Macro Tsimmis

intelligently hedged investment

LionOre (LNGGF) update

Posted by intelledgement on Mon, 26 Mar 07

As we predicted, nickel is hot. The price of nickel hit an all-time high of $22/lb. last week amid rising demand and sure enough, our grossly undervalued nickel miner, LionOre, attracted a takeover bid, announced earlier today. Unfortunately, the all-cash bid from Swiss miner Xstrata (XSRAF) is for a mere C$18.50, which values our LMGGF at $4B, or about 4.7x projected annual cash flow at a nickel price of $22/lb. This is bad because when they bought Falconbridge—another mining company—last summer, Xstrata paid 15x cash flow. Perhaps that was a tad high—and the $22/lb. price is likely to moderate—but this is insulting. And it gets worse—adding injury to insult, LionOre’s board of directors have unanimously recommended we shareholders accept this lowball offer!

Fortunately, The Street seems to agree with us that the price is too low, as LMGGF closed today north of C$19…above the offering price. This price is just too low no matter how cushy a deal our disloyal management team has been offered to roll over on us. We expect another offer or, failing that, a shareholder vote against this offer (a two-thirds vote in favor is required for the deal to go through; Xstrata say they already have 19% of the shares pledged, presumably from our turncoat management).

We are rooting for vote down of this deal; it would be great first to stick it to these guys and second for LionOre to stay independent long enough for us to be able to run a slate against the board members who are neglecting to work in the best interests of the shareholders (which apparently is all of them).

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