Norilsk makes competing offer for LionOre

Norilsk Nickel (NILSY-O, MNOD-L) threw down a $5.3-billion-offer for Torontos LionOre Mining International (LIM-T, LMGGF-O) today, topping Xstratas (XTA-L, XSRAF-O) friendly takeover bid by more than 16%.

The Russian nickel giant has offered $21.50 cash for each LionOre share — $3 above what Xstrata, based in Zug, Switzerland, proposed in late March.

LionOres share price jumped more than 25% to $23.75 on the news of Norilsks offer, on a trading volume of 36.8 million shares — a similar volume followed Xstratas offer.

The bid was a 22.9% premium over LionOres closing price of $17.49 per share on March 23 before Xstratas bid.

Xstrata offered no comment on the Norilsk bid. Last year the company outbid Inco and Phelps Dodge to acquire Falconbridge for $24.8 billion.

LionOre says it will review Norilsks formal offer and provide its shareholders with a statement once it has finished an analysis of the Xstrata and Norilsk bids.

Under the initial agreement, LionOre can accept a better offer, but would have to pay Xstrata a break fee of $130 million. Xstrata has the right to match competing offers.

Xstrata has already acquired 19% of LionOre through lock-up agreements from several unnamed shareholders who hold 16% to 17% of the company, and management, who hold the remainder.

Norilsk needs a minimum of two-thirds of LionOre shareholders to accept the deal. The acquisition would be financed through existing cash resources and committed credit facilities. Based on its market capitalization of US$36 billion, Norilsk is one the worlds largest publicly traded mining companies.

Labeling the move a superior cash offer, Norilsk CEO Denis Morozov said LionOres assets would strengthen and diversify Norilsk.

In 2006, LionOre produced 34,095 tonnes of nickel and 155,203 oz. of gold. The company plans to increase its production to 80,000 tonnes of nickel per year by 2012.

LionOre would bring Norilsks production level to 20% of the worlds annual output. Norilsk produced 244,000 tonnes of nickel in 2006, along with 425,000 tonnes of copper, 3.2 million oz. palladium and 752,000 oz. platinum.

With LionOre’s assets in its portfolio, Norlisk would be more geographically diversified.

Morozov says the largely southern hemisphere-based LionOre mining operations would compliment Norilsk, which operates mostly in the northern hemisphere, with 87% of its assets in Russia, and the rest located in Finland, the United States and Australia.

LionOres Australian assets include the Lake Johnston and Black Swan nickel mines, the Thunderbox gold mine and 80% of the Honeymoon Well project in Western Australia. Norilsk owns the remaining 20% of Honeymoon.

LionOre is also the 85% owner of the Tati nickel mine in Botaswana and a 50% owner of the Nkomati nickel mine in South Africa. For these two mines, the company has a processing contract with Xstratas Nikkelverk refinery in Norway.

Norilsk deputy CEO Tav Morgan said the company was aware of the terms of LionOres contract with Xstrata but could not comment on possible synergies on the potential acquisition of LionOre.

Morgan said the company was positive about the continued growth but would not offer a forecast on nickel pricing.