From the Australian. Interesting comments from DF about the possibility of owning their own rail line.
ATLAS Iron has strengthened its position in the iron ore sector with a $828 million bid for its Pilbara neighbour, Giralia Resources.
The $4.57-a-share bid saw Giralia's shares soar, increasing 39.8 per cent to close at $4.18 yesterday. "This merger is a great way to grow production, reduce operating costs, maximise cashflows and deliver significant value for all shareholders," Atlas managing director David Flanagan said.
"We come to the party with more infrastructure options than them and they come with more resources in those areas. It is almost like the Rio Tinto and BHP Billiton deal that never happened, at a different scale."
The offer, which has been recommended by Giralia's board, allows shareholders to choose between the all-share offer or a share-and-cash takeover.
The two companies, which combined will create a $2.5 billion miner, have deposits that either join or are very close to each other at Mount Webber, McPhee Creek, Beebyn Range and Western Creek in Western Australia's Pilbara region. Atlas Iron has been increasing its reach in the Pilbara to create critical mass to support an infrastructure solution for its iron ore.
Earlier this year, the Pilbara miner made a $143m bid for junior Aurox Resources, which followed last year's move on Warwick Resources, three months after Warwick had bought Hannans Reward's iron ore tenements.
The takeover of Aurox provided Atlas with extra capacity at Port Hedland's Utah Point port. The iron ore play is also in discussions with mining giant BHP Billiton about access to one of its rail lines. Atlas produces about 6 million tonnes of ore a year, trucked to Port Hedland, and the Perth-based miner is carrying out a feasibility study to expand its Turner River Hub to 12mtpa. The iron ore miner said yesterday that Giralia's McPhee Creek project could be combined with its own assets to create a 20mtpa mining hub at Turner River.
Mr Flanagan said the company would now advance the Turner River Hub, which involves hauling ore in trucks on a private road.
He said as production ramped up, the iron ore miner would then look at building its own private rail or entering a haulage agreement with BHP or Fortescue Metals Group. "When we have studied the different options, the preferred financial outcome is where we own our own infrastructure," he said.
Under the offer, Giralia shareholders would be able to accept either 1.5 Atlas shares or 1.33 Atlas shares plus 50c cash for each of their own shares.
Atlas said the implied offer of $4.57 a share was at a 52.9 per cent premium to the closing price of Giralia shares on December 20, prior to the bid being launched.
"The Giralia board believes the effective merger of the two companies . . . is forceful and compelling, unlocking significant latent value for both companies, and creating a combined entity with the critical mass and required infrastructure to be a significant power in the Pilbara iron ore sector," Giralia chairman Graham Riley said.
Ocean Equities analyst Sam Spring said the merged company would move into the ASX 100.
AGO Price at posting:
$2.92 Sentiment: LT Buy Disclosure: Held
