Swiss giant to swallow prominent Aussie nickel play

Thriving West Australian nickel business Jubilee Mines has unanimously recommended an all cash, off-market takeover bid from Swiss major Xstrata, through its Australian subsidiary Ithaki Australia, worth A$23.00/share or about A$3.1 billion (US$2.9 billion).

The offer represents a 35% premium over the closing price of A$17.10/share on the Australian Securities Exchange last Friday, a 36% premium over the volume weighted average price of Jubilee shares over the last 30 trading days on the ASX, and a 25% premium to Jubilee’s all time record high share price.

The offer will be financed through Xstrata’s existing credit facilities and cash on hand. Under the terms of the agreement, Jubilee would pay a break fee of A$31.3 million in certain circumstances where a deal is not completed.

Jubilee has unanimously recommended Xstrata’s offer in the absence of a superior offer. Jubilee directors and senior management all intend to sell their respective stakes in the company. That alone represents 17.5% of Jubilee’s fully diluted shares outstanding.

For Executive Chairman Kerry Harmanis’, the sale of his almost 19.8 million ordinary shares as reported in the 2007 annual report, is worth more than a cool A$455.33 million.

Jubilee’s prime asset is the Cosmos nickel mine in the Mt Keith-Leinster region of WA. The company recently approved the Sinclair nickel project and an updated resource at Sinclair of 1.9 Mt at 2.5% Ni for 47,300 t of nickel.

The company plans to gradually increase production from 2007-08 through to 2014-15. This will see production of nickel in concentrate increasing from 12,000 t in 2007-08 to 17,000 t in 2008-09; to 22,000 t in 2010-11; to 30,000 t/y thereafter.

Xstrata is the world’s fourth-largest nickel producer with production of more than 110,000 t/y of refined nickel.

“Jubilee shares have significantly outperformed the market during this time as the company has met its key growth milestones at the Cosmos nickel project and continued to build shareholder value through an organic growth strategy which has delivered a strong pipeline of new development projects. Jubilee is, however, at an important stage and will benefit from the deeper capabilities and balance sheet of a major mining company such as Xstrata to maximise the potential of its resource base,” Harmanis said.

“Xstrata’s bid offers shareholders a compelling opportunity to realise in cash the substantial growth in value created by their investment at an attractive point in the commodity cycle and equity markets overall, without taking on the risks associated with the next phase of Jubilee’s development.”

Xstrata Nickel CEO Ian Pearce said the purchase gave his company entry to WA, a stand-out nickel province, though the “premier independent nickel company in Australia”.

He said the offer took into account Jubilee’s existing operations and its various exploration and development projects.

“Xstrata Nickel will establish a regional base for its activities and future growth in WA headquartered in Perth. In line with Xstrata’s devolved management approach, our intention is for this regional base to be developed around and managed by Jubilee’s existing team,” Pearce said.