Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Norilsk Bids $4.8Bln for LionOre

Norilsk Nickel on Thursday made a $4.8 billion offer for Canada-based nickel and gold producer LionOre, heralding what would be the biggest-ever foreign acquisition by a Russian company.

The bid of 21.50 Canadian dollars ($19.42) per share trumped a rival bid by Swiss-based Xstrata in March by more than 16 percent.

Buying LionOre, the world's 10th-biggest nickel producer with operations in Australia, Botswana and South Africa, would diversify Norilsk's asset base. Norilsk, the world's leading nickel miner, majority-owned by billionaire Vladimir Potanin, currently has 95 percent of its operations inside Russia.

The acquisition would bring Norilsk "greater scale in key commodities, enhanced geographic diversification and an exciting pipeline of projects, supported by a long-life and low-cost production portfolio," Norilsk CEO Denis Morozov said in a statement.

Norilsk said the acquisition would be financed through a combination of cash and financing, adding that it had received financing commitments from BNP Paribas and Societe Generale.

Chris Weafer, chief strategist at Alfa Bank, said Norilsk's bid was "very much in line with what the Kremlin wants its major companies to do.

"Even though the state does not have an equity stake in Norilsk, the company, like Evraz, is pursuing one of the goals for Russia's strategic industries set out by the Kremlin, i.e. to become bigger and more global."

LionOre produced 34,000 tons of nickel and 155,000 ounces of gold in 2006. It hopes to produce 44,000 tons of nickel in 2007, rising to 80,000 tons by 2012. It also produces copper, cobalt and platinum-group metals.

Dmitry Usanov, Norilsk's director of investor relations, said the bid was an all-cash offer for LionOre's outstanding common shares. "Completion of the offer would be subject to at least 66.7 percent of LionOre's shares being tendered."

He said he hoped for "a positive response within a few days."

Usanov said Norilsk did not anticipate opposition to its bid from anti-monopoly or other government authorities.

Xstrata spokeswoman Claire Divver said by telephone late Thursday that the company could not comment until LionOre's board had responded to the Norilsk offer.

London-listed Xstrata announced in March that it had made a friendly offer for LionOre of 4.6 billion Canadian dollars ($4 billion).

The Xstrata offer would have boosted its nickel output by 36 percent at a time of record-high metal prices.

Market watchers predicted that Xstrata would make a counterbid.

"It is possible that Xstrata may counter Norilsk's offer, driving the price of LionOre higher," said Michael Kavanagh, metals and mining analyst at UralSib.

Vladimir Katunin, a metals analyst with Aton, said there was still room for other market players to beat Norilsk's offer, saying that the price tag could rise by as much as 20 percent.

Renaissance Capital said in a note to investors Thursday that it expected Xstrata to counterbid with an offer of about 25 Canadian dollars per share within five working days.

LionOre would give Norilsk much-needed geographic diversification, an enhanced growth profile, access to new technologies and a greater share of the global nickel market, Kavanagh said.

Deutsche UFG said in a research note Thursday that the acquisition "would increase Norilsk's share in global nickel production from 18 percent in 2006 to around 23 percent in 2007 and would help to keep it in the No. 1 position on the global nickel market."

But Aton's Katunin doubted that the acquisition would give Norilsk greater influence over world nickel prices or help it fend off challenges to its global leadership.

"LionOre does not produce a finished product as Norilsk does, meaning that Norilsk's market valuation will remain the same after the acquisition," he said.

Even after buying LionOre, Norilsk would need to stretch hard to match the growth prospects of its main global rivals, BHP Billiton and Brazil's Companhia Vale do Rio Doce, Katunin said.