London - Xstrata yesterday lifted its cash offer for LionOre Mining International by 35 percent to C$6.2 billion (R39 billion) to top a proposal from Russia's Norilsk Nickel.
Swiss-based Xstrata said it had bid C$25 a share, trumping Norilsk's C$21.50 offer.
"I wouldn't be surprised if Norilsk comes back" to beat Xstrata's offer, said Charles Cooper, an analyst at NCB Group in London. "We expect nickel prices to remain high and the payback can be very quick" for the deal.
Last year Xstrata acquired Canadian nickel mining giant Falconbridge, but had to raise its bid to $18 billion (R125 billion) to seal the deal. Nickel prices have more than doubled in the past year on rising demand from steel makers.
Norilsk would not comment.
LionOre shares traded at the equivalent of C$24.72 in London yesterday morning after closing at C$23.70 in Toronto on Monday. They have gained 50 percent since March 23, the day before Xstrata's first bid. Xstrata's stock fell 0.7 percent in London. It has risen fivefold since 2002.
Xstrata said LionOre's board recommended that shareholders accept the new offer. JPMorgan Chase, which is advising LionOre, had deemed the new offer as fair, it said.
LionOre said yesterday that its first-quarter profit surged 11-fold to $148.3 million from a year ago. It plans to produce 44 300 tons of nickel this year from mines in Australia, South Africa and Botswana, rising to 80 000 tons by 2012.
Cooper said LionOre's proprietary technology, Activox, was "attractive" to Xstrata and Norilsk. Used at the Tati plant in Botswana, the technology helps process ore into nickel without using a refinery.
Simon Toyne of Numis Securities said Activox would be applicable to Xstrata projects and there were potential chrome synergies at LionOre's Nkomati nickel and chrome mine in South Africa. - Bloomberg