i have copied this from the Australian.AGO is moving into...

i have copied this from the Australian.

AGO is moving into consolidation mode, my money is on them looking very hard at AXO now.

Atlas Iron (AGO) $1.67; Warwick Resources (WRK) 46.5c; FerrAus (FRS) 64cFont Size: Decrease Increase Print Page: Print CRITERION: Tim Boreham | September 08, 2009
Article from: The Australian

IMBUED with a rush of hot blood after its recent Digger of the Year accolade, Atlas has moved on the east Pilbara junior producer in a scrip deal, valuing the less substantial Warwick at $60 million.

It's not the first such Pilbara play and it won't be last, although the vaunted ones to date have involved Oriental names. Indeed, FerrAus (Atlas's immediate neighbour) has just announced a tie-up with China Railway Materials by which the state-owned enterprise takes a $12.6 million FerrAust stake of 12 per cent.

Atlas, which already owns 22.2 per cent of Warwick, is offering one of its own shares for every three Wokkas in an agreed deal. The combined entity expects to emerge with a resource of 154 million tonnes of direct-shipping ore, plus “exploration targets” of 165-338mt. Atlas already boasts a DSO resource of 127mt.

Atlas has been producing from its Pardoo project since December, targeting 1mt this year. Atlas expects this to grow to 12mt by 2012, with additional tonnage from its Wodgina and Abydos projects. But through the merger, Atlas targets an additional 14mt, taking total export tonnage to a handy 26mt by the end of 2014.

The missing elements are railway access and a decent-sized facility at Port Hedland to cope with such tonnage. Atlas belongs to the four-member North West Iron Ore Alliance, which includes FerrAust, Brockman Resources and BC Iron.

Chaired by former Howard-government minister Ian “orange-bellied” Campbell, the alliance has been loudly promoting a new port facility at the Pilbara gateway, as well as the desirability of forcing BHP Billiton and Rio Tinto to share their railways.

Direct-shipping iron ore is an unsubtle game of scraping it up and digging it out and the higher tonnage the better. However, in this case, there are few direct synergies: Atlas is relatively close to Port Hedland and Warwick's ground is near Mt Newman, hundreds of kilometres away.

Warwick's 26mt inferred resource is not enough to develop in its own right, so it makes sense for Warwick to get in bed with a bigger partner to drive a better deal on railway access (probably with Fortescue) and pricing.

Holders of Warwick enjoy a 20 per cent premium and because it's scrip they get to keep their skin in the game.

Warwick investors should hold on and see how the scheme of arrangement plays out.

As for the others, Criterion's ferrous metals advisory committee is on the case.

[email protected]

The Australian accepts no responsibility for stock recommendations. The author does not hold an interest in any of the stocks mentioned. Readers should contact a licensed financial adviser.