Local analysts punched the air last week as the SwissÔÇôbased mining giant, Xstrata Nickel, upped its bid for LionOre Mining International to 25 Canadian dollars per share as it tries to snatch the trail-blazing Activox technology.
Xstrata Nickel announced its offer from 18.50 Canadian dollars to 25 dollars in cash for each LionOre share against Norilsk Nickel’s unsolicited offer made a fortnight ago of 21.50 dollars per share.
According to the new calculations the bid values the company at approximately 6.2 billion Canadian dollars (US$ 5.6 billion or P 34 billion), against US 5.1 billion Norilsk offers, and provides additional 872 million Canadian dollars to LionOre shareholders.
Both Capital Securities and Investec Asset Management praised the move saying that “is good for local investors” but they did not rule-out a possibility of further counter bid even from some companies that have not publicly shown interest.
“This augurs well for Batswana investors who have invested in LionOre. It means that they are now destined to get more cash from their investment,” a leading resource sector analyst, Leutlwetse Tumelo of Capital Securities, said.
The two companies battling to get LionOre shares have openly stated that top among other things they are more interested in the trail-blazing technology, Activox, which is still under construction at Tati Nickel mine.
The P 4 billion Activox technology’s construction started in February this year. It is the first of its kind in the world ÔÇô and it is expected to be fully operational by 2009. Activox is a new environmentally friendly technology which uses leaching technique that eliminates the traditional and costly smelting process. As the technology of the future, it will be the key point between profit and loss in the nickel mining industry as it enables operations once thought to be uneconomical under the current smelter technology to be economical.
“LionOre has some rich operations in Australia, Botswana and South Africa and it is also embarking on some aggressive expansion plans. But most important of all is the Activox technology which the company holds some patent rights on,” Tumelo said.
“This is very good for local investors,” said Alphonse Ndzinge, an analyst at Investec Asset Management, adding that “they might be a surprise counter bid in the near future.”
However, Norilsk played its cards close to its chest on Thursday saying that it was engaging its financial and legal advisor on the next step to take and assured investors that the decision would be made known shortly. But it stated that it is surprised by the high break fee under the new arrangement between Xstrata and LionOre.
Together with its financial and legal advisors, Norilsk Nickel is examining the information pertaining to Xstrata’s announced offer and will evaluate its alternatives. It expects to announce its next steps shortly.
“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.”
However, the LionOre board, which was advised by JP Morgan, said it had determined the Norilsk offer and concluded that it is no longer a superior proposal for purposes of the support agreement between Xstrata and LionOre and accordingly rejects Norilsk’s offer.