From Barry Fitzgerald today:
It seems that the discussion confirmed by the pair on the "basis upon which engagement and due diligence could proceed" has got bogged down.
Low-level nitpicking by lawyer types is to blame, so there is no suggestion that there is lack of willingness to engage between the parties.
Still, the fact that a month later there is still no word on whether there will be an agreed takeover bid suggests IGO's initial soundings has left Western Areas underwhelmed.
The problem from Western Area's perspective is that IGO came knocking with a scrip proposal.
It means Western Areas must make a judgement on the value of IGO's scrip which has been on the tear this calendar year thanks to its well-timed lithium acquisition from China's Tianqi.
The acquisition involved a 24.99% stake in the Greenbushes mine, the world's biggest and lowest cost hard-rock lithium mine, and a 49% stake in Australia's first lithium hydroxide plant at Kwinana.
Funded in part by the sale of its 30% stake in the Tropicana gold mine, the deal with Tianqi completed IGO's deliberate transformation into a "clean energy metals" company ready to ride the electric vehicle and renewable energy revolutions for all they're worth.
IGO's Nova mine has long been good for the required nickel, copper and cobalt components of a clean energy metals portfolio, and Greenbushes' spodumene and the hydroxide plant now provides the lithium exposure.
But Nova's remaining mine life of six years or so means that IGO's complete clean energy metals status could be short lived. Western Areas is the quick fix as it has mapped out a minimum 10-year/20,000tpa nickel future with its Cosmos/Odysseus development.
In seeking to secure the quick fix, IGO is looking to capitalise on a share price buoyed by lithium's strength.
Lithium prices took off a couple of months after the Tianqi deal was announced and have not looked back. That has been great for the IGO share price which is why its scrip is its preferred consideration in any Western Areas bid.
But the lack of transparency about the first stage development of the Kwinana hydroxide plant is an issue for Western Area in valuing a scrip offer from IGO.
While the initial 24,000tpa plant produced its first chemical product (not battery quality) last month, it was after delays and a massive cost overrun. Full production at battery quality grade is forecast by the end of 2022.
That might well be achieved from the complex bit of kit. But until it is, it is a risk to IGO's share price that Western Area could well decide is best avoided.
IGO could seek to defuse the concerns about the unknowns at Kwinana by making a scrip/cash offer. While its balance sheet suggests the cash component could be meaningful, the Kwinana uncertainty would remain.
Western Areas was a A$2.48 stock ahead of IGO being flushed out as potential takeover suitor. It has since marched 23% higher to $3.05 in response to the IGO approach, and the 7% rise in the nickel price to near seven-year highs.
IGO in the same period is up a lesser 4% thanks to nickel price strength, having had already run hard during the year in response to the lithium boom Mark II.
While Western Areas' current share price clearly carries a premium due to the takeover talks, the premium falls well short of what IGO would need to pay to have a winning bid, with or without the Kwinana uncertainty.
The dynamics of the sulphide nickel landscape, both in WA and overseas, is making sure of that.
There is an almighty scramble on to secure (lower emission) sulphide nickel units to meet the wave of demand coming from the battery sector for nickel sulphate, the preferred and premium fetching battery precursor material.
The demand is such that the battery market for nickel is on its way to meeting and possibly exceeding the demand from nickel's traditional main use in stainless steel.
Increasingly, end users along the battery supply chain are waking up to the fact that come 2023/24, the supply might not be there.
It is why Tesla struck a nickel supply deal with BHP in July, and why BHP is bothering with a C$325 million bid for Canadian nickel explorer Noront, at a 69% pre-bid premium, and in the face of opposition from Noront's 37% shareholder, Andrew Forrest's privately held Wyloo.
Continuing the scramble theme, Wyloo bobbed up as 5.28% shareholder in Western Areas just as the IGO approach was made public, having started its market purchases back in March.
And for good measure, the strategic take-up of positions in nickel companies extends to Western Areas owning 19.9% of Panoramic, Mincor being owned 8% by Wyloo and 15% by IGO, and Forrest's family company Tattarang owning 11.5% of Poseidon.
Against that pressure cooker backdrop, IGO's takeover approach to Western Areas is the opening salvo in the predicted WA nickel sulphide wars in which the sector undergoes massive consolidation across the main names through a frenzy of merger and acquisition activity.
Western Areas' 10-year/20,000tpa nickel production profile makes it a particularly prized asset as it is of the duration and scale needed for any acquirer to make the leap into the value-added space of nickel sulphate for the battery sector, as BHP is doing with a new sulphate circuit at its Kwinana nickel refinery.
More to the point, it was a leap IGO was hoping to do based on Nova before canning the idea in 2019 on the realisation that without another major discovery - or an acquisition like Western Areas - it did not have the supporting resource base.
It is why its (renewed) interest in Western Areas will not be going away.
But it should be wary of dragging the chain in securing the blessing of Western Areas because it could well be out-manoeuvred by BHP, which needs to scale up Nickel West to make it more meaningful, or from Forrest who seems to be everywhere but nowhere just yet in the space.
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