After a wave of consolidation Western Australia’s most active small to mid-cap nickel miners have paused to watch the epic takeover battle between WMC Resources and Swiss-based Xstrata.
After a wave of consolidation Western Australia’s most active small to mid-cap nickel miners have paused to watch the epic takeover battle between WMC Resources and Swiss-based Xstrata.
With many assets looking to be fully valued, some in the market see the next opportunity lying with the fall-out from the WMC-Xstrata battle, with the possibility that some exploration ground, particularly around Kambalda could be off-loaded.
That will depend on the course of events in the WMC-Xstrata struggle.
While the market speculates, the reality is that huge demand for stainless steel and electronics has boosted nickel prices to 10 year highs.
These conditions have already prompted recent rationalisations in the industry, which has led to mergers worth billions of dollars.
Canadian-based WA operator LionOre has led the charge in recent times through its acquisition of MPI Mines, and is developing into a major power on the booming world nickel market. The MPI deal puts it among the world’s top-ten nickel producers.
In outlining its rationale to shareholders, LionOre predicted an “immediate increase in nickel production by 50 per cent with scope for future development through a large-scale Honeymoon Well nickel project”.
The company appears well placed to tackle mining production increases, with market observers noting the introduction of the new Activox leaching process developed by its majority-owned Western Minerals Technology.
“LionOre have positioned themselves well for the next leg which will be the low pressure leach route,” Hartleys nickel analyst Jon Battershill said.
Close on the heels of LionOre in the consolidation race is Kerry Harmanis’ Jubilee Mines which moved late last month to acquire a strategic stake in Perth-listed Falcon Minerals.
The 18.5 per cent interest gives Jubilee exposure to the Collurabbie nickel sulphide deposits.
In September last year Jubilee also agreed to a 10 per cent stake in another local ASX stock Pioneer Nickel which owns the Acra region next to its Emu Lake Project, 70 kilometres north-east of Kalgoorlie.
Jubilee has plans to increase its stake to 75 per cent ownership in Acra, at which time the agreement states Pioneer will be free carried to a decision to mine or sell its share to Jubilee.
With such frenetic activity, it is perhaps not surprising that many believe that LionOre and Jubilee’s shopping spree may be over for the time being.
“They have probably reached a stage where they have bought all they want to buy in WA,” Mr Battershill said.
But that does not mean everyone will be out of the market, particularly because observers believe there are still some deposits in WA that don’t require substantial start-up and exploration costs.
With its new $7.20 per share bid for WMC, Swiss-based mining company Xstrata has made a sale of the giant very likely indeed.
If not Xstrata, then Rio Tinto is generally viewed as an alternative buyer.
If the ultimate owner has any doubts about the value of WMC’s nickel deposits, there are a number of mid-caps lining up for a piece of the pie.
Locally-based Sally Malay is one party as managing director Peter Harold waits in the wings of the WMC turbulence.
“Rio is more exploration focused but yes, you would expect Xstrata to sell off exploration deposits,” said Mr Harold.
“Exploration ground, I think that’s where the opportunity would be.”
He believed the Mt Keith operation was unlikely to be sold, but that the Leinster mine could be.
Sally Malay has already been busy with its joint venture partner Donegal Resources through the purchase of the Lanfranchi mine from WMC in late November.
Mincor is another that remains in the hunt for the nickel assets, according to managing director David Moore.
“We are less interested in acquiring companies at this point, but we would certainly look at acquiring [developed] assets,” Mr Moore said.
Mr Moore told WA Business News he would be interested in any sale of assets from WMC’s portfolio, should the eventual buyer consider shedding more nickel assets from its books.
Although analyst Alex Passmore from Patersons isn’t as ready to endorse the idea of a sell off, believing there is still some uncertainty regarding Xstrata’s plans for Kambalda.
“At this stage Xstrata has made clear it will keep the Kambalda operations and will make significant head office savings in the order of $40 million,” said Mr Passmore.
He also said Xstrata would likely sell the fertiliser business and keep the more profitable features like the Olympic Dam uranium mine.
For small and mid-caps, nothing is cheap in the current price environment and this raises the issue of going to the capital markets should they wish to purchase.
Mr Battershill said he didn’t believe companies like Mincor were large enough on their own in order to acquire the assets at their current values.
Some juniors such as Perth-based Western Areas are watching from afar, although managing director Julian Hanna is known to be interested in Kambalda as well.
“We are just going about our business at the moment, but we would possibly be interested,” he said.
In the midst of this activity, buyers are said to be weary of the grade of ore left in the Kambalda area.
The analysts believe most of the good ore has been mined and this has the potential to hurt the bottom line as mining costs increase with the lower quality ore.
“I would think all the best fruit has already been picked,” said Mr Passmore.
The buyers aren’t limited to nickel miners either.
Companies such as Jubilee have emerged from within the nickel industry, whereas diversified miner Consolidated Minerals has acquired Reliance including the Beta Hunt deposit near Kambalda, avoiding considerable mine development setup costs.
A problem for these nickel outsiders however can be determining the true value of their acquisitions. Mr Battershill for instance believes ConsMin paid too much for Reliance.
