Paul Garvey From: The Australian August 11, 2011 12:00AM
HONG KONG mining investment group Wah Nam International Holdings has renewed its attack on the proposed deals between West Australian iron ore plays FerrAus and Atlas Iron, identifying a dozen concerns in the independent expert's report on the transactions.
Wah Nam, which owns 16.4 per cent of FerrAus, has documented its concerns in a letter to FerrAus and its independent experts, accounting firm BDO and Ravensgate Minerals Industry Consultants.
The letter, a copy of which has been obtained by The Australian, has also been sent to the Australian Securities & Investments Commission.
The letter, signed by Wah Nam executive director Chan Kam Kwan, calls for an explanation of the valuations used in the independent expert's report, including questions as to why the same iron ore cut-off grade was not used when comparing the Atlas assets with those of FerrAus, why no value appeared to be attributed to FerrAus's port allocation at congested Port Hedland, and why there was no apparent difference in valuation between the Atlas ground and FerrAus's better defined resources.
FerrAus shareholders are being asked to vote on two transactions with Atlas as a precursor to a takeover bid by Atlas, which trumped an earlier offer from Wah Nam.
The Hong Kong company has not commented on the merits of the Atlas bid, but it has been unenthusiastic about the preceding two deals.
FerrAus wants its shareholders to approve the sale to Atlas of $24.3 million worth of FerrAus shares at 65c each, as well as the purchase by FerrAus of several iron ore prospects in exchange for another 121.8 million shares.
The deals would hand Atlas a 38.3 per cent stake in FerrAus, with Atlas supplanting Wah Nam as the largest shareholder.
Atlas will then go ahead with a full takeover offer of one Atlas share for every four FerrAus shares.
Wah Nam is particularly concerned with the valuation in the independent expert's report of the southeast Pilbara exploration prospects Atlas plans to sell to FerrAus.
Wah Nam's letter notes that most of the southeast Pilbara tenements were picked up by Atlas in its September 2009 takeover of Warwick Resources. Assets in the tenements were valued at 61c per tonne at the time of that deal, but the independent expert's report estimates them at $1.21 per tonne.
Wah Nam also questions why a cut-off grade of 55 per cent iron was used for resources in FerrAus's holdings, while a cut-off grade of 50-53 per cent was used for the Atlas assets.
The lower cut-off grade would allow poorer-quality ore to be added to the resource base.
Wah Nam picked up a 55.3 per cent stake in Pilbara iron ore play Brockman Resources and planned to combine Brockman with FerrAus before its offer was trumped by Atlas.
A FerrAus spokesman said it was up to the consultants behind the independent expert's report to answer Wah Nam's concerns.
"Wah Nam had their opportunity to make its own proposal but it didn't," a FerrAus spokesman said.
"Wah Nam clearly has a conflict of interest in this and it's difficult to know if this is from Wah Nam as a concerned shareholder, or a company with a major stake in a rival company with completely different interests."
FerrAus shareholders will vote on the proposals in Sydney on August 29.
FerrAus shares have rallied from 64c to 91c since the Atlas proposal was announced.
