POS Poseidon Nickel Limited

Two major nickel miners will launch a joint bid for BHP Billiton Ltd.'s (BHP) idled Ravensthorpe nickel mine, a person familiar with the situation said Wednesday, signaling support for future metal demand.

China Metallurgical Group Corp. and Minara Resources Ltd. (MRE.AU) will bid in equal parts for the failed US$2.1 billion mine. The bidding process closes later Wednesday.

Aside from tying up a key producer and a Chinese entity, this also enters Minara's major shareholder commodity trader Glencore International AG into the equation. Glencore owns over 70% of Minara.

Minara -- which is in need of funding and previously sought to pair up with a bid by Jinchuan Group, later withdrawn -- and MCC have emerged as strong contenders given their technical experience with nickel laterite mines.

Aside from MCC and Minara, Poseidon Nickel Ltd. (POS.AU) and Canada's First Quantum Ltd. (FM.T) remain in the running, a second person familiar with the sale process said.

Poseidon has a market capitalization of only A$44 million. It lacks the financial muscle to purchase Ravensthorpe but counts mining billionaire and Fortescue Metals Group Ltd. Chief Executive Andrew Forrest as its chairman.

First Quantum is cash-rich but focused on copper production and only has early-stage nickel projects. A spokesman for Poseidon declined to comment and First Quantum and MCC weren't available.

"Glencore via Minara and MCC are both groups that have a vested interest in nickel and it's easy to see the link to a perception of long-term growth opportunities in the stainless steel market in general and in nickel in particular," said one senior commodity strategist.

BHP is seeking up to A$500 million for the mine but the acquirer would also have to invest substantially to improve the operation's performance as well as covering restart costs.

"There's a disconnect between BHP's internal thinking about the price versus reality. Ravensthorpe is a very poorly defined ore body and the company has written its value down to zero. BHP isn't having the kind of auction they want," the first person familiar said.

A BHP spokeswoman reiterated that the company was investigating a divestment, a restart or a permanent closure.

Ravensthorpe has a nameplate capacity of 50,000 metric tons and cost US$2.1 billion to build after huge cost overruns and delays, only to be commissioned in May last year at a time when nickel prices rapidly plummeted from around US$30,000/ton to a five-year low of $8,850/ton in October 2008.

In January this year, BHP shut the mine and subsequently wrote the value of the operation down to zero, failing to turn a profit and struggling with technical issues.

Attempts to work nickel laterite ore bodies using high pressure acid leach extraction have produced a number of failed attempts since the 1990s.

There are few new nickel sulfide discoveries, leaving the deeply weathered laterite ores as the nickel source of the future.

The highly corrosive nature of the high pressure extraction process is technically challenging and laterite mines have to process large amounts of low-grade material, meaning treatment plants are prone to maintenance outages.

"Bidders for Ravensthorpe are aware of the problems with new projects, which in the future will put a floor under the nickel price. If someone can get Raventhorpe to work, you'd get your money back fairly quickly," the strategist said.

Minara has technical expertise it can apply at Ravensthorpe, having already successfully revived one troubled nickel laterite project at its Murrin Murrin mine in Western Australia using a high-pressure acid leach process.

Minara, which has a market capitalization of A$987 million, has confirmed its participation in the sale.

Meanwhile, MCC operates the US$1.4 billion Ramu nickel venture, which is due to finish construction by the end of the year. Forecast to produce 31,150 metric tons a year of nickel, Ramu is also a high-pressure laterite processing venture and MCC could use expertise gained in its construction to speed up the revamp of Ravensthorpe.

MCC is making increasing inroads into Australia's resources sector. Last year it bought the Cape Lambert Iron magnetite project in the Pilbara region in a A$400 million deal and took a 20% in Citic Pacific's US$3.8 billion Sino Iron project at Cape Preston.

Last week MCC agreed to back Australian mining magnate Clive Palmer's -- who was also an early bidder for Ravensthorpe -- A$7.5 billion China First Coal project in Queensland.

-By Elisabeth Behrmann, Dow Jones Newswires;

61-2-8272-4689 elisabeth.behrmann@dowjones.com

(Alex Wilson in Melbourne contributed to this article)

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