Brazil's CVRD bids $17B for Inco

The world's biggest producer of iron ore unveiled a $17-billion cash takeover bid for Inco Ltd. on Friday.

Cia. Vale do Rio Doce of Brazil said it would offer $86 per share for Inco, the world'sNo. 2nickel producer.

"The price of Inco reflects all the qualities of the company," CVRD chief executive officer Roger Agnelli said in a conference call from Rio de Janeiro.

"It's not cheap. It's a fair price, a full price for the company, and we feel that even though it is paying this price, CVRD will be in a position to obtain good returns."

The offer, he added, should be attractive to Inco shareholders, as it"outstrips" rival bids from Vancouver-based Teck Cominco Ltd. and U.S.-based Phelps Dodge.

On Monday, Inco rejected a recently raised offer from Teck Cominco, worth $17.5-billion in cash and shares, but left the door open for further talks.

Phelps Dodge has bid $20.25 plus 0.672 of one of its shares for each Inco share.

CVRD's all cash-deal would create one of the largest mining companies in the world and the largest nickel producer, while benefiting shareholders, CVRD said.

It would "allow Inco shareholders to realize upfront in cash Inco's profitable growth potential without incurring the risk of that such potential will not be realized," the company said in its announcement.

CVRD said it was drawn to Inco because it is the second-biggest nickel producer in the world, with assets in Canada, New Caledonia and Indonesia. It also has among the world's lowest production costs.

"The combination of CVRD and Inco will create one of the three largest diversified mining companies in the world, with leading global market positions in iron ore, pellets, nickel, bauxite, alumina, manganese and ferro-alloys, and an exciting world-class pipeline of projects, supported by a large-scale, long-life and low-cost asset portfolio," CVRD said in a release.

CVRD may not be a familiar name in laymen's circles, but it is well-known to miners.

It is the largest metals and mining company in the Americas, with a market capitalization of about $55 billion US. It is also the largest global producer of iron ore and pellets, the world's second-largest producer of manganese and ferro-alloys, one of the world's lowest cost producers of aluminum products and a producer of copper, potash and kaolin.

Created by the Brazilian government in 1942 and privatized in 1997, CVRD has done several deals in Canada.

Last year, it spent $941 million to take over Canadian junior miner Canico Resource Co. It also expressed an interest in miner Noranda Inc. before that company merged with Falconbridge Ltd. in 2004. CVRD has also negotiated agreements with Alcan Aluminum Ltd. and a royalty deal with Inco.

It began as a government corporation that gained control of Itabira Iron Ore Co., an exploration company that dated back to the 1900s, but it was acquired by the National Steel Co. in 1997 and went private.

Its foreign holdings include companies in the United States, Argentina, Chile, Peru, France, Norway and Bahrain, as well as offices in New York, Brussels, Tokyo and Shanghai.

It trades on the New York Stock Exchange.

Inco's share price moved up $2.83, or 3.3 per cent, to close at $89.08 on the Toronto Stock Exchange Friday, just shy of the 52-week highof $90.60.

CVRD fell 48 cents to $22.41 US on the New York Stock Exchange.