Haywood endorses LionOre Xstrata nickel merger but doubts competitive offer forthcoming

Despite the speculation and hype surrounding Xstrata’s $4B bid for Toronto’s LionOre Mining International, Vancouver’s Haywood Securities asserts that LionOre shareholders not expect a competing offer.

RENO, NV - 

Vancouver's Haywood Securities Tuesday endorsed Swiss miner Xstrata's friendly US$4 billion all-cash bid for Toronto-based nickel producer LionOre Mining International (TSX: LIN).

However, analysts Kerry Smith and Josh Clelland suggested that, although Xstrata's $18.50/share offer is well priced, "room for a slightly higher bid would be supported by our NAV of about $19.70 per share at a long-term nickel price of US$10 per pound.

Smith and Clelland noted that they also "attach a low probability for a competing bid, but expect that Xstrata would pay slightly more to ensure this deal is completed in a timely manner."

In their analysis, Haywood explained that any competing proposal would need to be all cash, suggesting that would-be serious bidders have completed their due diligence. "As a result, we attach a low probability of a competing bid. Xstrata will not want this process to drag on, and as we get closer to the bid expiry, which should be sometime in mid-May, Xstrata will be better to able to access whether a slightly higher bid is required to meet its minimum tender condition of 66 2/3%"

While admitting that Xstrata has probably not made its best offer, with a 19% share lockup in place, Haywood feels that the Swiss mega-miner Xstrata is now in the driver's seat.

The men added that they expected that "BHP Billiton is unlikely to bid, as its long-term price assumptions by inference seem to be lower than those used by Xstrata, given that BHP Billiton never entered the bidding for either Inco of Falconbridge, both of which would have been much more complementary to BHP given their size and industry profile."

Smith and Clelland suggested that both CVRD and Teck Cominco are far more likely candidates, "and with LionOre now in play, they have one last opportunity to bid."

No matter what the outcome, Haywood--which has followed LionOre for several years--said that the company "has a solid future growth profile and is well positioned to benefit from strong nickel prices, which we expect will remain high as market fundamentals, including low inventories and strong Asian demand continue."

In their analysis, Smith and Clelland noted that ore from LionOre's Tati and Nkomati operations is sent to the BCL smelter in Botswana. The matte is then shipped to Xstrata's Nikkelvery refinery in Norway.

LionOre was fully aware of the synergies when it made a deal to purchase Nikkelverk last year as part of the failed Inco and Falconbridge merger proposal, but that deal fell through when the merger failed. "Xstrata certainly sees the opportunities as well," according to Haywood. "The vertical integration that could be realized in the combined company should result in reasonable synergies."

"In addition, a successful merger between the two companies will give Xstrata access to LionOre's proprietary Activox refining process, which could be a nice fit for Xstrata's 50% owned Kabanga Nickel project in Tanzania," the analysts concluded.

SUBSCRIBE to Mineweb.com's free daily newsletter now.

SHARE THIS ARTICLE

Print story      Email story      Subscribe to free newsletter
OTHER PAGES:  BASE METALS USA

Back