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Nickel price surge forces IGO to re-up its takeover offer
Peter Ker Resources reporter
Updated Apr 11, 2022 – 5.33pm, first published at 10.46am

IGO Group has agreed to pay about 15 per cent more for nickel miner Western Areas after its long-running takeover attempt was hijacked by soaring nickel prices.

Monday’s improved offer came after an independent expert hired by Western Areas to assess IGO’s $3.36 a share offer declared last week that IGO was not offering a fair price.

Western Areas has been extracting nickel from sites in Western Australia for more than a decade. Bloomberg

The expert’s calculation of what would constitute a fair price was never published, but the unfair ruling effectively sounded the death knell for the deal on its original terms, and prompted IGO to raise its offer to $3.87 a share on Monday.

The improved offer will cost IGO an extra $173 million and has been endorsed by the Western Areas board.
IGO told the ASX that Andrew Forrest’s private company, Wyloo, – which owns 9.8 per cent of Western Areas (WSA) – would support the deal as long as the independent expert ruled it was fair in a fresh assessment.

A Wyloo spokesman confirmed that IGO had accurately characterised its view of the improved offer.
The expert will now go away and do another review of the offer and Western Areas is expected to eventually publish that updated version.

Wyloo agreed to support the original IGO offer for Western Areas in February, but only if IGO worked with Wyloo on any future nickel refinery in Western Australia.

Selling into high prices

Nickel prices soared in March as the war in Ukraine prompted customers to try and wean themselves off Russian supply.
Russia is a major nickel producer and the rush to avoid its product, combined with some large short positions, sparked an extraordinary rally in nickel prices that forced the London Metals Exchange (LME) to halt trading of the world’s flagship reference price for nickel.

That flagship price was more than $US16,000 a tonne this time last year, but was $US33,855 a tonne on Friday, having traded as high as $US48,000 a tonne in March.

Although IGO said it believed the price rise was temporary, it acknowledged that Western Areas had been selling into high nickel prices recently, which meant it would inherit a bigger cash balance if the merger went ahead.

“IGO recognises that these higher prices have resulted in stronger financial performance from WSA compared to IGO’s assumptions at the time the initial scheme was announced in December,” the company said in a statement.

The parties hope to consummate the merger before the end of May and the deal will consolidate a significant portion of the WA nickel industry.

Nickel has traditionally been sold to steelmakers and was extremely unfashionable a decade ago.

But the metal has returned to favour on signs that it will be needed for the manufacturing of modern batteries for electric vehicles.

Shaw and Partners analyst Peter O’Connor said Western Areas shareholders should accept the improved offer.
“With no signs of an interloper stalking and the bid bumped given recent extraordinary nickel circumstances, this bid now is looking ‘fair and reasonable’,” he said.

ASX listed Mincor – which recently started mining nickel ore near Kambalda in WA – has been among the biggest beneficiaries of the nickel price surge, with its shares rallying from 97¢ to $2.47 in the past year.
A block of 7.46 million shares in ASX listed Nickel Mines – equivalent to 0.5 per cent of the company’s float – were traded on market on Monday.