Macro Tsimmis

intelligently hedged investment

LionOre (LMGGF) update #4

Posted by intelledgement on Wed, 23 May 07

Tennis anyone?

The back-and-forth bidding match between Swiss miner Xstrata (XSRAF) and Russian miner Norilsk (NILSY) was marked today by another volley from the Russians: this one for C$27.50/share (US$6.3B). Here is a tally of the offers to date:

  1. 26 Mar—XSRAF offers C$18.50/shr
  2. 3 May—NILSY offers C$21.50/shr
  3. 15 May—XSRAF offers C$25/shr
  4. 23 May—NILSY offers C$27.50/shr

We are now pretty close to the US$7B-to-$9B valuation range we feel comfortable with. By our calculations, at this level—with nickel still near all-time highs north of $24/lb. and LionOre producing 88MM lbs./year—the deal is priced at close to 7x projected annual cash flow. We were hoping for closer to 9x cash flow…last summer, Xstrata paid 15x cash flow for Falconbridge, but nickel prices were “only” $15/lb. back than and buyers may be thinking the current price level is unsustainable. Sellers, however, were anticipating at least one more bid, as LMGGF closed the day above C$28/share.

It’s Xstrata’s serve now, right?

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