confirmation that AGO are looking at corporate deals.Atlas...

confirmation that AGO are looking at corporate deals.

Atlas Agrees to Buy Warwick, in Talks to Sell Ridley (Update3)

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By Jesse Riseborough and Rebecca Keenan

Sept. 8 (Bloomberg) -- Atlas Iron Ltd., an Australian iron ore producer, agreed to buy Warwick Resources Ltd. for A$65 million ($56 million) in stock to increase supply of the steelmaking material and boost its bargaining power with mills.

Atlas offered one share for every three of Warwick’s, or 55.67 cents based on Atlas’ closing share price yesterday, according to a statement from the Perth-based company today. That’s 20 percent more than Warwick’s closing price yesterday. Atlas is Warwick’s largest shareholder with a 22.3 percent stake.

Atlas is seeking to boost iron ore output about 26-fold by 2014 on anticipation demand for steel in China, the world’s fastest growing economy, will surge. Chief Executive Officer David Flanagan said today there will be more mergers and acquisition opportunities in Australia’s Pilbara, the world’s biggest iron ore exporting region, as Chinese demand increases.

There are “going to be opportunities for Atlas to do things which are clever,” he said by telephone from Perth. “From an exploration front, from development, from a corporate front, from a marketing front, I reckon we are firing on all cylinders right now.”

Atlas jumped 6.3 percent to A$1.775 at the 4:10 p.m. Sydney time close on the Australian stock exchange, the largest gain since Sept. 1. Warwick surged 23 percent to 57 cents.

Talks to sell Atlas’s Ridley magnetite ore project are continuing and Goldman Sachs JBWere Pty is advising the company, Flanagan said today. The company has previously estimated the cost of developing the mine at A$3 billion.

Overseas Buyers

“We’ve got pre-qualified groups from four countries in the room: China, Korea, Japan and India,” he said. Atlas is seeking to sell at least a 70 percent stake and would consider offers for the whole project, he said. The sale may be completed by the end of the year, he said.

The combined company is seeking to produce 26 million tons a year by 2014. Atlas now produces about 1 million tons a year from the Pardoo mine in the Pilbara. It has previously announced plans to expand output to 12 million tons by 2012.

Buying Warwick may add as much as 247 million metric tons of iron ore resources in south eastern Pilbara, near the town of Newman, Atlas said. The board of Warwick has recommended the offer.

Atlas and FerrAus Ltd., which agreed to sell shares to China Railway Materials Commercial Corp. today, are part of a venture to build two new berths at Port Hedland harbor in Western Australia, the world’s largest iron ore export port. FerrAus and Warwick own adjoining sites and Atlas may also seek talks with China Railway on building rail lines, Flanagan said.

To contact the reporters on this story: Jesse Riseborough in Melbourne at [email protected]; Rebecca Keenan in Melbourne at [email protected].

Last Updated: September 8, 2009 02:40 EDT