Feb. 25 (Bloomberg) -- Zinifex Ltd., the world's third- largest zinc mining company, won agreement to buy Australian nickel company Allegiance Mining NL after raising its unsolicited offer by 10 percent.

Allegiance accepted the A$852 million ($787 million), or A$1.10 a share, offer, the two companies said today in a statement. The Sydney-based company's shares traded at the offer price.

``It is a fair price and should be enough to get it over the line,'' said Michael Birch, who helps manage the equivalent of $140 million at Wallace Funds Management in Sydney. ``The market wouldn't have been happy with Zinifex paying too much more.''

Buying Allegiance gives Zinifex the Avebury nickel mine, which has a $3.7 billion sales agreement with Jinchuan Group Ltd., Asia's largest nickel producer and the target's biggest shareholder. Zinifex Chief Executive Officer Andrew Michelmore has A$2.2 billion in cash to spend on expansion into other metals after selling its stake in smelter company Nyrstar NV.

Allegiance rose 3 cents, or 2.8 percent, to A$1.10 at the 4:10 p.m. Sydney time close on the Australian Stock Exchange. Melbourne-based Zinifex rose 35 cents, or 3.5 percent, to A$10.50 after earlier rising as much as 10 percent.

Jinchuan Stake

Xstrata Plc, the world's fourth-largest miner of nickel, used to make stainless steel, agreed to buy Jubilee Mines NL in October with Chief Executive Officer Mick Davis saying he was ``bullish'' on the outlook for the alloy. OAO GMK Norilsk Nickel, the world's biggest maker of the metal, is studying a merger proposal from billionaire Alisher Usmanov's holding company ZAO Metalloinvest.

There was no indication Jinchuan, which holds a 10.4 percent stake in Allegiance, would have any concern with the transaction, Michelmore said on a conference call. ``Jinchuan are a very important component of the whole deal,'' he said.

`The decision to recommend it was not taken lightly, particularly in light of the current volatility in world equity markets,'' Allegiance Chairman Tony Howland-Rose said in the statement.

The two companies have agreed to a ``no shop'' clause, preventing Allegiance from allowing another company to study its finances, the statement said. Earlier this month, Allegiance said an unidentified third party, which had been studying its finances, was unable to meet a deadline to make a bid.

The Avebury mine, in Tasmania state, is scheduled to begin production next month and is forecast to produce 8,500 metric tons of nickel in concentrate annually.

Citigroup Inc. and Freehills are advising Zinifex, while Merrill Lynch & Co., Australia and New Zealand Banking Group Ltd. and Minter Ellison are advising Allegiance, the statement said. The offer closes on March 7.

Zinifex today reported first-half profit rose 74 percent to A$1.31 billion on the sale of its stake in Nyrstar. Profit, excluding one-time items, dropped 54 percent to A$228.1 million on declining zinc prices and a stronger Australian dollar.

To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net

Last Updated: February 25, 2008 00:43 EST