First Nickel Inc.
TSX : FNI

First Nickel Inc.

May 31, 2005 18:06 ET

First Nickel Inc. Enters Into a Binding Agreement of Purchase and Sale With Falconbridge Limited to Acquire the Lockerby Mine, Sudbury Basin

TORONTO, ONTARIO--(CCNMatthews - May 31, 2005) - First Nickel Inc. (TSX:FNI) ("First Nickel") is pleased to announce that it has entered into a definitive asset purchase agreement with Falconbridge (the "Asset Purchase Agreement") pursuant to which First Nickel will acquire (the "Acquisition") all of the undertaking, property and assets comprising, relating to or otherwise forming part of the inactive nickel mine located near Sudbury, Ontario, commonly known and referred to as the "Lockerby Mine" (the "Lockerby Mine") for a purchase price of $8,622,403, subject to and/or waiver of standard closing conditions such purchase price to be satisfied by First Nickel by a combination of cash, assumption of liabilities and the issuance of 2,182,863 common shares.

First Nickel is also pleased to announce that in addition to and following the closing of the Acquisition, Falconbridge has agreed, pursuant to a non-brokered private placement, to subscribe for 2,222,222 Common Shares of First Nickel at $0.90 per Common Share for total consideration of $2,000,000 (the "Private Placement"). The Common Shares issued under the private placement will be issued at $0.90 per common share which represents a premium on the market price of approximately 29%. Upon completion of the Private Placement Falconbridge will hold approximately 21.9% of the issued and outstanding shares of First Nickel. The Private Placement remains conditional upon the approval of necessary regulatory authorities, including the Toronto Stock Exchange, and is expected to close today.

First Nickel, further to its press release of April 29, 2005, is pleased to announce that, following the closing of the Acquisition the exchange of the Class A and B Special Notes previously issued on April 29, 2005 into Series A Debentures and Common Shares, respectively, will be completed. Upon completion of the exchange First Nickel will have an issued and outstanding face value of Series A Debentures of CDN$14,500,000 and will have issued an additional 3,625,000 common shares which issuance will bring First Nickel's total of issued and outstanding common shares to 53,046,098, including the common shares to be issued under the Acquisition and the Private Placement.

Under the terms of the Asset Purchase Agreement First Nickel will (i) grant to Falconbridge a back-in right to re-acquire a 51% interest in the Lockerby Mine in the event that Falconbridge determines that newly discovered mineral resources contain greater than 150 Million lbs of nickel equivalent by funding 200% of First Nickel's cash exploration expenditures on such resources, upon which a joint venture shall form with Falconbridge as operator; (ii) assume the sole responsibility and shall indemnify Falconbridge in respect of any future remediation or reclamation obligations or other environmental related costs or liabilities related to the Lockerby Mine; (iii) grant to Falconbridge a right of first refusal whereby, should First Nickel receive a bona fide third party offer for the purchase of all of its interest in the Lockerby Mine, Falconbridge will have the right but not the obligation to re-purchase the Lockerby Mine on the terms and conditions set out in the bona fide third party offer; and (iv) grant to Falconbridge the right to nominate two directors to its Board of Directors.

In a separate but related agreement First Nickel will grant to Falconbridge the right, on an annual basis, to purchase up to 100% of the ore handled through the underground infrastructure, including ore derived from third party properties outside the Lockerby Mine. Falconbridge will pay First Nickel for recovered accountable metals derived from the Lockerby mine, less applicable milling, smelting and refining charges based upon an agreed formula and payment terms.

Falconbridge currently holds approximately 16.016% of the issued and outstanding Common Shares of First Nickel. As a result, Falconbridge is a related party of First Nickel and the Acquisition constitutes a related party transaction under Ontario Securities Commission Rule 61-501 - "Issuer Bids, Insider Bids, Business Combinations and Related Party Transactions" ("Rule 61-501"). Upon completion of the Acquisition but prior to completion of the Private Placement, Falconbridge will hold approximately 19.9% of the issued and outstanding shares of First Nickel. The Acquisition remains conditional upon the approval of necessary regulatory authorities, including the Toronto Stock Exchange.

There has been no prior valuation in respect of First Nickel which relates to the Acquisition. The Acquisition is not subject to the formal valuation requirements of Rule 61-501 by virtue of subsection 5.5(2) and is also exempt from minority shareholder approval requirements by virtue of subsection 5.7(1), as at the relevant time neither the fair market value of the assets being acquired nor the fair market value of the consideration being paid therefor, will exceed 25% of First Nickel's market capitalization as calculated in compliance with Rule 61-501.

This Material Change Report associated with this press release is not being filed 21 days in advance of the expected date of closing as the Asset Purchase Agreement was not executed until May 31, 2005 and provides for a closing date of the same day to meet the escrow conditions of the Special Note financing completed April 29, 2005. The Material Change Report has been filed as soon as possible after execution of the Asset Purchase Agreement.

The Lockerby deposit was discovered by Falconbridge in 1962 and the mine commissioned in 1976. Up until December 31, 2003 over 8 million tonnes averaging 1.79% Ni and 1.07% Cu were produced. Recent production was from the East and Depth zones and First Nickel plans to continue mining from those zones. The mine shut down in September 2004 and has remained on care and maintenance since that time.

As at May 30, 2005 First Nickel had a total of 45,016,013 common shares issued and outstanding.

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