Moscow and London - Norilsk Nickel has increased an offer for LionOre Mining International by 28 percent to C$6.8 billion (R44 billion), trumping an improved bid from rival Xstrata.
Norilsk bid C$27.50 a share, from the C$21.50 it proposed on May 3, the company said yesterday. Xstrata boosted its offer for LionOre last week to C$25 a share.
LionOre is a target because it has mines in Australia, South Africa and Botswana that are expanding output as prices rise.
Nickel is the best-performing metal in London, more than doubling in price in the past 12 months. LionOre's shares have risen 41 percent since Xstrata's first bid on March 26.
"I'm quite comfortable about the price going up," said James Beadle, portfolio manager at Pilgrim Asset Management, which owns Norilsk stock. "There's quite a lot of opportunity for synergy, and nickel is offering considerable upside."
The contest is the second in a year in which Xstrata's chief executive, Mick Davis, has tried to fight off rivals to make nickel mining acquisitions. He raised an all-cash offer to US$18 billion (R126 billion) last year to acquire Canada's Falconbridge.
Mining companies are paying ever-rising premiums to buy smaller rivals following the gains in metal prices.
Norilsk's bid values LionOre at 10.5 times its earnings before interest, tax, depreciation and amortisation (Ebitda) in the year to March. Xstrata's purchase of Falconbridge last year was 8.65 times Ebitda.
"We consider this a vital deal," said Victor Borodin, a Norilsk spokesperson.
Claire Divver, a spokesperson for Xstrata, declined to comment.
LionOre plans to produce 44 300 tons of nickel this year. Global nickel production will rise 5 percent to about 1.48 million tons, according to the International Nickel Study Group.
"Norilsk is the dominant player but with no growth and no geographical diversification," said Sergey Donskoy, a mining analyst at Troika Dialog.
A higher bid from Xstrata would force Norilsk to borrow, should it want to capture LionOre, said Donskoy. "For Norilsk to turn from a debt-free company to a more significantly leveraged one would be a difficult psychological decision."
The acquisition would move Xstrata ahead of BHP Billiton, which produced 136 300 tons last year. Compahia Vale do Rio Doce is the second-largest nickel producer after Norilsk, based on last year's production, according to metals consultant CRU.
Ore from two of LionOre's mines is processed at Xstrata's Nikkelverk refinery in Norway. Production will rise to 80 000 tons by 2012, LionOre said in its 2006 annual report.
German antitrust regulators approved Norilsk's bid, adding to that already granted by Canadian authorities, said Norilsk. The company was still in talks with antitrust authorities in South Africa, Switzerland and Norway.
Nickel, used in stainless steel production, has advanced more than sevenfold in the past five years, trading at a record $51 200 a ton on May 15.
China, the world's fastest-growing major economy, overtook Japan as the world's largest producer of the alloy last year. Usage lagged production by 30 000 tons last year, according to the International Nickel Study Group, encouraging mining firms to step up production.
Nickel for delivery in three months dropped 1.9 percent to $47 300 a ton on the London Metal Exchange in yesterday's early trade. - Bloomberg