IGO CEO Peter Bradford says the surge in nickel prices and subsequent confusion after trading was stopped a week ago will not force his company to lift its mooted offer price of $3.36 for rival miner Western Areas.
“IGO has no obligation, nor any current intention to increase the consideration in response to these short-term events,” Mr Bradford said in a statement to the ASX on Monday revealing that the bid would be delayed by the problems in the nickel contract on the London Metal Exchange.
He said that IGO “reserves its right” to increase consideration.
“As always, IGO remains disciplined in its approach to growing the business via mergers and acquisitions,” he added.
“IGO acknowledges the recent short-term volatility in the LME nickel market and price, which is primarily attributed to the Russian invasion of Ukraine, which in turn has reportedly created the need for a large industry participant to manage a nickel short position on the LME.”
“In response to the recent significant nickel price volatility (which led to the temporary suspension of nickel trading on the London Metals Exchange on 8 March 2022), Western Areas and the Independent Expert are continuing to consider the implications, if any, on nickel market fundamentals and expectations for medium to long-term nickel prices.
“This is expected to result in a relatively short delay to the indicative Scheme timetable,” IGO added.
The situation with the LMNE nickel contract, its suspension and the huge loss and position held by China’s Tsingshan Holding Group, the world’s biggest nickel producer, remains uncertain.
The Wall Street Journal reported that some of the world’s biggest banks have been working to try and sort out the crisis that leaves them on the hook for billions of dollars owed by Tsingshan.
“JPMorgan Chase & Co., Standard Chartered PLC and BNP Paribas SA were among the banks and brokers seeking to reach an agreement with Tsingshan Holding Group, The WSJ reported on Sunday.
“Trades placed by the Chinese steel and nickel producer on the London Metal Exchange contributed to an uncontrollable rise in prices that led the exchange to halt trading and cancel eight hours’ worth of transactions last Tuesday.
And the Financial Times also reported over the weekend that the Chinese government is looking at a rescue package of its own for Tsingshan Holding Group.
“Now, Beijing, Tsingshan, its brokers and the LME are scrambling to find a solution. One option under consideration is for Tsingshan to swap some of the lower grade nickel it produces — which does not meet the LME’s quality standards — for refined metal held in China’s State Reserves Bureau, according to people familiar with the matter.
“Tsingshan could then deliver the high-grade metal against its contract on the LME, pay off its brokers and close its lossmaking position>
In effect Beijing would indirectly bailout Tsingshan via the Reserves Bureau.
Fitch Ratings reckons that even when the trading problem is fixed up, nickel prices will remain high because of the interruption caused by the invasion of Ukraine directed by President Putin.
“We believe that prices could remain very high in the near and medium-term, in excess of previous historical highs, due to the prospect of greater sanctions from the west, firms pre-emptively self-sanctioning, and possible export restrictions from Russia,” a statement from Fitch read.
“Even an end to the war in Ukraine and a withdrawal of sanctions would, most likely, still leave nickel prices above our previous expectations for the medium term at least,” Fitch said.
That should be good news for Australian nickel producers like iGO, Western Areas, Nickel Mines, BHP and Poseidon Nickel.
IGO shares fell 1.9% to $12.49 while WSA shares were up 0.8% at $3.51 as investors continue to punt on a higher offer from IGO (or someone else?).
