JOHANNESBURG (Business Day) -- African Rainbow Minerals [JSE:ARM] had not received any offers for its 50% stake in the Nkomati nickel mine and regarded nickel as an important part of its portfolio, with significant opportunities arising from the expansion of Nkomati, ARM executive director Pieter R"orich said on Friday.
He was responding to questions on whether Xstrata [LSE:XTA] had made an offer for Nkomati, and the implications for ARM if Xstrata were to take over LionOre Mining International, the Toronto- and London-listed group that holds the other 50% of Nkomati, a substantial nickel resource about 300 kilometres east of Johannesburg.
Xstrata CE Mick Davis was peppered with questions at the group's results presentation in London last week on whether Xstrata could make a bid for LionOre [TSX:LIM], which has nickel projects in South Africa, Botswana and Western Australia.
Xstrata, which also produces copper, coal and ferrochrome, has demonstrated its interest in nickel with its recent takeover of Falconbridge.
The price of nickel has soared fourfold to more than $20/lb this year from $3/lb five years ago, but most of the increase has occurred in the past year due to Chinese demand, fears of shortages and a recovery in the aerospace industry.
The stainless steel industry accounts for about 70% of nickel consumption.
An Xstrata spokesman said on Friday that all Xstrata had said when it released its results was that it would be looking at making more acquisitions. But it had not been any more specific than that and it did not comment on speculation.
LionOre chief operating officer Peter Breese said speculation about an Xstrata bid for LionOre probably arose because LionOre was the only "pure play" nickel producer still listed on the Toronto Stock Exchange and the largest based on metal production.
He could not comment on whether LionOre had received an approach from Xstrata. LionOre has no single large shareholder, although if any investor builds up a stake of more than 9,9% in a company, under Toronto Stock Exchange rules they have to declare their interest. Breese said this had not happened.
Trading volumes in LionOre shares have escalated recently but Breese said this could be the result of media speculation about an Xstrata bid.
Last year, LionOre produced an attributable 30,604 tonnes of nickel at a cost of $3.76/lb. It was planning to be a producer of 80,000 tonnes of nickel a year by 2012 through conventional mining expansion and through partnerships with companies that owned deposits amenable to using Activox technology, it said in its latest results presentation.
Activox is LionOre's own proprietary low-cost, environmentally friendly processing technology that it could roll out to Nkomati at a later stage. ARM and LionOre are busy with a feasibility study, expected to be completed by midyear, on a R4 billion ($543.4 million) expansion project at Nkomati.
R"orich said the costs and funding were being finalised, but it could be funded from operational cash flows and some debt. Nkomati contributed 2413 tonnes of nickel to LionOre last year but its cash costs were negative because of by-product credits.
Last year, an updated mineral resource estimate for Nkomati showed almost 1-million tons of nickel sulphide on the property. In February last year, the partners approved spending $62 million on an interim expansion project - to come into full production towards the end of this year - to produce 5,000 tonnes of nickel a year.
This would bridge the gap until the phase two expansion in 2009. In phase two, up to 16,000 tonnes of nickel a year would be produced. In phase three the Activox process would be introduced to increase production to 22,000 tonnes.
