Australian zinc producer Zinifex launched an all-cash bid worth up to A$775 million (US$668 million) for nickel miner Allegiance Mining, the latest in a hectic round of industry consolidation.
Shares in Allegiance, whose biggest shareholder is China's largest nickel supplier, Jinchuan Group of China, leapt 42 percent on the offer which is still being considered by the target and its stakeholders.
The acquisition would allow Zinifex to diversify out of zinc and copper, giving it Allegiance's Avebury nickel mine in Tasmania, which starts production in 2008 amid rising China-driven demand for the metal, which is used in stainless steel.
Zinifex has a war chest for acquisitions after spinning off its zinc smelting businesses into a joint venture in October.
The offer is two tiered at 90 cents a share for the first 30 percent of Allegiance, rising to A$1 a share for all shareholders if it gets more than 30 percent, or if the offer is recommended by the Allegiance board.
At A$1 per share, the offer is worth A$775 million, based on Reuters' calculations, a 41 percent premium to Allegiance's 71 cents per share closing price on Friday.
Merger and acquisition activity in the mining sector has been spurred on by BHP Billiton's proposed offer for rival Rio Tinto, worth around $140 billion when it was announced.
Chinese firms are increasingly looking to expand their Australian mining interests. China's state-owned Sinosteel this month made a $1 billion offer for Australian miner Midwest Corp.
Global nickel prices hit an all-time high of $51,800 per ton in May, driven by strong demand from fast-growing Asian economies led by China and India, but have since fallen about 50 percent as a credit crunch sparked worries about a global economic slowdown.
Zinifex's incoming Chief Executive Andrew Michelmore said on Monday the company remained confident about global demand for nickel, particularly from China.
Zinifex, which has A$1.7 billion to spend and is still eyeing further buys in copper, said the deal would be an entry point for the company into nickel.
Allegiance's Avebury nickel project has expected output of 8,500 tons a year. Zinifex owns the nearby Rosebery mine in Tasmania and Century mines in Queensland. "Avebury is just the start of our strategy to vigorously grow in Zinifex's chosen base metals of copper, nickel and zinc," said Michelmore in a statement.
Michelmore, who starts in February 2008, later told reporters there was significant potential to grow production at Avebury.
He said Zinifex would continue to sell all output from Avebury to Jinchuan if the deal was successful, and the Chinese firm would have first rights to any expansion of the mine.
Management at Allegiance and Jinchuan, which has an 11 percent stake in Allegiance, were contacted about the offer on Sunday and had not yet responded, Michelmore added.
Zinifex spun off its zinc smelting interests into a joint venture with Belgium's Umicore earlier this year to create Nyrstar, the world's biggest zinc producer.
Zinifex said last month it was prepared to go hostile in a search for acquisitions. Michelmore said on Monday the company was still looking at other major acquisition opportunities and was still keen on copper.
Citigroup advised Zinifex on the deal.