Norilsk Outbids Xstrata for LionOre

Norilsk Nickel (NILSY-O, MNOD-L) has thrown a $5.3-billion offer on the table for Toronto’s LionOre Mining International (LIM-T, LMGGF-O), topping Xstrata’s (XTA-L, XSRAF-O) $4.6-billion friendly takeover bid by more than 16%.

The Russian nickel giant has offered $21.50 cash for each LionOre share — $3 more than what Xstrata proposed in late March.

LionOre’s share price jumped more than 25% to $23.75 the day of Norilsk’s offer on a trading volume of 36.8 million shares. The company has since deemed the offer superior to Xstrata’s.

The Norilsk bid was a 22.9% premium over LionOre’s closing price of $17.49 per share on March 23, before Xstrata made its offer.

Zug, Switzerland-based Xstrata, which has until May 14 to increase its offer, had offered no comment on its next move as of presstime.

Last year, Xstrata outbid Inco and Phelps Dodge to acquire Falconbridge for $24.8 billion.

Under the initial agreement, Lion Ore can accept a better offer, but will have to pay Xstrata a break fee of $131 million.

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

For its bid to succeed, Norilsk needs at least two-thirds of LionOre shareholders to accept its offer.

Based on its market capitalization of US$36 billion, Norilsk is one of the world’s largest publicly traded mining companies. The acquisition would be financed through existing cash resources and bank loans.

Labelling its bid “a superior cash offer,” Norilsk CEO Denis Morozov said LionOre’s assets would strengthen and diversify Norilsk.

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

LionOre’s assets would bring Norilsk’s production level to 20% of the world’s annual nickel 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.

The takeover would also mean a more geographically diversified portfolio for Norilsk.

Morozov says the largely southern hemisphere-based LionOre mining operations would complement Norilsk’s, which are located mostly north of the equator. With 87% of its assets in Russia, Norilsk also has operations in Finland, the United States and Australia.

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

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

Norilsk deputy CEO Tav Morgan said the company was aware of the terms of LionOre’s 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.