
10,000 |
|
|
|
$34.31 |
|
|
|
August 8, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
10,000 |
|
|
|
$18.16 |
|
|
|
August 10, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
5,000 |
|
|
|
$18.16 |
|
|
|
August 11, 2005 |
|
|
|
|
Restricted Share Award |
|
|
|
1,111 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
John T. Mayberry
|
|
|
Exercise of Options |
|
|
|
5,000 |
|
|
|
$19.25 |
|
|
|
August 3, 2005 |
|
William A. Napier
|
|
|
Restricted Share Award |
|
|
|
769 |
|
|
C |
dn.$48.76 |
|
|
|
February 22, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
5,000 |
|
|
|
$34.31 |
|
|
|
February 23, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
3,500 |
|
|
|
$18.16 |
|
|
|
February 23, 2005 |
|
S. Nicholas Sheard
|
|
|
Restricted Share Award |
|
|
|
873 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
|
|
|
Restricted Share Award |
|
|
|
841 |
|
|
C |
dn.$48.76 |
|
|
|
February 22, 2005 |
|
|
|
|
Exercise of Options |
|
|
|
12,000 |
|
|
|
$36.40 |
|
|
|
September 6, 2005 |
|
|
|
|
Restricted Share Award |
|
|
|
978 |
|
|
C |
dn.$56.73 |
|
|
|
February 7, 2006 |
|
|
|
|
Exercise of Options |
|
|
|
1,000 |
|
|
|
$39.67 |
|
|
|
March 3, 2006 |
|
|
|
(a) |
Under the Rights Plan, one right was issued in respect of each
Inco Share then outstanding, including those held by directors
and senior officers of the Company, and have been issued with
each Inco Share issued subsequent to the adoption of the Rights
Plan. |
F-2
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of Options | |
|
Exercise | |
|
|
|
|
Name |
|
Granted | |
|
Price | |
|
Date Granted | |
|
Expiry Date | |
|
|
| |
|
| |
|
| |
|
| |
Ronald C. Aelick
|
|
|
22,000 |
|
|
$ |
39.67 |
|
|
|
February 22, 2005 |
|
|
|
February 21, 2015 |
|
Stephanie E. Anderson
|
|
|
11,000 |
|
|
$ |
39.67 |
|
|
|
February 22, 2005 |
|
|
|
February 21, 2015 |
|
Edward H. Bassett
|
|
|
8,000 |
|
|
$ |
39.67 |
|
|
|
February 22, 2005 |
|
|
|
February 21, 2015 |
|
Subhash Bhandari
|
|
|
9,500 |
|
|
$ |
39.67 |
|
|
|
February 22, 2005 |
|
|
|
February 21, 2015 |
|
Mark Cutifani
|
|
|
12,500 |
|
|
$ |
39.67 |
|
|
|
February 22, 2005 |
|
|
|
February 21, 2015 |
|
Mark J. Daniel
|
|
|
11,000 |
|
|
$ |
39.67 |
|
|
|
February 22, 2005 |
|
|
|
February 21, 2015 |
|
Bruce Drysdale
|
|
|
8,000 |
|
|
$ |
39.67 |
|
|
|
February 22, 2005 |
|
|
|
February 21, 2015 |
|
Philippus F. du Toit
|
|
|
15,000 |
|
|
$ |
39.67 |
|
|
|
February 22, 2005 |
|
|
|
February 21, 2015 |
|
Peter J. Goudie
|
|
|
26,000 |
|
|
$ |
39.67 |
|
|
|
February 22, 2005 |
|
|
|
February 21, 2015 |
|
Scott M. Hand
|
|
|
54,000 |
|
|
$ |
39.67 |
|
|
|
February 22, 2005 |
|
|
|
February 21, 2015 |
|
John B. Jones
|
|
|
11,000 |
|
|
$ |
39.67 |
|
|
|
February 22, 2005 |
|
|
|
February 21, 2015 |
|
Peter C. Jones
|
|
|
37,000 |
|
|
$ |
39.67 |
|
|
|
February 22, 2005 |
|
|
|
February 21, 2015 |
|
Gary G. D. Kaiway
|
|
|
6,500 |
|
|
$ |
39.67 |
|
|
|
February 22, 2005 |
|
|
|
February 21, 2015 |
|
William B. Kipkie
|
|
|
11,000 |
|
|
$ |
39.67 |
|
|
|
February 22, 2005 |
|
|
|
February 21, 2015 |
|
Ronald A. Lehtovaara
|
|
|
11,000 |
|
|
$ |
39.67 |
|
|
|
February 22, 2005 |
|
|
|
February 21, 2015 |
|
William A. Napier
|
|
|
8,000 |
|
|
$ |
39.67 |
|
|
|
February 22, 2005 |
|
|
|
February 21, 2015 |
|
S. Nicholas Sheard
|
|
|
11,000 |
|
|
$ |
39.67 |
|
|
|
February 22, 2005 |
|
|
|
February 21, 2015 |
|
F-3
SCHEDULE G SUMMARY OF SHAREHOLDER RIGHTS PLAN
Inco Limited (Inco or the Company) has
filed its shareholder rights plan (the Rights Plan)
at www.sedar.com. The full text of the Rights Plan is contained
in an agreement, dated as of September 14, 1998, as amended
and restated as of April 20, 2005, between Inco and CIBC
Mellon Trust Company, as rights agent. One of the purposes
of the Rights Plan is to provide Inco Shareholders with enough
time to assess the merits of any unsolicited take-over bid for
Inco. It is also intended to give the Board of Directors of Inco
(the Board) sufficient time to consider the bid, to
pursue alternatives to enhance shareholder value and to permit
other bids to come forward. The following is a summary of the
principal terms of the Rights Plan, which is qualified in its
entirety by reference to the text of the Rights Plan.
Issuance of Rights
The Rights Plan provides that one right (a Right)
would be issued in respect of each of the outstanding Voting
Shares to holders as of the effective date of the agreement, as
well as in respect of each Inco Share issued after the effective
date and prior to the Separation Time (as defined below).
Holders of the Companys Convertible Debentures,
Subordinated Convertible Debentures and the certificates of
entitlement thereto (which entitle the holders thereof to
receive Rights in the event that the related securities are
converted into Inco Shares), together with holders of the
Companys LYON Notes, will generally be entitled to
receive, upon conversion and presentment of the relevant
securities and any related certificates of entitlement, Rights
in an amount equal to the number of Inco Shares issued upon the
conversion of such securities.
Trading of Rights
Notwithstanding the effectiveness of the Rights Plan, the Rights
are not exercisable until the Separation Time (as defined below)
and certificates representing the Rights have not been sent to
Inco Shareholders. Certificates for Inco Shares issued after the
effective date of the agreement will contain a notation
incorporating the Rights Plan by reference. Until the Separation
Time, or earlier termination or expiration of the Rights, the
Rights are evidenced by and transferred with the associated Inco
Shares and the surrender for transfer of any certificate
representing Inco Shares will also constitute the surrender for
transfer of the Rights associated with those Inco Shares. After
the Separation Time, the Rights will become exercisable and
begin to trade separately from the associated Inco Shares. The
initial Exercise Price under each Right in order to
acquire an Inco Share is Cdn. $200.
Separation of Rights
The Rights will become exercisable and begin to trade separately
from the associated Inco Shares at the Separation
Time, which is generally the close of business on the
tenth trading day after the earliest to occur of (a) a
public announcement that a person or a group of affiliated or
associated persons (an Acquiring Person) has
acquired beneficial ownership of 20% or more of the outstanding
Inco Shares or 20% or more of the outstanding Voting Shares
other than as a result of (i) a reduction in the number of
Inco Shares or Voting Shares outstanding, (ii) a Permitted
Bid or Competing Permitted Bid (see Permitted Bids
below), (iii) acquisitions of Inco Shares or Voting Shares
in respect of which the Board has waived the application of the
agreement, or (iv) other specified exempt acquisitions in
which Inco Shareholders participate on a pro rata basis;
(b) the date of commencement of, or the first public
announcement of an intention of any person to commence, a
take-over bid where the Inco Shares or Voting Shares subject to
the bid owned by that person (including affiliates, associates
and others acting jointly or in concert therewith) would
constitute 20% or more of the outstanding Inco Shares or Voting
Shares; and (c) the date upon which a Permitted Bid or
Competing Permitted Bid ceases to be such.
As soon as practicable following the Separation Time, separate
certificates evidencing rights (Rights Certificates)
will be mailed to the holders of record of Inco Shares as of the
Separation Time and the Rights Certificates alone will evidence
the Rights.
When Rights become Exercisable
After the Separation Time, each Right entitles the holder
thereof to purchase one Inco Share at the Exercise Price.
Following a transaction which results in a person becoming an
Acquiring Person (a Flip-in-Event), the Rights
entitle the holder thereof (other than a holder who is an
Acquiring Person) to receive upon exercise Inco Shares with a
market value equal to twice the then Exercise Price of the
Rights. In such event, however, any Rights beneficially owned by
an Acquiring Person (including affiliates, associates and others
acting jointly or in concert therewith), or a transferee or
G-1
any such person, will be void. A Flip-in-Event does not include
acquisitions approved by the Board or acquisitions pursuant to a
Permitted Bid or Competing Permitted Bid
(as defined below).
Permitted Bids
The Rights Plan includes a Permitted Bid concept
whereby a take-over bid will not trigger the Rights if the bid
meets certain conditions. A Permitted Bid is defined
as an offer to acquire Voting Shares or securities that are
eligible to be converted into Voting Shares for cash or
securities made by means of a take-over bid circular where the
Voting Shares (including Voting Shares that may be acquired upon
conversion of securities convertible into Voting Shares) subject
to the offer, together with shares beneficially owned by the
offeror at the date of the offer (including its affiliates,
associates and others acting jointly or in concert therewith),
constitute 20% or more of the outstanding Inco Shares or 20% or
more of the outstanding Voting Shares and that also complies
with the following additional provisions:
|
|
|
|
(i) |
the bid must be made to all the holders of Voting Shares as
registered on the books of the Company other than the offeror;
and |
|
|
(ii) |
the bid must contain the following irrevocable and unqualified
conditions: |
|
|
|
|
(a) |
no Voting Shares will be taken up or paid for prior to the close
of business on the 60th day following the date of the bid and
then only if more than 50% of the Inco Shares held by
Independent Shareholders (as referred to below) have been
deposited or tendered to the bid and not withdrawn; |
|
|
(b) |
Voting Shares may be deposited pursuant to the bid, unless it is
withdrawn, at any time prior to the date shares are first taken
up or paid for under the bid; |
|
|
(c) |
Voting Shares deposited pursuant to the bid may be withdrawn
until taken up or paid for; and |
|
|
(d) |
if the deposit condition referred to in (ii)(a) above is
satisfied, the offeror will extend the bid for deposit of Voting
Shares for at least 10 business days from the date such
extension is publicly announced. |
Independent Shareholders are defined as holders of
Voting Shares other than (i) an Acquiring Person,
(ii) any offeror making a take-over bid, (iii) any
affiliate or associate of an Acquiring Person or offeror,
(iv) persons acting jointly or in concert with an Acquiring
Person, and (v) employee benefit, stock purchase or certain
other plans or trusts for employees of the Company or its
wholly-owned subsidiaries unless the beneficiaries of such plans
or trusts direct the voting or tendering to a take-over bid of
the Voting Shares.
Competing Permitted Bids
A Competing Permitted Bid is a take-over bid made
after a Permitted Bid has been made and prior to its expiry that
satisfies all of the provisions of a Permitted Bid, except that
it must remain open for acceptance until at least the 60th day
after the earliest date on which another Permitted Bid then in
existence was made. The reduction in the time for acceptance of
a Competing Permitted Bid is designed to allow, as nearly as
practicable, all bids to be dealt with by the Inco Shareholders
within substantially the same timeframe.
Redemption and Waiver
The Rights may be redeemed by the Board of Directors, with the
prior approval of the holders of Voting Shares or Rights, as the
case may be, at any time prior to the occurrence of a
Flip-in-Event at a redemption price of Cdn. $0.0001 per Right.
Rights are deemed to have been redeemed if a bidder successfully
completes a Permitted Bid.
Under the Rights Plan, the Board can (i) waive the
application of the Rights Plan to enable a particular take-over
bid to proceed, in which case the Rights Plan will be deemed to
have been waived with respect to any other take-over bid made
prior to the expiry of any bid subject to such waiver or
(ii) with the prior approval of the holders of Voting
Shares or rights, redeem the rights for nominal consideration at
any time prior to a Flip-in-Event.
G-2
Protection Against Dilution
The Exercise Price, the number and nature of securities which
may be purchased upon the exercise of Rights and the number of
Rights outstanding are subject to adjustment from time to time
to prevent dilution in the event of stock dividends,
subdivisions, consolidations, reclassifications or other changes
in the outstanding Inco Shares, pro rata distributions to
holders of Inco Shares and other circumstances where adjustments
are required to appropriately protect the interests of the
holders of Rights.
G-3
SCHEDULE H THE FALCONBRIDGE
TRANSACTION
INCO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE: The following compilation report is provided
solely in order to comply with applicable requirements of
Canadian securities laws. It should be noted that to report in
accordance with Public Company Accounting Oversight Board
Auditing Standards (PCAOBAS) on a compilation of pro forma
financial statements an examination greater in scope than that
performed under Canadian standards would be required.
H-1
May 29, 2006
To the Board of Directors of Inco Limited
We have read the accompanying unaudited pro forma consolidated
balance sheet of Inco Limited (the Company) as at
March 31, 2006 and the unaudited pro forma consolidated
statements of earnings for the three months then ended and for
the year ended December 31, 2005, and have performed the
following procedures.
|
|
|
|
1. |
Compared the figures in the columns captioned Inco
to the unaudited consolidated financial statements of the
Company as at March 31, 2006 and for the three months then
ended and the audited consolidated financial statements for the
year ended December 31, 2005, and found them to be in
agreement. |
|
|
2. |
Compared the figures in the columns captioned
Falconbridge to the unaudited consolidated financial
statements of Falconbridge Limited as at March 31, 2006 and
for the three months then ended and the audited consolidated
financial statements for the year ended December 31, 2005,
and found them to be in agreement. |
|
|
3. |
Made enquiries of certain officials of the Company who have
responsibility for financial and accounting matters about: |
|
|
|
|
(a) |
the basis for determination of the pro forma adjustments; and |
|
|
(b) |
whether the pro forma consolidated financial statements comply
as to form in all material respects with the regulatory
requirements of the various Securities Commissions and similar
regulatory authorities in Canada. |
The officials:
|
|
|
|
(a) |
described to us the basis for determination of the pro forma
adjustments, and |
|
|
(b) |
stated that the pro forma consolidated financial statements
comply as to form in all material respects with the regulatory
requirements of the various Securities Commissions and similar
regulatory authorities in Canada. |
|
|
|
|
4. |
Read the notes to the pro forma consolidated financial
statements, and found them to be consistent with the basis
described to us for determination of the pro forma adjustments. |
|
|
5. |
Recalculated the application of the pro forma adjustments to the
aggregate of the amounts in the columns captioned
Inco and Falconbridge as at
March 31, 2006 and for the three months then ended and for
the year ended December 31, 2005, and found the amounts in
the columns captioned Pro forma Inco to be
arithmetically correct. |
Pro forma financial statements are based on management
assumptions and adjustments which are inherently subjective. The
foregoing procedures are substantially less than either an audit
or a review, the objective of which is the expression of
assurance with respect to managements assumptions, the pro
forma adjustments, and the application of the adjustments to the
historical financial information. Accordingly, we express no
such assurance. The foregoing procedures would not necessarily
reveal matters of significance to the pro forma consolidated
financial statements, and we therefore make no representation
about the sufficiency of the procedures for the purposes of a
reader of such statements.
(Signed)
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
PricewaterhouseCoopers refers to the Canadian firm of
PricewaterhouseCoopers LLP and the other member firms of
PricewaterhouseCoopers International Limited, each of which is a
separate and independent legal entity.
H-2
The following unaudited pro forma consolidated financial
information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial
condition of the consolidated entities that would have been
achieved if the offer made by Inco Limited (Inco) to
purchase all of the outstanding common shares of Falconbridge
Limited (Falconbridge) dated October 24, 2005,
as extended December 14, 2005, January 19, 2006 and
February 27, 2006 and amended on May 13, 2006
(collectively, the Offer) had been completed during
the period presented, nor is the selected pro forma consolidated
financial information necessarily indicative of the future
operating results or financial position of the consolidated
entities. The pro forma consolidated financial information does
not reflect and does not give effect to (1) any special
items such as payments pursuant to change of control provisions
or integration costs which may be incurred as a result of the
acquisition, or (2) operating efficiencies, cost savings
and synergies that are expected to result from the acquisition,
(3) the impact of undertakings that Inco is prepared to
make in order to address regulatory clearance requirements, as
there are no current agreements providing for implementation of
such undertakings which, however, are expected to be carried out
after the completion of the Offer, and no adjustments have
been made to eliminate historical sales between Inco and
Falconbridge as the amounts are not considered significant.
INCO LIMITED
PRO FORMA CONSOLIDATED BALANCE SHEET
As at March 31, 2006
(unaudited)
(millions of US dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma | |
|
|
|
|
|
|
|
|
Adjustments | |
|
Pro Forma | |
|
|
Inco | |
|
Falconbridge | |
|
(Note 3(a)) | |
|
Inco | |
|
|
| |
|
| |
|
| |
|
| |
ASSETS |
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
751 |
|
|
$ |
1,000 |
|
|
$ |
(59 |
) |
|
$ |
1,692 |
|
Accounts receivable
|
|
|
734 |
|
|
|
1,269 |
|
|
|
|
|
|
|
2,003 |
|
Inventories
|
|
|
1,105 |
|
|
|
1,788 |
|
|
|
465 |
|
|
|
3,358 |
|
Other
|
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,676 |
|
|
|
4,057 |
|
|
|
406 |
|
|
|
7,139 |
|
Unallocated purchase price
|
|
|
|
|
|
|
|
|
|
|
4,508 |
|
|
|
4,508 |
|
Property, plant and equipment and other non-current assets
|
|
|
9,575 |
|
|
|
8,819 |
|
|
|
11,200 |
|
|
|
29,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
12,251 |
|
|
$ |
12,876 |
|
|
$ |
16,114 |
|
|
$ |
41,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt due within one
year(1)
|
|
$ |
75 |
|
|
$ |
853 |
|
|
$ |
2,164 |
|
|
$ |
3,092 |
|
Other current liabilities
|
|
|
1,132 |
|
|
|
1,668 |
|
|
|
125 |
|
|
|
2,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,207 |
|
|
|
2,521 |
|
|
|
2,289 |
|
|
|
6,017 |
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt(1)
|
|
|
1,840 |
|
|
|
2,910 |
|
|
|
2,293 |
|
|
|
7,043 |
|
Deferred income and mining taxes
|
|
|
2,018 |
|
|
|
1,264 |
|
|
|
3,085 |
|
|
|
6,367 |
|
Other long-term liabilities
|
|
|
1,035 |
|
|
|
651 |
|
|
|
495 |
|
|
|
2,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
6,100 |
|
|
|
7,346 |
|
|
|
8,162 |
|
|
|
21,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
768 |
|
|
|
56 |
|
|
|
326 |
|
|
|
1,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
Convertible debt
|
|
|
351 |
|
|
|
|
|
|
|
|
|
|
|
351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued and outstanding
|
|
|
3,034 |
|
|
|
4,296 |
|
|
|
8,713 |
|
|
|
16,043 |
|
|
Preferred shares
|
|
|
|
|
|
|
326 |
|
|
|
(326 |
) |
|
|
|
|
|
Warrants
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
62 |
|
|
Contributed surplus
|
|
|
577 |
|
|
|
41 |
|
|
|
50 |
|
|
|
668 |
|
|
Retained earnings
|
|
|
1,359 |
|
|
|
571 |
|
|
|
(571 |
) |
|
|
1,359 |
|
|
Currency translation account
|
|
|
|
|
|
|
240 |
|
|
|
(240 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,032 |
|
|
|
5,474 |
|
|
|
7,626 |
|
|
|
18,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
5,383 |
|
|
|
5,474 |
|
|
|
7,626 |
|
|
|
18,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
12,251 |
|
|
$ |
12,876 |
|
|
$ |
16,114 |
|
|
$ |
41,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Included in long-term debt are $750 million of junior
preference shares (series 1, 2, and 3). Falconbridge
redeemed $500 million of these junior preference shares on
April 26, 2006 and announced that the remainder will be
redeemed on June 28, 2006. |
H-3
INCO LIMITED
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
Three months ended March 31, 2006
(unaudited)
(millions of US dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma | |
|
|
|
Pro Forma | |
|
|
Inco | |
|
Falconbridge | |
|
Adjustments | |
|
Note 3 | |
|
Inco | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
1,211 |
|
|
$ |
2,858 |
|
|
$ |
|
|
|
|
|
|
|
$ |
4,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and operating expenses (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and other expenses, excluding depreciation,
depletion and amortization
|
|
|
733 |
|
|
|
1,950 |
|
|
|
(6 |
) |
|
|
b, c, f |
|
|
|
2,677 |
|
Depreciation, depletion and amortization
|
|
|
68 |
|
|
|
169 |
|
|
|
50 |
|
|
|
d |
|
|
|
287 |
|
Selling, general and administrative
|
|
|
47 |
|
|
|
24 |
|
|
|
3 |
|
|
|
e |
|
|
|
74 |
|
Research, development and exploration
|
|
|
23 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
34 |
|
Currency translation adjustments
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
Interest expense
|
|
|
18 |
|
|
|
32 |
|
|
|
64 |
|
|
|
g |
|
|
|
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
886 |
|
|
|
2,186 |
|
|
|
111 |
|
|
|
|
|
|
|
3,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
8 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income and mining taxes and minority interest
|
|
|
333 |
|
|
|
686 |
|
|
|
(111 |
) |
|
|
|
|
|
|
908 |
|
Income and mining taxes
|
|
|
113 |
|
|
|
222 |
|
|
|
(38 |
) |
|
|
i |
|
|
|
297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before minority interest
|
|
|
220 |
|
|
|
464 |
|
|
|
(73 |
) |
|
|
|
|
|
|
611 |
|
Minority interest
|
|
|
18 |
|
|
|
2 |
|
|
|
4 |
|
|
|
h |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
202 |
|
|
|
462 |
|
|
|
(77 |
) |
|
|
|
|
|
|
587 |
|
Dividends on preferred shares
|
|
|
|
|
|
|
6 |
|
|
|
(6 |
) |
|
|
j |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings applicable to common shares
|
|
$ |
202 |
|
|
$ |
456 |
|
|
$ |
(71 |
) |
|
|
|
|
|
$ |
587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
1.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
0.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H-4
INCO LIMITED
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
Year ended December 31, 2005
(unaudited)
(millions of US dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma | |
|
|
|
Pro Forma | |
|
|
Inco | |
|
Falconbridge | |
|
Adjustments | |
|
Note 3 | |
|
Inco | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
4,518 |
|
|
$ |
8,148 |
|
|
$ |
|
|
|
|
|
|
|
$ |
12,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and operating expenses (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and other expenses, excluding depreciation,
depletion and amortization
|
|
|
2,633 |
|
|
|
5,773 |
|
|
|
41 |
|
|
|
b, c, f |
|
|
|
8,447 |
|
Depreciation, depletion and amortization
|
|
|
256 |
|
|
|
555 |
|
|
|
240 |
|
|
|
d |
|
|
|
1,051 |
|
Selling, general and administrative
|
|
|
207 |
|
|
|
80 |
|
|
|
10 |
|
|
|
e |
|
|
|
297 |
|
Research, development and exploration
|
|
|
78 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
137 |
|
Currency translation adjustments
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59 |
|
Interest expense
|
|
|
26 |
|
|
|
152 |
|
|
|
256 |
|
|
|
g |
|
|
|
434 |
|
Asset impairment charge
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,284 |
|
|
|
6,619 |
|
|
|
547 |
|
|
|
|
|
|
|
10,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
83 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income and mining taxes and minority interest
|
|
|
1,317 |
|
|
|
1,546 |
|
|
|
(547 |
) |
|
|
|
|
|
|
2,316 |
|
Income and mining taxes
|
|
|
408 |
|
|
|
511 |
|
|
|
(180 |
) |
|
|
i |
|
|
|
739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before minority interest
|
|
|
909 |
|
|
|
1,035 |
|
|
|
(367 |
) |
|
|
|
|
|
|
1,577 |
|
Minority interest
|
|
|
73 |
|
|
|
155 |
|
|
|
(123 |
) |
|
|
h |
|
|
|
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from continuing operations
|
|
|
836 |
|
|
|
880 |
|
|
|
(244 |
) |
|
|
|
|
|
|
1,472 |
|
Loss on discontinued operations, net of tax
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
836 |
|
|
|
872 |
|
|
|
(244 |
) |
|
|
|
|
|
|
1,464 |
|
Dividends on preferred shares
|
|
|
|
|
|
|
17 |
|
|
|
(17 |
) |
|
|
j |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings applicable to common shares
|
|
$ |
836 |
|
|
$ |
855 |
|
|
$ |
(227 |
) |
|
|
|
|
|
$ |
1,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
4.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
3.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H-5
INCO LIMITED
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(tabular amounts in millions of US dollars, except per share
amounts)
|
|
|
The unaudited pro forma consolidated financial statements of
Inco Limited (Inco) have been prepared in accordance
with generally accepted accounting principles in Canada. These
unaudited pro forma consolidated financial statements should be
read in conjunction with the audited consolidated financial
statements of Inco as at and for the year ended
December 31, 2005, and the unaudited interim consolidated
financial statements as at and for the three months ended
March 31, 2006 including the related notes thereto. |
|
|
The unaudited pro forma consolidated financial statements have
been prepared assuming that the acquisition of Falconbridge
Limited (Falconbridge) had been completed as of
January 1, 2005 for the consolidated statements of earnings
and as of March 31, 2006 for the consolidated balance sheet. |
|
|
These unaudited pro forma consolidated financial statements are
not intended to reflect the financial position and results of
operations which would have actually resulted had the
transaction and other adjustments been effected on the dates
indicated. Further, the pro forma results of operations are not
necessarily indicative of the results of operations that may be
obtained by Inco in the future. |
|
|
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|
|
|
The unaudited pro forma consolidated financial statements have
been compiled using the significant accounting policies as set
out in the audited consolidated financial statements of Inco for
the year ended December 31, 2005 which, based on publicly
available information, are assumed to be substantially similar
to the significant accounting policies as set out in the audited
consolidated financial statements of Falconbridge for the year
ended December 31, 2005 and the unaudited consolidated
financial statements for the three months ended March 31,
2006. Upon consummation of the transaction, the accounting
policies will be formally conformed and it is possible that
adjustments may result. |
|
|
3. |
PRO FORMA ADJUSTMENTS AND ASSUMPTIONS |
|
|
|
The pro forma consolidated financial statements include the
following pro forma assumptions and adjustments: |
|
|
|
|
(a) |
The acquisition is accounted for using the purchase method of
accounting, whereby Falconbridges assets and liabilities
are revalued to their fair value and its shareholders
equity is eliminated. Incos assets and liabilities are not
revalued. The pro forma adjustments reflect Incos
acquisition of 100 per cent of Falconbridges net
assets at their fair values as at March 31, 2006 and the
accounting for Falconbridge as a wholly-owned subsidiary.
Falconbridges interests in joint ventures in which it has
joint control are reflected using the proportionate
consolidation method. |
|
|
|
The determination of the purchase price, based on
managements preliminary estimate, is as follows: |
|
|
|
|
|
Purchase Price |
|
|
|
|
|
Consideration in Inco common shares
|
|
$ |
13,009 |
|
Consideration in Inco options issued
|
|
|
91 |
|
Cash
|
|
|
4,328 |
|
Transaction costs
|
|
|
125 |
|
|
|
|
|
Total
|
|
$ |
17,553 |
|
|
|
|
|
|
|
|
The purchase price was calculated using a price of $66.29 for
each Inco common share issued which represents the weighted
average Inco share price over the five day period extending from
May 11, 2006 to May 16, 2006, the two days before and
the two days after the date of announcement. The cash portion of
the purchase price will be financed through committed loan
facilities. |
H-6
|
|
|
The allocation of the purchase price, based on
managements preliminary estimate, is as follows: |
|
|
Allocation of Purchase Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value | |
|
Purchase Price | |
|
|
Book Value | |
|
Increment | |
|
Allocation | |
|
|
| |
|
| |
|
| |
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
1,066 |
|
|
$ |
|
|
|
$ |
1,066 |
|
Accounts receivable
|
|
|
1,269 |
|
|
|
|
|
|
|
1,269 |
|
Inventories
|
|
|
1,788 |
|
|
|
465 |
|
|
|
2,253 |
|
Unallocated purchase price
|
|
|
|
|
|
|
4,508 |
|
|
|
4,508 |
|
Property, plant and equipment and other non-current assets
|
|
|
8,819 |
|
|
|
11,200 |
|
|
|
20,019 |
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
12,942 |
|
|
$ |
16,173 |
|
|
$ |
29,115 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt due within one year
|
|
$ |
853 |
|
|
$ |
|
|
|
$ |
853 |
|
Other current liabilities
|
|
|
1,668 |
|
|
|
125 |
|
|
|
1,793 |
|
Long-term debt
|
|
|
2,910 |
|
|
|
129 |
|
|
|
3,039 |
|
Deferred income and mining taxes
|
|
|
1,264 |
|
|
|
3,085 |
|
|
|
4,349 |
|
Other long-term liabilities
|
|
|
651 |
|
|
|
495 |
|
|
|
1,146 |
|
Minority interest
|
|
|
382 |
|
|
|
|
|
|
|
382 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$ |
7,728 |
|
|
$ |
3,834 |
|
|
$ |
11,562 |
|
|
|
|
|
|
|
|
|
|
|
Total net assets purchased
|
|
$ |
5,214 |
|
|
$ |
12,339 |
|
|
$ |
17,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The book value of Falconbridge, as shown above: |
|
|
|
|
|
Reflects Falconbridges stated book values as at
March 31, 2006. |
|
|
|
Reflects the assumed exercise of vested stock options; and |
|
|
|
Reflects the reclassification of the equity portion of preferred
shares to minority interest. |
|
|
|
Due to limited publicly available information, this allocation
is based upon preliminary estimates and certain assumptions with
respect to the fair value increment associated with the assets
to be acquired and the liabilities to be assumed. The actual
fair values of the assets and liabilities will be determined as
of the date of acquisition and may differ materially from the
amounts disclosed above in the assumed pro forma purchase price
allocation due to the changes in fair values of the assets and
liabilities between March 31, 2006 and the date of the
transaction, and as further analysis is completed. The actual
allocation of the purchase price may result in different
adjustments being expensed in the consolidated statement
of earnings. |
|
|
To the extent that the unallocated purchase price is not
allocated to the assets acquired and liabilities assumed in the
final purchase price allocation, the balance will represent
goodwill. This goodwill reflects the substantial synergies
available to Inco as a result of the acquisition. |
|
|
|
|
(b) |
The adjustment to cost of sales and other expenses reflects the
elimination of deferred gains on derivative contracts on the pro
forma consolidated statements of earnings. The deferred gains
arise from derivative contracts that qualified for hedge
accounting and were realized as a reduction of the cost of
operations over the original delivery schedule of contracts. The
gains would not have been realized in the year ended
December 31, 2005 and the three months ended March 31,
2006 since the purchased derivative contracts would have been
fair valued as of January 1, 2005. |
|
|
(c) |
The adjustment to cost of sales and other expenses reflects the
elimination of amortized past service costs and amortized net
actuarial losses relating to post retirement benefits which were
expensed in the year ended December 31, 2005 and the three
months ended March 31, 2006. |
|
|
(d) |
Represents the amortization of the preliminary fair value
increment allocated to operating capital assets. The pro forma
amortization excludes the total amount of the purchase price
allocation not subject to amortization of approximately
$5.5 billion representing the unallocated purchase price
and amounts allocated to non-operating assets. On finalization
of the purchase price allocation, if this amount is allocated to
operating assets, pro forma amortization would change by
approximately $239 million, before taxes, for the year
ended December 31, 2005 and by $60 million for three
months ended March 31, 2006. Pro forma amortization and the
above noted sensitivity have been based on a remaining weighted
average estimated economic life of 23 years, and a
reduction of one year in the weighted average estimated economic
life would alter pro forma amortization by $18 million,
before taxes, for the year ended December 31, 2005 and by
$5 million for three months ended March 31, 2006. |
|
|
(e) |
The adjustment to selling, general and administrative expenses
reflects the expense relating to the unvested stock options to
be issued pursuant to the acquisition of Falconbridge. |
|
|
(f) |
The adjustment to cost of sales and other expenses reflects the
amortization of the allocation of the purchase price to equity
accounted investments. |
H-7
|
|
|
|
(g) |
The adjustment to interest expense reflects the issuance of
CDN$4.8 billion of debt in connection with the acquisition
of Falconbridge and the amortization of the fair market value
increment related to the Falconbridge debt. |
|
|
(h) |
The adjustment reflects the elimination of the Falconbridge
minority interest in earnings assuming that Falconbridge and
Noranda were amalgamated at January 1, 2005. |
|
|
(i) |
The adjustment reflects the tax effect on the above adjustments. |
|
|
(j) |
The adjustment reflects the reclassification of preferred share
dividends to minority interest. |
|
|
|
The pro forma consolidated financial information does not
reflect and does not give effect to (1) any special items
such as payments pursuant to change of control provisions or
integration costs which may be incurred as a result of the
acquisition (2) operating efficiencies, cost savings and
synergies that are expected to result from the acquisition, or
(3) the impact of undertakings that Inco is prepared to
make in order to address regulatory clearance requirements, as
there are no current agreements providing for implementation of
such undertakings which, however, are expected to be carried out
after the completion of the Offer, and no adjustments have
been made to eliminate historical sales between Inco and
Falconbridge as the amounts are not considered significant. |
|
|
5. |
PRO FORMA EARNINGS PER SHARE |
Earnings
per share computation for the three months ended March 31,
2006
|
|
|
|
|
|
|
Basic pro forma earnings per share computation
|
|
|
|
|
Numerator:
|
|
|
|
|
|
Pro forma net earnings
|
|
$ |
587 |
|
|
|
|
|
|
Pro forma earnings applicable to common shares
|
|
$ |
587 |
|
|
|
|
|
Denominator (thousands of shares):
|
|
|
|
|
|
Inco shares outstanding
|
|
|
192,704 |
|
|
Common shares issued to Falconbridge shareholders
|
|
|
196,246 |
|
|
|
|
|
|
Pro forma weighted-average common shares outstanding
|
|
|
388,950 |
|
|
|
|
|
Basic pro forma earnings per common share
|
|
$ |
1.51 |
|
|
|
|
|
Diluted pro forma earnings per share computation
|
|
|
|
|
Numerator:
|
|
|
|
|
|
Pro forma net earnings
|
|
$ |
587 |
|
|
Dilutive effects of convertible debentures
|
|
|
2 |
|
|
|
|
|
|
Pro forma net earnings applicable to common shares, assuming
dilution
|
|
$ |
589 |
|
|
|
|
|
Denominator (thousands of shares):
|
|
|
|
|
|
Pro forma Inco shares outstanding
|
|
|
388,950 |
|
|
Dilutive effect of securities:
|
|
|
|
|
|
|
Convertible debentures
|
|
|
27,718 |
|
|
|
Stock options
|
|
|
1,049 |
|
|
|
Warrants
|
|
|
5,022 |
|
|
Stock options issued on transaction
|
|
|
179 |
|
|
|
|
|
|
Pro forma weighted-average common shares outstanding
|
|
|
422,918 |
|
|
|
|
|
Diluted pro forma earnings per share
|
|
$ |
1.39 |
|
|
|
|
|
H-8
Earnings
per share computation for the year ended December 31,
2005
|
|
|
|
|
|
|
Basic pro forma earnings per share computation
|
|
|
|
|
Numerator:
|
|
|
|
|
|
Pro forma net earnings
|
|
$ |
1,464 |
|
|
|
|
|
|
Pro forma earnings applicable to common shares
|
|
$ |
1,464 |
|
|
|
|
|
Denominator (thousands of shares):
|
|
|
|
|
|
Inco shares outstanding
|
|
|
189,425 |
|
|
Common shares issued to Falconbridge shareholders
|
|
|
196,246 |
|
|
|
|
|
|
Pro forma weighted-average common shares outstanding
|
|
|
385,671 |
|
|
|
|
|
Basic pro forma earnings per common share
|
|
$ |
3.80 |
|
|
|
|
|
Diluted pro forma earnings per share computation
|
|
|
|
|
Numerator:
|
|
|
|
|
|
Pro forma net earnings
|
|
$ |
1,464 |
|
|
Dilutive effects of convertible debentures
|
|
|
6 |
|
|
|
|
|
|
Pro forma net earnings applicable to common shares, assuming
dilution
|
|
$ |
1,470 |
|
|
|
|
|
Denominator (thousands of shares):
|
|
|
|
|
|
Pro forma Inco shares outstanding
|
|
|
385,671 |
|
|
Dilutive effect of securities:
|
|
|
|
|
|
|
Convertible debentures
|
|
|
31,349 |
|
|
|
Stock options
|
|
|
1,008 |
|
|
|
Warrants
|
|
|
4,218 |
|
|
Stock options issued on transaction
|
|
|
141 |
|
|
|
|
|
|
Pro forma weighted-average common shares outstanding
|
|
|
422,387 |
|
|
|
|
|
Diluted pro forma earnings per share
|
|
$ |
3.48 |
|
|
|
|
|
6. SUBSEQUENT EVENT
|
|
|
On March 16, 2006, Falconbridge announced its intention to
redeem $500 million of its junior preference shares
(Series 1, 2 and 3). The junior preference shares were
redeemed on April 26, 2006 from holders of record on
March 22, 2006. |
|
|
On May 18, 2006, Falconbridge announced that it intends to
redeem the remaining balance of its outstanding junior
preference shares (Series 1, 2 and 3) for a total of
approximately $253 million. The junior preference shares
will be redeemed on June 28, 2006. Internal cash resources
are intended to be used to fund the redemption. |
|
|
In the pro forma consolidated balance sheet as at
March 31, 2006 there is $750 million of junior
preference shares (series 1, 2 and 3) in long-term debt. |
H-9
QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE
INFORMATION IN
THIS DOCUMENT SHOULD BE DIRECTED TO THE INFORMATION AGENT:
100 University Avenue
11th Floor, South Tower
Toronto, Ontario
M5J 2Y1
North American Toll Free Number: (866) 264-4715 or
Collect (416) 847-7159
Bank and Bankers call (212) 440-9800