LionOre taking its share (September 18, 2006)

With the price of nickel surging in recent weeks and traditional titans Inco (N-T, N-N), and Falconbridge (FAL-T, FAL-N) fading away, LionOre Mining International (LIM-T, LMGGF-O, LOR-L) is establishing itself as the market’s next nickel play of choice.

Over the week of Aug. 14-18, the Toronto-based nickel producer’s shares were up roughly 7%, and broke through the $7.00 threshold. The shares have gained just over 48% since June 13.

“We’re seeing investment push into other nickel producers,” says Orest Wowkodaw, an analyst with Canaccord Capital. “With Inco and Falconbridge disappearing, there are very few ways to play nickel from a production standpoint . . . LionOre is the next in line in terms of production.”

Wowkodaw says LionOre has been undervalued for some time, but with the thinning of the nickel field, and with stronger production and financial news coming from LionOre’s head office, investors are catching up to its story.

Canaccord gives LionOre a “buy” rating with a target price of $8.50. Wowkodaw doesn’t hold LionOre shares and Canaccord hasn’t had an investment banking relationship with the company in the last 12 months.

LionOre has nickel operations in Western Australia, South Africa and Botswana, and a gold mine in Western Australia. In the second quarter it managed a 4% increase in nickel production from the same period last year. Production for the quarter came in at 7,016 tonnes.

LionOre says so far this year, three out of its four nickel operations are exceeding production targets — a figure that bodes well for its second-half target of 34,100 tonnes of payable nickel.

The company’s second-quarter financials are also encouraging. Lion Ore reported record profits for the quarter of $62 million, or 28 per share, crediting high metal prices and steady production for the growth.

And production should become more robust once its Tati mine in Botswana comes on-stream.

LionOre recently announced the approval of its trademark Activox system for the site. The system — which uses a chemical solution to extract metals from finely ground ore at low temperatures and moderate pressure — will remove the smelting step from the company’s flow sheet, and allow it to become a fully vertically integrated nickel producer.

LionOre has an 85% stake in Tati, with the Botswana government holding the remainder.

The company plans to have Tati up and running in 2009, with the potential to produce 22,000 tonnes of nickel per year.