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Xstrata Terminates Proposal To Buy Canada's Noranda Income Fund - Update

(RTTNews) - Swiss mining company Xstrata plc (XTA.L) Thursday said its wholly owned subsidiary Xstrata Zinc, does not intend to proceed with the acquisition proposal to buy remaining stake in Canada-based open-ended trust Noranda Income Fund (NIF_UN.TO) and also terminated the non-binding Letter Of Intent as the fund rejected Xstrata's boosted bid.

Xstrata, which owns an effective 25% voting and economic interest in Noranda and manages its sole operating asset, the CEZinc processing facility, in July sent a non-binding letter of intent for a potential acquisition of the Fund for a cash consideration of C$3.40 per Priority Unit. The offer represented a premium of 33% over the Fund's July 15 closing.

On August 30, the last day of the minimum 30-day exclusivity period, Xstrata boosted its proposal to C$3.90 per Priority Unit, a premium of 53% to the closing price of the Fund's Units on the day prior to Xstrata's original proposal.

However, the Fund rejected the offer, having taken into account recent market trading activity in its Priority Units. The miner said today it has determined that it is unlikely to agree to terms for an acquisition of the Fund.

Xstrata Zinc's Chief Executive Santiago Zaldumbide commented, "Our proposal was based on our ability to consolidate the CEZinc refinery into Xstrata Zinc's global operations to secure its long-term future and on our considered view, as the operators and managers of the asset, of its prospects on a standalone basis."

It is Xstrata which supplies CEZinc, located in Qu?©bec, with its annual requirement of zinc concentrate through a contract which will expire in May 2017. According to Noranda, CEZinc is the second-largest zinc processing facility in North America and the largest zinc processing facility on the Eastern Seaboard, where the majority of its customers are located.

Xstrata also said that the the trust will lose its tax-free status from January 1, 2011 and later this year must refinance its debts of C$193 million as at June 30. According to the miner, CEZinc faces competition with low-cost processing capacity in China, which has driven treatment changes to very low levels.

"In the future, when the current supply contract expires, CEZinc will need to source zinc concentrates at a time when existing Canadian and Western world sources are likely to be constrained and Chinese demand is expected to have grown further. In the light of these uncertainties, Xstrata's proposal would have provided unitholders with the certainty of cash," Xstrata said.

XTA is currently trading at 1,078 pence per share, down 10.50 pence or 0.96%, on the London Stock Exchange.

In Wednesday's regular trading session, NIF_UN.TO closed trading at $4.10 per share on the Toronto Stock Exchange.