World nickel junior consolidaton, so I guess one should buy a bunch of the nickel juniors with reserves i.e. NI, MUM, CML, CRO, FNI, BMC, LBE, RNG!
The rapid consolidation of Canadian nickel companies continued yesterday as Sherritt International Corp. struck a $1.6-billion deal to buy Dynatec Corp., the latest stage in a takeover process that industry experts believe could continue until the junior and intermediate companies virtually disappear.
"If you're in the nickel business, either you grow by being aggressive on acquisitions or you get taken over," said David Davidson, an analyst at Paradigm Capital.
The nickel sector has been caught in takeover fever ever since the acquisitions of Inco Ltd. and Falconbridge Ltd. last year. But the momentum accelerated in the past month as LionOre Mining International Ltd. and Rio Narcea Gold Mines Ltd. agreed to takeover bids.
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Font: ****Sherritt CEO Jowdat Waheed acknowledged yesterday that the company was running out of possible deals to make.
"A factor in the way the deal was structured is a realization that there are not too many nickel projects out there," he said in an interview. "But [Dynatec] has enormous synergies with our company that we feel few other companies can realize."
Shares of all the remaining Canadian nickel companies jumped yesterday on speculation that they will be bought out as well. They have been red-hot since the LionOre deal.
With most of the big names gone, the remaining nickel plays include FNX Mining Company Inc., Skye Resources Inc., First Nickel Inc. and Scandinavian Minerals Ltd.
"It was getting pretty lonely being a nickel producer on the TSE index," said Bruce Walter, Dynatec's CEO.
At $4.88 a share, Sherritt's all-stock offer is a 29% premium to Dynatec's closing price on Thursday and far above the $2 range the stock traded in earlier this year. The high price alarmed some investors, who used a conference call to grill management on how accretive the deal is. Sherritt's stock also dropped more than 12% in trading yesterday.
Mr. Waheed would not get into the economics of the deal, but he said it will be very lucrative based on production from Dynatec's Ambatovy project in Madagascar.
"This project will have one of the lowest cash costs per pound of nickel produced," he said. "It almost doesn't matter what the nickel price is on the down cycle. This project will remain accretive and positive in cash flow."
Mr. Davidson added that the metrics of this deal are similar to the LionOre and Rio Narcea transactions. However, those companies have projects that are already in production, while Ambatovy is not.
Sherritt, a diversified miner that produces a number of different commodities, became convinced in the past year that it was time to expand its nickel business, Mr. Waheed said. He believes demand from developing countries like China will keep prices high in the long term. Nickel prices are already up 55% this year.
"We believe in this industry, there is going to be a fairly serious shortage of finished nickel to supply the market demand, pretty much as far out as we can see," he said. "Last year, nickel demand grew by over 8% a year. If you look at the total demand growth over the next decade, pretty much every year the new demand is equal to one Ambatovy project a year. And if you look around, there aren't enough projects out there."
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