The deal allows Xstrata to capitalise on record-high nickel prices

The offer is for C$18.50 per share, a 5.8% premium over the closing price of C$17.49 per LionOre share on Friday.

The purchase, at a time of record metal prices, comes less than a year after Anglo-Swiss Xstrata bought fellow Canadian nickel miner Falconbridge.

"Xstrata continues to hoover up mining assets ahead of other companies," said John Meyer, an analyst at Numis.

Bid recommended

Xstrata will finance the bid, which has been unanimously recommended by the LionOre board, through existing credit facilities and cash.

"We are very pleased to support this offer," said LionOre president and chief executive Colin Steyn.

"The bid offers clear value to shareholders, and also positions our operations and employees as part of a growing, successful global nickel producer."

LionOre's gross assets at the end of last year were $1.72bn (£870m), at which time the firm, with mines in Australia, Botswana and South Africa, recorded net earnings of $428.5m.

"The key point is LionOre put in a bid to buy Falconbridge's nickel refinery last year, which highlights the operational synergies between the businesses," said Mr Meyer.

He points out that buying LionOre will add another 44,000 tonnes of nickel production to Xstrata's existing capacity of about 80-85,000 tonnes, and gives the company a better balance of mined nickel concentrate and refinery capacity.