Xstrata, the London-listed mining group, made inroads into the burgeoning market for nickel yesterday, announcing a deal to acquire Jubilee Mines, an Australian-based producer, for A$3.1 billion (£1.37 billion).

The move comes just five months after Xstrata lost out to Russia’s Norilsk in the battle for LionOre, a Canadian nickel and gold company. Under the terms of yesterday’s offer, Xstrata will pay A$23 a share in cash for Jubilee, a 35 per cent premium to the company’s closing share price before the weekend.

Kerry Harmanis, Jubilee’s executive chairman, has agreed to sell his 16 per cent stake to Xstrata in a move that analysts said could be crucial to its chances of fending off a rival bid. Jubilee’s shares were up nearly 39 per cent yesterday at A$23.80 on hopes of a counter-offer. BHP Billiton was named as a possible bidder, given its one-year agreement to buy the bulk of Jubilee’s output, along with CVRD of Brazil and Norilsk.

Jubilee said yesterday that it had received a number of approaches before agreeing to the Xstrata deal.

Chris LaFemina, analyst at Lehman Brothers, said: “Jubilee’s share price is at a 3 per cent premium to Xstrata’s bid. We agree with the market that another bidder may emerge.”

Xstrata has made a string of acquisitions since floating on the London Stock Exchange in 2002. It spent £500 million three months ago on South Africa’s Eland Platinum.

Jubilee would give Xstrata its first major presence in Western Australia after two failed attempts to buy companies with operations in the resource-rich region – WMC Resources in 2005 and LionOre in May.

To date, Perth-based Jubilee has discovered eight high-grade nickel sulphide deposits close to its flagship Cosmos Nickel project 40 kilometres north of Leinster. It recently won approval to proceed with the Sinclair mine 100 kilometres south of Cosmos and is targeting annual production of 30,000 tonnes by 2012.

Shares in Xstrata, the best performer on the FTSE 100 last year, rose 47p to £35.76 yesterday, an increase of just over 1 per cent. The group is already the world’s fourth-largest nickel producer with refined output of more than 100,000 tonnes a year, largely from mines in Canada.

Ian Pearce, chief executive of Xstrata Nickel, said the bid for Jubilee marked an “exciting step in our strategy to create a world-class nickel business”. He added: “Jubilee is clearly the premier independent nickel company in Australia. [It] offers Xstrata Nickel immediate access to additional production, geographic diversification and introduces substantial near-term growth potential into its portfolio.”

Mr Harmanis said he believed Xstrata’s offer was the best for shareholders. “Jubilee will benefit from the deeper capabilities and balance sheet of a major mining company such as Xstrata to maximise the potential of its resource base,” he said.

Nickel prices have risen nearly 20 per cent to $31,800 per tonne in the past month on signs of a pickup in demand in Asia and China. Nickel hit a record $51,800 in May.

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