Metals Report: Inco Alone

News that Inco ( N) failed in its bid to wed fellow Canadian nickel miner Falconbridge ( FAL) could prompt a more opulent marriage down the road, analysts say.

That's because the rejection of the deal by Falconbridge shareholders leaves Inco, the suitor, in play -- even if Inco remains outwardly committed to its acquisition by Phelps Dodge ( PD). Prior to Friday, Inco was to acquire Falconbridge before Phelps Dodge, which is known mainly for copper, swallowed them both.

"It is very likely that Teck Cominco will come in with a higher offer" for Inco, says Parvathy Krishnan, an equity research analyst at Morningstar. "It could even be BHP ( BHP)," the Australian diversified mining conglomerate.

Earlier this year, Teck, another Canadian company, offered $69 a share for Inco, with the proviso that its bid for Falconbridge be dropped. Last Friday, Teck extended its offer until Aug. 16.

Krishnan adds that the failure of the planned marriage between the two nickel miners eliminates the $500 million of synergy savings they had hoped to achieve.

"That's kind of a bummer for the shareholders," she said, but she added that it didn't change the overall economics of the nickel business, which remain good for the near term.

The failure of the Inco proposal would seem to take Falconbridge out of the picture, as Switzerland's Xstrata is now clear to complete the purchase of the 80% of Falconbridge that it doesn't already own. However, not everyone is so sure that things will be so simple.

"It's not a done deal even though Inco has conceded defeat," says Charles Bradford of Bradford Research. "Inco could bid more."

Shares of Inco were trading up 4%, Phelps shares were rallying 3%, while those of Falconbridge were up a hair in afternoon trading. All were likely buoyed by a rallying copper and nickel market as well as the deal fever.

September copper futures jumped 7 cents to close at $3.549 a pound on the Comex division of the New York Mercantile Exchange on continued concerns over a possible strike at Chile's Escondida copper mine.

Nickel saw action too, with workers at Inco's Voisey's Bay mine taking strike action Friday. London Metal Exchange prices jumped 5% to $24,875 a metric ton as inventories fell to 4,272 metric tons, which according to Bloomberg is the lowest since July 1991.

In precious metals, December gold futures edged $2.30 higher to close at $647.50 on the Nymex, with traders having largely anticipated the morning's news release of slowing GDP. Commerce Department data show that the economy grew 2.5% in the second quarter vs. an expected rate of 3%, reducing the chances of a rate hike at next months' Fed meeting.

"Secretary Rice gave only vague indications as to when she might return to the Middle East," notes a daily report from Montreal bullion dealer Kitco.

Shares of the bullion-exchange-traded funds iShares Comex Gold Trust ( IAU) and streetTRACKS Gold Shares ( GLD) were recently trading up a hair. But stocks of gold miners Barrick Gold ( ABX), AngloGold Ashanti ( AU) and Freeport-McMoRan Copper & Gold ( FCX) rebounded to regain part of Thursday's losses, which came after Newmont posted disappointing second-quarter earnings.

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