Prob the same as the story in The West and The Australian yesterday as follows with mention of Mincor. BHP will not want to be caught short with Noront being pulled out from under them.
IGO will pay $1.1bn for Western Areas, as nickel consolidation play kicks off
Western Areas managing director Dan Lougher. Picture: Travis Anderson
The next stage of consolidation in the WA nickel industry is underway, with WA nickel miner IGO agreeing to pay $1.1bn for rival Western Areas in a friendly tie-up.
IGO said on Thursday it has agreed to pay $3.36 a share for Western Areas shares in an all-cash deal – a relatively small 3.4 per cent premium to its recent trading price, but a 35 per cent premium to the price the nickel miner was trading at before news of the likely deal leaked to the market in August.
The two companies have been in talks since August over a potential deal.
IGO will open a new $900m debt facility to fund the acquisition, which the company said will help create a significant battery metals company with a substantial nickel and lithium production base.
The Western Areas board has agreed to support the IGO bid, as has 14.7 per cent shareholder Perpetual, in the absence of a superior proposal.
Whether a spoiler for the deal emerges will largely depend on whether BHP enters the fray to expand its WA nickel operations, with the mining giant still partly reliant on third-party feed from WA’s mid-tier miners to keep its Kalgoorlie smelter and Kwinana refinery operating at full capacity.
The combined company will produce 41,000 to 44,000 tonnes of nickel this financial year, increasing the following year when Western Areas’ Cosmos production hub comes on line.
But, if completed, it also positions IGO for further consolidation of the WA nickel sector, given Western Areas controls 19.9 per cent of the shares of Panoramic Resources – previously a takeover target for IGO.
While both Western Areas and IGO’s existing nickel mines – at Forrestania and Nova – are within sight of the end of their lives, Western Areas new Cosmos production hub is due to come online next financial year.
IGO says its Nova nickel operation has about six years’ remaining mine life, with Forrestania only having four years on current reserves. New & improved business newsletter. Get the edge with AM and PM briefings, plus breaking news alerts in your inbox.
Both supply half of their output to BHP’s Kalgoorlie smelter, and the tie-up will substantially strengthen IGO’s negotiating position when the contracts next fall due.
Cosmos also sits between BHP’s Leinster and Mt Keith mines, in a rich nickel district that has the potential to provide BHP the feed to make its Nickel West operations far more self-sufficient.
The deal between IGO and Western Areas includes “no shop, no talk” clauses, and Western Areas managing director Dan Lougher said he could not comment on speculation that BHP may be tempted into trumping the IGO bid.
But shares in the company jumped immediately on its return to trading on Thursday, jumping well above the $3.36 a share IGO offer as the market took positions in the hope a bidding war could kick off for the nickel producer.
While BHP has not given any public indication of an interest in Western Areas, or other WA nickel companies, the mining giant has been involved in a fierce bidding war with Andrew Forrest’s Wyloo Metals over control of Canadian nickel explorer Noront Resources.
BHP entered the fray for Noront in July despite the fact Dr Forrest’s Wyloo already had effective control over about 37 per cent of its register, launching a $350m cash bid for the explorer in an attempt to a major footprint in an early stage, but potentially significant, nickel basin play in Canada.
BHP’s offer for Noront was the first time it has launched a takeover bid for a listed company since its ill-fated $US12.1bn acquisition of Petrohawk in 2011, and suggests the mining giant is finally shedding the caution it adopted after the excesses of the mining boom.
Whether it would see similar value in trumping IGO’s bid is unclear, although Western Area’s mining reserves at its Odysseus mine – the first stage of its Cosmos nickel hub – compare favourably with those of Noront’s main nickel prospect.
Other potential mining areas around Cosmos also have significant resources which are the subject of ongoing development studies.
JP Morgan analysts played down the prospect of a counter-bid on Thursday, however, saying IGO’s offer price “looks full”.
“We do not expect another party to bid higher than IGO, given the competitive price put forward,” JP Morgan analysts said in a client note on Thursday.
Western Areas shares hit an intraday high of $3.44 on Thursday before softening slightly to close at $3.42, up 5.6 per cent for the day. IGO shares also closed up, gaining 15c to finish the day at $10.78. NICK EVANS
RESOURCE WRITER
MCR Price at posting:
$1.40 Sentiment: Buy Disclosure: Held
