http://www.theaustralian.news.com.au/story/0,25197,23039619-50052...

http://www.theaustralian.news.com.au/story/0,25197,23039619-5005200,00.html

Andrew Trounson | January 12, 2008

TAKEOVER target Allegiance Mining was buoyed yesterday by its largest shareholder, Chinese nickel giant Jinchuan, strongly backing the board in the face of a hostile bid from zinc giant Zinifex.

Jinchuan signalled it would not be selling into the bid, and dealt a blow to Zinifex's bid by publicly dismissing its $775 million cash bid as too cheap.

While Zinifex had not expected Jinchuan to be a seller of its 10.4 per cent stake, and had stressed it wanted to have a constructive relationship with the Chinese, Jinchuan's comments may encourage other shareholders to resist the bid.

But the Chinese gave no hint as to whether they were prepared to launch a bid themselves or increase their stake.

Jinchuan this week signalled it was keen to buy mining assets, counter-bidding $244 million for Canadian explorer Tyler Resources, and spending $17.5 million to acquire an 11 per cent stake in West Australian nickel miner Fox Resources in what is an alliance agreement.

Allegiance owns the Avebury nickel mine in western Tasmania, due to start production in the first quarter. While the Allegiance board is yet to make a recommendation on Zinifex's bid, it appears set to officially reject the bid next week after releasing on Thursday bullish exploration results at its Melba Flats nickel-copper prospect 26km from Avebury.

"With its near-term production profile and highly prospective nickel province (in Tasmania), the vast majority of which remains unexplored, Jinchuan believes there to be significant further upside in Allegiance; and therefore the $1-per-share offer for Allegiance is not reflective of the true value of the company," Jinchuan said in a statement.

"We strongly support the management and board of Allegiance and believe they are creating excellent value for shareholders and jointly we will continue to do so."

Under a strategic alliance with Allegiance, Jinchuan has the right to buy all metalliferous production from Allegiance projects in Tasmania.

Allegiance shares rose 1c to $1.05 as the market speculated on a possible counter bid or Zinifex being forced to raise its offer. Zinifex has offered 90c a share, rising to $1 a share conditional on securing more than 30 per cent of the target or winning board approval.