Possible buyers for BHP Billiton's Nickel West business are scrutinising the sector's junior miners as they weigh up the potential for long-term supply for one of its key assets, the Kalgoorlie smelter.
The sale of the Nickel West business has been under way for some months and industry sources suggest interested buyers have been narrowed down to resources giants Glencore and Jinchuan Group.
Any buyer of the West Australian assets would have to work with local nickel producers to secure supply for the smelter, which has run about 10 per cent under capacity and at a high cost for BHP, with industry suggesting that either a secure offtake agreement or an acquisition of a local player is highly likely.
Fingers appear to be pointing towards both Western Areas and Sirius Resources due to the quality of their nickel concentrate and their relative freedom to sign a deal.
Western Areas managing director Dan Lougher confirmed that the company had been in talks with prospective buyers, including Glencore and Jinchuan, but had not yet been approached in regards to an acquisition.
"Our job is to be across who is in the room talking to BHP because it may be very significant to us and we should be, and are, having conversations with those parties," Mr Lougher said.
Western Areas has two offtake agreements in place; a 12,000-tonne-a-year commitment to sell concentrate to Nickel West until 2017 and a rolling two-year deal with China's Jinchuan Group to ship 13,000 tonnes of concentrate.
Mr Lougher said the company had been discussing the renewal and terms of those agreements with both incumbent and new parties and was "playing a bit of politics" to leverage those contracts.
Assets under the Nickel West banner include the Mount Keith, Cliffs, and Leinster mines and concentrators, as well as the Kalgoorlie smelter, the Kambalda concentrator, and the Kwinana oil refinery.
There has been speculation that juniors in the region would form a consortium to buy an individual asset but Mr Lougher said this was unlikely.
On Thursday Poseidon Nickel announced an offtake agreement with Nickel West for the delivery of ore from its Windarra project to the Leinster concentrator.
While only for an initial two years, the deal indicates that Nickel West is still searching for supply to fill the smelter, which must run at full capacity to be profitable.
"The hub-and-spoke system that Nickel West has been running over many years has actually worked very well, it has only been a recent issue with the closure of the Perseverance mine, which created some supply problems," Poseidon Nickel managing director David Singleton said.
"Clearly there are some acquisitions that a Nickel West buyer could make if they wanted to that could fill that gap and increase the amount of feed they receive."
A high level of iron, along with low arsenic levels, are also desirable in smelting and have proved hard to achieve in recent feed to Nickel West.
Western Areas and Sirius Resources both have the high-iron and low-arsenic quality concentrate sought for the efficient operation of the smelter.
'The mines in Kambalda are all locked up in supply contracts, so the only people who have concentrate are us and Sirius and it is a perfect material for blending," Mr Lougher said.
Sirius Resources exploration director Jeff Foster said on Thursday that the company expected to announce a maiden offtake agreement as early as December.
"Our offtake discussions are at an advanced stage with strong competition and our expectation is to have the first of these offtake contracts in place by the end of December," he said.
Fellow nickel producer Mincor Resources managing director David Moore said Western Areas and Sirius would be the obvious choices for a long-term supply agreement or acquisition.
