Zambian Chronicle

JUNIOR nickel producers are a nervous bunch. Not because the devil’s metal is notoriously volatile but because even relatively moderate production of 10,000 tonnes a year of the highly priced stuff makes them attractive bolt-on acquisitions for the big boys of the mining game.

Jubilee Mines went that way, as did Allegiance more recently. Xstrata took Jubilee for $3.1 billion and Zinifex took Allegiance for $950 million. Perth-based Albidon (ASX: ALB) - a $640 million company at Friday’s close of $3.89 a share - could be next. And the talk is that it could be a shoot-out between Xstrata and Zinifex.

First ore from Albidon’s underground Munali sulphide mine in Zambia is due to enter processing this week, so first concentrate production from the 10,500 tonne-a-year (contained) nickel operation is not far off. Being of the sulphide type, the commissioning of Munali should be straightforward.

Zambia is not exactly Western Australia (Jubilee) or Tasmania (Allegiance). But it is the sort of the address that the big miners are increasingly prepared to invest in as they scramble to increase their metal exposure to the China-led surge in consumption.

Albidon has already demonstrated its nervousness about a low-ball bid being lobbed during the commissioning phase of Munali. On April 22, it announced the appointment of a corporate adviser, Royal Bank of Canada. Somewhat helpfully, the bank’s Sydney equity desk had revised its price target for Albidon to $4.50 a share in an April 9 research note.

So it would be a fair bet that if a bid were to be made for Albidon, it would want to be something north of $4.50 a share, itself “only” a 15.7% premium to Friday’s closing price.

Much of the talk surrounding Albidon’s vulnerability to a bid has to do with the presence of Melbourne’s Lion Selection on the register. Through its African investment funds, Lion has an indirect stake in Albidon of about 5.7%, which is worth about $36 million.

That amount would be a handy addition to Lion’s cash coffers as it sets about pre-empting the $200 million that Beadell Resources has offered for Newcrest’s 70% stake in the Cracow goldmine in north Queensland. Lion owns the remaining 30% of Cracow and has said it plans to pre-empt the Beadell deal as part of its plan to become a mining company rather than a resources investment group.

It has until mid-June to do that, but in the meantime it is looking over its own shareholder because of the cheeky takeover bid for it from Indophil, the Filipino copper/gold group 25.7% owned by Lion. The Indophil bid is pretty much about trying to ensure Lion does not go flogging its Indophil stake to Indophil’s partner in the Philippines, Xstrata, as an alternative way to finance its Cracow move.

But, back to Albidon. Lion’s part-owned African funds hold about 21% of the group - a handy springboard for a takeover if there ever was one. Chinese nickel group Jinchuan is the next biggest at 5.6% and it is the group that will be taking Munali’s production.

That Chinese connection works in favour of Zinifex in any shoot-out for Albidon. Zinifex boss Andrew Michelmore has a strong relationship with Jinchuan going back to his days at WMC. That was a key factor in why, of all of the groups that could have bid for Allegiance, it was Zinifex that got the job done. Jinchuan is a 10.4% shareholders in Allegiance (it is waiting on Chinese government approvals to accept the Zinifex offer) and it also has an offtake deal on production from Allegiance’s Tasmanian mine.

Michelmore has also made no secret of the fact that Zinifex’s planned merger with Oxiana is all about creating a group with the balance sheet to make some good-sized acquisitions, even it it means moving in to higher sovereign risk places such as Africa. Allegiance is also a first step in creating a meaningful presence in nickel.

That’s all well and good for Zinifex. The trick for Albidon is to ensure that when a bid does come, be it from Zinifex, Xstrata or perhaps the likes of Norilsk or Vale, it is fully valued in the process. Outside of Munali, the group has some interesting exploration plays elsewhere in Zambia as well as Botswana, Tanzania and Tunisia.

The Botswana ground, in the same general region as the Tati nickel project picked up by Norilsk when it took over LionOre last year, includes the Sunnyside discovery. At Sunnyside, they’ve hit good grade nickel sulphides in an area said to be looking like Kambalda 35 years ago.

It also holds the ground in Zambia directly along strike from the Omega Corp uranium project that Canada’s Denison Mines paid $300 million to acquire last year, and has exploration joint ventures with BHP in Tanzania and Zinifex in Tunisia.

Source: Business Day