Another Australian nickel mine on block as metal price slips

SYDNEY Nov 1 (Reuters) - Australian miner Kagara Ltd said on Tuesday it was talking to potential buyers for its nickel mine, the latest in a series of sales which could lead to further consolidation in the local sector as global prices for the metal falter.

Kagara, better known for its copper and zinc mines, did not name any suitors for its Lounge Lizard deposit in Western Australia state. The talks follow notification by Kagara's mining partner, Western Areas , that it was not interested.

"Kagara and its adviser Goldman Sachs & Partners Australia have commenced discussions with potential purchasers of Kagara's nickel assets," the company said in a statement. "Kagara expects to finalise the sale process during the first quarter of 2012.

Under an agreement reached in 2009, Western Areas mines and processes about 50,000 tonnes per year of nickel-bearing ore from Lounge Lizard, which is sold to BHP Billiton BLT.L> in Australia and Jinchuan Group in China, the biggest nickel refiners in their countries.

Last year, the ore yielded 1,753 tonnes of nickel metal, according to Western Areas.

Nickel has been one of the hardest hit of the London Metal Exchange-traded base metals.

It has fallen by a third year from its early-2011 peak on concerns that weakening demand could tip the supply balance, which has been teetering on the brink of surplus due to slow intake by key consumers, chiefly stainless steel producers.

Nickel prices peaked at just under $29,500 a tonne in late February and have largely been on a downslope since. LME three-month nickel currently trades for around $19,600 a tonne.

In addition to Lounge Lizard, another nickel mine in the Australian island of Tasmania has been up for sale for more than two years by its owner Minmetals of China.

Following a rejig to lower costs, Canada's First Quantum Minerals Ltd is aiming to restart nickel production next month from Australia's Ravensthorpe mine.

First Quantum bought the operation from BHP Billiton in February last year for $340 million, a fraction of the $2.2 billion BHP Billiton spent on its initial development.

Global commodities trader Glencore in October also bought out its partner in the Murrin Murrin nickel project, Minara Resources.