Xstrata has returned fire in the takeover battle for LionOre Mining International, Australia’s third largest nickel producer, by increasing its takeover bid to $6.7 billion.
Xstrata late yesterday revealed an increased all-cash offer for LionOre which has boosted its offer price from $C18.50 to $C25.00 for every LionOre share, valuing the company at $C6.2 billion ($A6.7 billion).
The new bid from Xstrata tops the $C21.50 per share offer from Russian nickel group, Norilsk that valued LionOre at $C5.3 billion ($A5.8 billion).
Xstrata’s new bid has been endorsed by LionOre’s board.
In a statement issued late yesterday the company said: “The board of directors of LionOre, after consultation with its financial and legal advisers, has unanimously approved entering into the amending agreement and recommends that LionOre shareholders tender to the increased offer.”
“The increased Xstrata offer provides $C872 million ($A947 million) more cash to the LionOre shareholders than the Norilsk offer.
“The board of directors of LionOre has also determined that the Norilsk offer is no longer a superior proposal, and accordingly recommends that LionOre shareholders reject the Norilsk offer.”
LionOre has operations in Australia and Africa and has forecast an annual production of up to 44,000 tonnes of nickel in 2007.
As part of the deal, Xstrata has “lock-up” agreements with LionOre’s directors, management and key shareholders for 19.5 per cent of the company.
Xstrata says its offer is free to proceed after clearing regulatory hurdles in Canada and Europe.
The bid closes on May 25 while Norilsk’s bid is due to end in June.
The onus is now on the Russian company to come back with a superior offer.
Trading in LionOre shares was halted yesterday. The shares last traded at $25.98 on the ASX. The new offer has a value around $27 a share.
The offer came only hours after LionOre revealed the full extent of the world nickel price boom on its earnings.
LionOre revealed an explosion in net profit, thanks to record prices and a 45 per cent lift in metal output.
The company said its first quarter earnings totalled $US148.3 million ($A178.51 million), up from $US13.2 million ($A15.89 million) in the corresponding quarter of last year.
And the company said earnings would have been higher if not for a loss on its forward sales contracts of an unrealised after-tax loss of $US87.5 million.
That would have boosted net earnings to $US235.8 million (or around $A282 million).
The company, which is Australia’s third largest nickel miner after BHP Billiton and Minara Resources, also said that its outlook was positive.
“The short-term outlook for the company’s performance is positive, with the trend set over the past two quarters poised to continue, supported by a backdrop of robust commodity prices and LionOre’s production growth profile,” chief executive Colin Steyn said in a statement with the results.
“We remain on track to deliver the group’s 2007 production target of 44,300 tonnes of payable nickel.”
Net mineral sales for the first three months of 2007 were $US525.4 million, compared to $US126.7 million for the corresponding period last year.
“The nickel price has continued its dramatic climb to new historic highs during the quarter, with an average price for the quarter of $US18.80 a pound, compared to $US6.72 a pound for the same period last year,” Mr Steyn said. (Prices are around $US53,000 a tonne on the London metal Exchange)
“Whilst this has boosted our sales and earnings, it is also the primary driver for the increase in our cash costs due to the price participation associated with the company’s smelting and refining contracts.
“However, underlying costs are being reasonably contained.”
Operating earnings were $US343.5 million (around $A412 million) while LionOre’s cash balance as at the end of March was “an unprecedented $US643.4 million” (around $A772 million).
The CEO said it should also be noted that embedded profit on payable nickel in inventory at the end of the quarter amounted to $104 million, or $0.42 per diluted share at the nickel prices and exchange rates that prevailed at March 31st and the company was looking to speed up shipments and cut its stocks of unsold material.
Group nickel production was solid, Mr Steyn said, despite both the Nkomati MSB mine in South Africa and Emily Ann in Western Australia nearing the end of their lives.
“The various capital projects implemented last year at Tati and Black Swan are yielding positive results, with Black Swan setting new mining and milling records,” Mr Steyn said.
“Lake Johnston faced some operational issues which affected production; however, measures are being taken to rectify these.”
Total Nickel production for the three months to March was 8,753 tonnes, up from 6,009 tonnes from the corresponding period last year.
In terms of growth projects, LionOre reported that its Nkomati Interim Expansion Project was tracking well, on budget and on schedule to be commissioned in September 2007, with full production expected in December 2007.
The feasibility study for the Nkomati Phase 2 Expansion was due for completion by the end of June 2007, targeting 16,000 tonnes of payable nickel by 2010 while construction of the Activox/DMS growth project was well under way.
