BY STAN SUDOL
Are the Xstrata boys just predatory sharks with their decision to swallow the nickel Lion (Ore) cub – as many pundits are saying – or astute businessmen looking for strategic growth?
Ian Pearce, CEO of Xstrata Nickel, would certainly agree with the saying, “There is a unique industrial logic in the combination of these two businesses.”
Pearce, along with Colin Steyn, CEO of LionOre Mining International Ltd., announced the friendly takeover at a media conference in Toronto Monday. Xstrata is offering $18.50 (CDN) cash per LionOre share, contingent on at least 66 2/3 per cent control, for the deal to go through.
The $4.6 billion transaction should be easily digested by Xstrata PLC, the fifth largest mining company in the world, while the board of directors of LionOre unanimously approved the takeover.
Pearce said, “This is an important step in our strategy to grow Xstrata Nickel into a truly global nickel business.
"With LionOre, we unleash opportunities to create value through additional production, strong synergy potential, access to new markets and increased opportunities for growth, and through optimization of technology.”
Some pundits were whining that one of the few Canadian nickel miners left on the Toronto Stock Exchange was being taken over by a foreign company. Considering the locations of LionOre’s deposits and operations, this is a non-issue.
LionOre is a nickel concentrate – partially pure nickel – producer with operations in Western Australia, South Africa and Botswana. It also owns a gold mine in Western Australia.
CVRD Inco and Xstrata Nickel are labelled integrated producers with mines, mills, smelters and refineries that produce various grades of pure nickel as well as ferronickel – a nickel, iron mix – in some facilities.
Xstrata currently refines some of LionOre’s nickel at its refinery in Kristainsand, Norway. This is the same refinery that would have been sold to LionOre to keep European Union regulators happy if the original Inco/Falconbridge merger was successful.
LionOre owns the proprietary Activox hydrometallurgical process (using water and chemicals) that is more environmentally friendly and cost effective than traditional smelting (fire) technology.
The process is currently being demonstrated at the Tati Nickel in Botswana. The plant has been operating continuously since mid-2004 and has consistently exceeded design expectations according to the LionOre website.
This process is for sulphide nickel deposits, not laterites. Activox has the potential to replace nickel smelters which emit sulphur pollution and average about one billion dollars to build. Activox construction costs are much lower and can be economically built to handle smaller quantities.
LionOre claims to be the 10th largest nickel producer in the world producing about 30,000 tonnes of nickel in 2006. Xstrata Nickel is the number four producer with approximately 110,000 tonnes. There are no regulatory clearances in any countries to hold up the deal.
Although LionOre’s current production is quite small, the company has a few projects that may almost triple current production to 80,000 tonnes per year by the end of this decade if everything goes according to plan.
In addition, LionOre controls the Honeymoon Well deposit in Australia. This is considered one of the world’s largest undeveloped deposits with an indicated resource of over one million tonnes of contained nickel.
Colin Steyn, president and CEO of Lion Ore said, “This is an extremely attractive opportunity for our shareholders to lock in the substantial growth in value they have seen recently in their investment.
"To realize cash at this point in the commodity cycle eliminates the risk that our shareholders would remain exposed to as a stand-alone group, and enables them to realize value for their investment at a time of historically high nickel prices.”
However, allegedly some shareholders feel the 5.8 percent premium over the closing price of $17.49 per LionOre share on the Toronto Stock Exchange on March 23 is too low.
Irrevocable lock-up agreements from LionOre shareholders represent about 19 percent of company stock.
Does this make it a done deal? Give your head a shake!
Nickel is too scarce, too strategic and absolutely critical for an expanding global economy, especially China’s explosive growth. And with these historically high prices – notwithstanding the recent downward corrections of the past week – there will definitely be another predator entering the pool and a lot of blood in the water before the final outcome is decided.
This is just the beginning!
Stan Sudol is a Toronto-based communications consultant and policy analyst who writes extensively on mining issues. ([email protected])
