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. Last Updated: 07/27/2016

Norilsk Tops Xstrata's LionOre Offer

Itar-TassProkhorov, center, and Morozov, left, taking a tour of Norilsk Nickel's Oktyabrsky nickel and copper mine in March.
Norilsk Nickel increased its bid for Canadian miner LionOre to 6.8 billion Canadian dollars ($6.3 billion) Wednesday, raising the stakes in its battle for the firm with Xstrata.

Norilsk's revised bid of 27.50 Canadian dollars per share was 10 percent higher than a rival offer from Xstrata on May 15, which had valued the world's 10th-largest nickel miner at 6.2 billion Canadian dollars, or 25 Canadian dollars per share.

"We believe this project to be important for our further development," Norilsk CEO Denis Morozov said.

He said Norilsk had a commitment from Societe Generale and BNP Paribas to arrange a financing package for the deal.

"We are therefore ready to finance the deal with our own and borrowed funds."

Xstrata declined to comment. Its offer last week included a break fee of 305 million Canadian dollars that it would receive should LionOre accept a rival bid.

Morozov said Norilsk's latest bid had been discounted to take this into account. "This break fee has compromised a fair bidding process," he said.

Norilsk, which has a market capitalization of $37.1 billion, mines one-fifth of the world's nickel and more than half of its palladium, a precious metal used in jewelry and car exhausts.

It would become the world's first 300,000-ton-plus producer of nickel should it acquire LionOre, whose 2007 forecast output of 40,000 tons is expected to double by 2012.

"This acquisition makes strategic sense. Norilsk is not a growth story, while LionOre is, and they want to capture that," said Alexander Pukhayev, metals analyst at Deutsche Bank.

Nickel prices have risen about 45 percent this year due to booming global demand for the metal -- used in making stainless steel -- and investor appetite for commodities. They hit an all-time high of $51,800 per ton on May 9.

LionOre shares have risen 56 percent since the bidding war began on March 26.

But shares of Norilsk dropped 7.80 rubles, or 4.1 percent, to 185 rubles on the MICEX exchange and Renaissance Capital warned a winning bid could damage the miner's valuation.

Analysts said acquisitions were crucial as declining ore grades mean Norilsk's mines in the Russian Arctic are processing more raw materials to produce the same amount of metal.

"This acquisition could potentially change investors' views of Norilsk over time," Pukhayev said, adding a greater world presence would cut political risk attached to the company.

Norilsk's latest offer is 48 percent higher than Xstrata's original bid of 4.6 billion Canadian dollars. This offer was countered on May 3 by a 5.3 billion Canadian dollar billion bid from Norilsk.

Analysts were divided on whether Norilsk's latest offer would be the knockout bid.

"We believe a counter bid against this would leave too little scope for value creation and that Xstrata will now prefer to accept the 305 million Canadian dollar break fee," Numis Securities analyst Simon Toyne said.

But Alfa Bank analysts said in a note, "We believe that Norilsk's offer is not the last step and Xstrata can try to raise its bid."

Vedomosti, citing a source close to Norilsk, reported that the company's board had voted 8-1 in favor of a second revised offer. Only Mikhail Prokhorov, the co-owner who is selling his share to partner Vladimir Potanin, voted against.