Nickel players talking consolidation
It looks like consolidation time in Canada’s Subury nickel camp is drawing near. First, HudBay Minerals Inc. (HBM.TSX) came out and said it’s considering North American nickel producers as potential merger candidates. Then UBS Securities Canada jumped on the bandwagon, calling FNX Mining Co. (FNX.TSX) a likely partner in such a scenario.
UBS is responding to a fourth-quarter conference call in which Hudbay of Winnipeg, Canada, said its list of possible candidates includes producers of copper, zinc or nickel. While HudBay has suggested in the past it was looking at M&A activities, this is the first time the Canadian miner has mentioned nickel as a possible commodity focus.
HudBay was a nickel producer until the mid-1990s, and I suspect they may be feeling now like they’re missing the boat. And they’re not the only ones: record high nickel prices this year and last have taken a lot of majors (and analysts) by surprise. The fact that prices have held firm this far into the new year shows the bull market is growing legs.
UBS says there are only two operating nickel companies in North America not held by CVRD-Inco and Xstrata plc. Those are FNX Mining (FNX.TSX) and First Nickel Inc. (FNI.TSX), both based in Sudbury, Ontario.
FNX is the most likely candidate of these, according to UBS. But I think First Nickel, which is an emerging nickel story and largely unknown, must be a tempting target. The company last week raised the resource estimate at its wholly owned Lockerby Mine in Sudbury by 475%, although I think that announcement may have just echoed down the hall. FNX is getting all the attention, even though its +$21 Cdn per share stock price is 20 times that of FNI.
An FNX merger would combine two of Canada’s most prolific mining camps. HudBay and FNX both hold extensive land packages in their respective regions and operate under a similar business model using exploration to add value, according to UBS. But so does First Nickel, and its success in drilling the Lockerby Depth Zone has been outstanding.
Hudbay won´t have the whole enchilada in Sudbury unless it nails them down as well.
Based on UBS’s estimates, a combination of HudBay and FNX would yield a net asset value of more than C$5.6 billion (US$4.8 billion) and a market capitalization of about $4.6 billion Cdn at current prices, placing the combined entity among the largest of the Canadian intermediates.
UBS rates HudBay at buy with a $27.50 Cdn target. Its stock was down 1.9% to $20.41 on the Toronto Stock Exchange today.
FNX or First Nickel, it’s all good, really. But only one of them in my opinion is undervalued
admin on March 12th 2007 in Nickel
