Thursday, April 2, 2020

Norilsk Nickel lifts LionOre offer to $6.25 billion

The battle to control LionOre Mining International continued last week as Russia’s Norilsk Nickel lifted its offer for the Canadian nickel miner to C$6.8 billion ($6.25 billion), a 10 percent premium to Xstrata’s last bid.

Norilsk Nickel said the new offer is worth C$27.50 per share of LionOre’s ordinary shares compared to Xstrata’s last offer of C$25 a share.

“Norilsk Nickel’s decision to increase its offer reflects the quality and strategic value of LionOre to our company, which will give us greater scale in key commodities, enhanced geographic diversification and an exciting pipeline of growth projects,” said Norilsk Nickel’s general director, Denis Morozov, in a statement.

The bold move was against last week’s comment when the company complained about the “break fee” which it said had been raised above the roof.

“We are surprised and disappointed that the announcement includes an
unreasonably high break fee payable to Xstrata of approximately 4.9 percent of the bid’s value, which is over Cdn$300 million and well above the previous 2.8 percent break fee,” said Norilsk Nickel’s General Director, Denis Morozov. “This high level of break fee is clearly inconsistent with corporate governance trends aimed at encouraging a healthy bidding process to maximize shareholder value, and does not encourage a level playing field for all participants.”

“I think the fight for LionOre International is far from over. We are likely to see more bids coming on board. And that would be good for the shareholders,” a leading resource analyst, Leutlwetse Tumelo, of Capital Securities, said last month.

LionOre, which is headed by Colin Steyn, is attractive because of its rich nickel resources at Tati Nickel mine ÔÇösome 45 kilometres south-east of Francistown and its reserves in South Africa and Australia. It is the tenth biggest nickel mining company in the world and is also strengthened by its trail-blazing technology Activox, which uses a leaching technique that eliminates the traditional and costly smelting process.

The bidding companies are interested in both the company’s resources and acquiring the Activox technology which is tightly held under LionOre International patent rights.
The Russian company said its bid has been discounted due to the “excessive” C$305 million break fee that will go to Xstrata if the U.K.-listed, Swiss-headquartered miner doesn’t up its own offer further.

LionOre hasn’t commented on the offer as yet.

Analysts on Wednesday had their doubts that Xstrata would be able to leap-frog Norilsk Nickel once more with a better bid.

“While the current nickel price continues to exceed the expectations of nearly all commodity analysts and commentators, the current bid appears to be at the high end of where deals have been done relative to longer-term price, and thus earnings and cash flow, expectations,” said Victor Lazarovici, an analyst at BMO Capital Markets.

He said the offer is priced at 149.5 percent of his net-present-value estimate for LionOre.
Xstrata first bid C$18.50 a share for LionOre in March before Norilsk Nickel returned with a C$21.50 bid.
Toronto-based LionOre earns the bulk of its money from nickel sales, although it also sells copper, gold and other minerals. It owns mines in South Africa, Botswana and Australia.

LionOre earned $429 million in 2006 as nickel prices grew to $11.02 a pound from $6.68 in 2005.

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