Ann: Response to Western Areas Announcement, page-20

https://www.afr. com/street-talk/igo-eyes-scrip-heavy-structure-for-western-areas-20210819-p58k70
IGO eyes scrip-heavy structure for Western Areas
Anthony Macdonald and Yolanda Redrup
Aug 19, 2021 – 9.34pm

The due diligence will have to run both ways at Western Areas.
While the nickel miner confirmed it had IGO Ltd hot on its tail, both it and its suitor stopped short of telling shareholders anything about the mooted “change of control proposal” including the structure or value.

IGO boss Peter Bradford. Philip Gostelow

At the risk of stating the obvious, IGO will need to issue shares if it is to complete the $1 billion-odd deal.
The miner had $528.5 million cash as of June 30 and undrawn debt facilities worth $450 million. If it scraped every penny together, and had another quarter’s cash flow under its belt, it may be able to get to $1 billion. Just.

But you wouldn’t expect IGO to cut it so fine.
Therefore, it’s logical to assume IGO would issue equity to fund the deal, either asking its own shareholders to help bankroll a cash transaction via adviser Macquarie Capital, or to Western Areas shareholders as consideration for the deal.

It is understood IGO approached Western Areas to talk about the latter; a scrip heavy and low/no cash transaction.
It wants to use its valuable scrip - the value of which has doubled since it bought into the lithium sector in December - to go a big part of the way to acquiring the rival nickel miner.

Western Areas, an underperformer advised by Rothschild & Co and Goldman Sachs, is understandably wary. It’s kept a close eye on its rival’s run in the past nine months - and the runs of other lithium hot stocks such as Pilbara Minerals - and has some concerns about all the hot money.
Western Areas does not want to dud its own shareholders by accepting expensive scrip. It’s also in the hot batteries metals trade, albeit with a strong focus on nickel rather than a mixture of lithium/nickel/cobalt/copper like IGO.

Western Areas shares are up 15 per cent this year, although much of the gains were thanks to a one-day pop on Thursday, when the companyconfirmed our story that it was in the crosshairs of a suitor.

So we expect some robust discussion between Western Areas and IGO about whose scrip is worth exactly how much, and where their respective shares are likely to be headed.
The bankers will have their crystal balls out, and it will be up to them to see whether the boards can broker a deal.

The stars often have to align on scrip-heavy bids.
Of course, IGO has form when it comes to scrip-heavy bids. The group acquired Sirius Resources for $1.8 billion in 2015 with about $215 million cash and the rest in scrip. It is worth remembering it also walked away from a deal mid-diligence at Panoramic last year.

The big wildcard is BHP, which controls Western Areas’ nickel belt and has recently taken a shining to nickel. The question is whether it needs to own Western Areas’ mines, or just the output. It already has an offtake agreement.

IGO shares had a tough time on Thursday tumbling 6 per cent as investors reacted to the news.