Zinc and lead miner CBH Resources Ltd. (CBH.AU) on Thursday recommended a revised joint venture deal and bid for part of the company with largest shareholder Japan's Toho Zinc Co Ltd. (5707.TO), trumping a A$290 million takeover offer from Belgium's Nyrstar S.A. (NYR.BT).

CBH Resources said it preferred Toho's proposal since Nyrstar's bid is conditional on acquiring all of CBH's convertible notes, while also deeming the offer superior in terms of deleveraging the company.

Toho, which holds 50.6% of outstanding notes as well as a 23.08% stake in CBH, has advised it won't support the revised proposal from its competitor Nyrstar neither as a noteholder or a shareholder.

"Toho's revised proposal will provide CBH shareholders with the best of both worlds. Shareholders will be able to receive significant near-term gains on a portion of their CBH shares, and they will also have the opportunity to participate in the future growth of the company through the development of the Rasp project and the planned increase in production at the Endeavor mine," said CBH Managing Director Stephen Dennis.

The takeover tussle for CBH indicates that zinc smelters are concerned about the security of concentrate supply. A number of zinc mines are due to close in the next few years, which may potentially tighten up the concentrate market.

These include the Century zinc mine Australia, the world's second largest mine after Red Dog in Alaska, which is due to close in 2014. Xstrata Plc's Brunswick mine is due to close at the end of the year, and Red Dog itself is currently experiencing permitting problems for a planned expansion.

Analysts usually don't pick zinc as a preferred metal due to China's significant supply capacity, and potential to ramp up output should prices rise significantly. "The zinc market is a lot more fragmented, and China is the big unknown. Supply could react quickly," said ANZ senior commodity analyst Mark Pervan.

"Still, the steel story is set to be strong, and this has to flow through to nickel and zinc," said Pervan. Zinc is primarily used to galvanize steel.

"It's no surprise to see CBH recommend the Toho deal. The obvious next step for Nyrstar is to remove certain conditions," said Resource Capital Research analyst Tony Parry. Nyrstar's bid is conditional on acquiring all of CBH's convertible notes, of which Toho owns just over half.

The deal with Toho includes a sale of 50% of the Rasp zinc project at Broken Hill for A$57.5 million, to establish a joint venture for ownership and development of the mine.

Subject to shareholders approving the Rasp transaction, Toho will also make a partial takeover offer for up to 49.9% in CBH at 25 Australian cents a share, compared with Nyrstar's revised offer of 19.5 cents for the whole of the company. CBH shares closed up 0.5 cents at 19 cents.

Excluding the shares Toho already owns, the value of this proposal equates to around A$76 million.

CBH will also make an offer of A$500 in cash and 1,800 shares per CBH note, with Toho agreeing to tender all of its notes into the offer, for a total consideration of about A$25 million.

"The de-levering of the company, along with Toho's undertaking to support CBH in financing the Rasp Project, will also ensure that this important new mine is brought quickly into production," Dennis added.

Nyrstar also currently receives zinc concentrate from the Endeavor mine, but will see that supply diminish or stop altogether should the deal with Toho eventuate.

-By Elisabeth Behrmann, Dow Jones Newswires; +61 2 8272 4689; elisabeth.behrmann@dowjones.com
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