Translated material
Lion's Grip
Norilsk Nickel wants to buy Canadian LionOre
Vladimir Potanin and Mikhail Prokhorov, before dividing their joint business , are trying to “pump up” MMC Norilsk Nickel with various assets. At the end of last week, the company announced an offer to purchase 100% of the shares of Canadian LionOre, which produces nickel concentrate, at a price of 21.5 Canadian dollars per ordinary share. Thus, the entire company will cost the Russian group 5.3 billion Canadian dollars (4.8 billion US dollars). MMC warned that the offer is valid only if shareholders agree to sell at least two-thirds of the company's shares. Completion of the transaction also depends on the approval of all interested regulatory authorities.Compared to Norilsk Nickel, which provides almost 20% of global nickel consumption (in 2006 the company produced 244 thousand tons of this metal), the Canadian company cannot be called large - LionOre produces only 34.1 thousand tons. But it has its own mines (a rarity now), and by 2012 it promised to increase production to 80 thousand tons of nickel per year. In addition, LionOre has its own effective technologies for extracting metals from low-grade and refractory ores. This should be of interest to Norilsk Nickel, which has announced plans to participate in an auction for the right to develop the Udokan copper deposit in the Chita region and has outlined a number of mining projects in regions famous for refractory sulphide ores. In addition, Norilsk Nickel and its former subsidiary Polyus-Zoloto , owned by the same shareholders, are conducting vigorous exploration activities.
The decision to focus efforts on geological exploration was announced a week ago by the current CEO of Polyus-Gold, Evgeny Ivanov (previously the head of Rosbank), who resigned on May 28 due to his intention to head a project for the development of gold deposits based on the Polyus Geologorazvedka company. The Board of Directors will consider Mr. Ivanov's application at a meeting on May 14.
However, according to observers, Mr. Ivanov’s decision to leave the management of Polyus is due to the fact that this asset, during the division of the business of Interros partners, may go to Mikhail Prokhorov as payment for his share in Norilsk Nickel (according to the latest data, partners equally control almost 52% of the mining and metals industry). Mr. Potanin promised to buy this share at the market price. Now the company is worth more than $36 billion, and if the deal with LionOre is successful, its capitalization could rise above 40 billion. Experts do not rule out that Mr. Potanin will pay for Norilsk Nickel shares with the shares of Polyus, which he owns, whose capitalization is 8 .5 billion dollars. However, sources in Interros say that the partners have not made a final decision on the structure of the business division.
Norilsk Nickel intends to finance the deal with LionOre both from its own funds and with the help of loans. The company said it had “received confirmation from banks BNP Paribas and Societe Generale to arrange financing.”
“The combination of Norilsk Nickel and LionOre,” the press service quotes the words of the head of the MMC Denis Morozov, “will lead to an increase in the volume of metal production, expand the geography of activity and will allow the implementation of projects based on assets with a long-term raw material base and low production costs. LionOre shareholders will have an attractive opportunity to realize their accumulated potential and generate significant income." The synergy in the case of the deal with LionOre has very specific outlines. After Norilsk Nickel bought the nickel assets of the American OM Group earlier this year, it became a partner with LionOre. The latter was one of the main suppliers of concentrate for the enterprises acquired by Norilsk Nickel, as well as the operator and major shareholder in the Black Swan, Silver Swan and Honeymoon Well projects in Western Australia, in which Norilsk Nickel received 20% each after a deal with the American company.
By making an offer to purchase LionOre, Norilsk Nickel entered into competition with the Swiss Xstrata, a major player in the market for mergers and acquisitions in the mining and metallurgical industry. At the end of March, Xstrata offered 18.5 Canadian dollars per share for LionOre (4.1 billion US dollars for the entire company). However, during this time, the Canadian company's shares rose in price in Toronto to 23.85 Canadian dollars. However, Norilsk Nickel states that it is firmly convinced that its offer is better than Xstrata's offer.
Perhaps Norilsk Nickel's offer will heat up the market, and LionOre's stock quotes will rise. This is also facilitated by the increase in the price of nickel itself, which has doubled in price since the beginning of this year and has now reached its maximum level of $52.5 thousand per ton. Many industry experts are convinced that the cycle of rising metal prices is just beginning, and therefore the potential of the Canadian company is high. Therefore, analysts do not rule out that other metallurgical giants may also enter the fight for LionOre, since there are few such small promising companies left in the world.