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BHP chasing ore supply after keeping nickel division-sources

By James Regan

SYDNEY, Nov 12 (Reuters) - BHP Billiton (NYSE: BBL - news) is redoubling its efforts to secure supplies to feed its Australian Nickel West division, industry sources said, after it rejected offers to sell the business.

BHP on Wednesday said it was scrapping efforts for a sale after failing to get its price and would continue to run it instead.

The global miner has been accelerating supply negotiations with smaller miners that can ship high nickel-bearing ore for processing by Nickel West, which accounts for 5 percent of global supply, mining industry sources said.

The move could lead BHP to raise next year's production guidance above this year's 95,000 tonnes, as Nickel West has a maximum capacity level of 110,000 tonnes, they said.

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"Now (NYSE: DNOW - news) more than ever, BHP will want to firm up new supply agreements as quickly as possible and maximise operations," said a mining executive familiar with Nickel West.

The executive said talks were likely to centre around Sirius Resources NL, which is holding negotiations with several smelting companies, to supply up to 26,000 tonnes of nickel in concentrate annually starting in three years.

Sirius ignited interest in Australian nickel two years ago when it made a major discovery, triggering a wave of new entrants.

Gavin Wendt, an analyst with MineLife in Sydney, said BHP was seeking to engage a range of miners.

"Other nickel explorers (will) feed off the likes of Sirius," Wendt said, with new companies looking to exploit a ready-made buyer.

Miner Western Areas Ltd in August opened a tender to supply 13,000 tonnes of nickel in concentrate a year, pushing forward its plans to capitalise on Nickel West's need for ore.

BHP has already signed up Poseidon Nickel for up to 500,000 tonnes of ore annually, which will be concentrated and further refined by Nickel West.

Other potential suppliers now in the pre-development stage include Fraser Range Metals and Matsa Resources , according to Wendt.

Nickel prices rose nearly 40 percent between January and May to a high of $21,625 a tonne after Indonesia banned ore exports, choking supply to Chinese steel producers, but since given up much of their gains.

(Editing by Richard Pullin)