LionOre to consolidate Aussie nickel operations (September 16, 2002)

Looking to consolidate its nickel mining interests down under, Toronto-based LionOre Mining International (LIM-T) has launched an A85-per-share bid for the 20% stake it doesn’t already own in its Australian-listed subsidiary LionOre Australia (Nickel).

The bid is aimed at about 27 million shares, and is valued at around A$23 million.

LionOre Australia’s second largest shareholder, the Golden Arrow Fund, has already agreed to grant LionOre an option to acquire up to 3 million, or about half of its LionOre Nickel shares at the bid price. The shares would boost the parent company’s stake to 82.3%.

LionOre Nickel’s board of directors has recommended that shareholders take no action until it has had time to formally consider the offer.

LionOre Nickel owns the Emily Ann underground nickel mine in the Lake Johnston greenstone belt of Western Australia. Production began last November and by June the mine wrapped up commissioning and achieved its targeted processing rate of 250,000 tonnes of ore per year.

Emily Ann is expected to produce about 5,700 tonnes of payable nickel during 2002, increasing to around 6,700 tonnes at a projected life-of-mine cash cost averaging US$1.60 per lb. nickel (US$3,520 per tonne) thereafter. Probable mineral reserves stand at 1.2 million tonnes grading 3.36% nickel, or 39,500 tonnes of contained nickel, for a mine life of five years.

Three kilometres to the south, LionOre Nickel is looking at the feasibility of developing the 31%-owned Maggie Hays deposit in conjunction with Emily Ann. The study is slated for completion during the fourth quarter. In early May, LionOre Nickel inked a nine-month option deal with BHP Billiton (BHP-N) to acquire the deposit and surrounding tenements outright in return for A$16.7 million over six years.

The preliminary plan calls for a doubling of the Emily Ann’s processing capacity to about 500,000 tonnes per year. Initially, the study will look at exploiting Maggie’s Main massive sulphide zone, followed by mining of the North Shoot zone of stringer massive sulphide mineralization. Combined, the two zones host an indicated resource of 3 million tonnes grading 2.4% nickel; the main sulphide zone totals 633,000 tonnes of 3.8% nickel. In all Maggie’s indicated resource stands at 10.8 million tonnes of 1.5% nickel.

LionOre Mining’s offer represents a premium of 31% over LionOre Nickel’s average share price for the sixty days prior to the offer. The A85 offered for each share is also higher than the subsidiary’s issue ever reached on the Australian Stock Exchange.

LionOre hopes the move to consolidate will also help alleviate the lack of liquidity of LionOre Nickel’s shares. During the two months prior to the offer, just 2% of the company’s shares were traded.

LionOre Nickel’s shares jumped a dime or more than 13% to come in line with the offer at A85 by the end of the Sept. 11 trading session on the ASX. In early trade on the Toronto Stock Exchange on Sept. 11, LionOre Mining shares were up 15 at $3.80.

LionOre’s bid is subject to approval by the Foreign Investment Review Board and a funding facility from NM Rothschild & Sons (Australia).

Also in early May, LionOre Mining inked a US$75.9-million, all-cash deal to buy Anglo American‘s (AAUK-Q) nickel interests in Botswana. The assets include a 43.35% stake in Tati Nickel Mining Co., a 7.5% direct interest in BCL, and a 12.65% stake in Botswana RST (which in turn owns 85% of BCL).

In the end, LionOre will own 85% of Tati, with the government of Botswana continuing to hold the remaining 15%. If the Botswanan government approves the transaction, it will take effect Jan. 1, 2002.

Combined, production from Tati and Emily Ann should boost the company’s annual nickel output to 15,890 tonnes nickel metal, making it one of the world’s 10 largest nickel producers.