UPDATE 1-Minara: Rights issue will see it through hard times

* Minara says has enough funds to ride out low nickel prices

* Shares price rockets on prospect of capital injection (Adds managing director, analyst comments; share price)

SYDNEY, Oct 29 (Reuters) - Minara Resources Ltd (MRE.AX) Australia's second-largest nickel producer, said a planned A$210 million ($136 million) rights issue would be enough to combat volatile nickel prices for up to two years.

Minara's stock leapt 65 percent to A$0.56, far outpacing gains in Australia's benchmark index .AXJO, on the prospect of a capital injection, but has still lost over 90 percent of its value this year amid tumbling world nickel prices.

"We will have a sufficient buffer to get us through the next 18 months to two years even in a tough commodities cycle," Minara Managing Director Peter Johnston told Reuters on Wednesday.

The company will conduct a renounceable pro rata rights issue fully underwritten by its 56.1 percent shareholder, commodities trader Glencore International AG GLEN.UL.

A sagging world nickel price -- down 55 percent this year due to lower stainless steel making -- was crimping Minara's cash flows leading it seek more funding, Johnston said.

The funds raised would ensure the company continued to meet its annual production goal of more than 30,000 tonnes from its Murrin Murrin mine in western Australia.

"We are also concentrating on reducing costs in all of our activities and that will contribute to our overall business plan and improve production stability," he said.

Murrin Murrin was built in the late 1990s by the then Anaconda Nickel, and was designed to yield more than 40,000 tonnes of the raw steelmaking material annually.

Using untested leaching technology to glean nickel and cobalt from ore in the Australian outback, Murrin Murrin has yet to reach the designed production levels.

Minara will price its 3-for-2 rights offering at A$0.30 a share, a 12 percent discount to its last trade ahead of the announcement.

If no other shareholders take up the offering, Glencore would end up with an 82 percent stake in Minara, though a Minara spokesman said that was not Glencore's intention.

Analysts said the capital raising came as no surprise after the company warned on Monday it was looking for more ways to cut costs.

The share price rise was seen reflecting investor relief that the company was getting funds amid collapsing nickel prices.

"It's the fact that the rights issue is underwritten. The share price had fallen to the level it had on the back of concerns about a capital shortfall," said an analyst who declined to be named as he was not the lead analyst on the stock.

He added there was also probably some relief that Glencore was not going to sell off its stake in the company.

"There were concerns that the stake was going to get dumped if Glencore had to realise some cash to cover its own debt covenants," he said.

Glencore, which holds 35 percent of Xstrata (XTA.L), the world's No. 2 nickel miner, could still eventually take Minara private, according to analysts. ($1=A$1.53) (Reporting by James Regan and Sonali Paul; Editing by James Thornhill)