30/10/2007 - 22:00

Xstrata push drives nickel speculation

30/10/2007 - 22:00

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Followers of the nickel sector are expecting further takeover activity after Swiss group Xstrata stunned the market with a $3.1 billion bid for Perth-based Jubilee Mines NL.

Followers of the nickel sector are expecting further takeover activity after Swiss group Xstrata stunned the market with a $3.1 billion bid for Perth-based Jubilee Mines NL.

While that bid, at a 35 per cent premium to Jubilee’s share price, might yet get gazumped, much of the market’s attention is turning to other players in the nickel space, namely those with producing assets.

Perth company Sally Malay Mining Ltd was considered the next most likely candidate for takeover.

On Monday this week, following the Xstrata move, Sally Malay shares leapt more than 12 per cent to $5.51 per share, adding more than $130 million to its market capitalisation, which stood at around $1 billion.

The Jubilee bid, at a price-to-earnings ratio of more than 16 times, makes Sally Malay and a number of other stocks look cheap at current prices, according to analysts.

At that PE, Sally Malay could be worth significantly more than what it started the week at. West Perth company Mincor Resources NL, meanwhile, would go through the roof at around double the PE ratio at the close of business on Monday when it sat at $4.84 per share.

On Monday, Mincor added around $60 million to its market value, which now stands at almost $960 million, while another West Perth company, Western Areas NL, was up 7.8 per cent to $5.50 per share, increasing its value by around $72 million to reach $915 million.

South Perth-based Independence Group NL, which gained almost 14 per cent or more than $100 million in market capitalisation to hit $6.83 per share on Monday.

The strong performances continued on Tuesday, with Sally Malay further boosted by drilling results near its Kambalda operations.

Argonaut associate director of resources Troy Irvin said Sally Malay, a stock his firm follows, would receive strong interest with its big reserves and simple operations.

“I think they are very cheap,” Mr Irvin said.

DJ Carmichael resource analyst James Wilson said efforts by London Metals Exchange to loosen up the nickel market had worked and the commodity was now trading liquidly at healthy prices, around $US14 per pound, after reaching highs of $US24lb earlier this year.

Much of the speculation also surrounds who will be the next bidder with BHP Billiton Ltd, Russia’s Norilsk Nickel and Oxiana Ltd all named as interested parties in Jubilee before the Xstrata bid.

Most of these have been active in WA recently.

Xstrata was believed to have been unsuccessful in a bid for nickel miner LionOre Mining International, which has assets in WA and was ultimately taken over by Norilsk.

Xstrata is 35 per cent owned by fellow Swiss company, Glencore International AG, which in turn controls more than 50 per cent of Perth laterite nickel miner, Minara Resources Ltd.

Xstrata chairman Willy Strothotte and fellow board member Ivan Glasen-berg are both on the board of Minara.

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