MiningNews - For those about to merge (we salute you) Wednesday, 10 March 2010 Kristie Batten
JUST months after merging with Warwick Resources, Pilbara miner Atlas Iron and magnetite hopeful Aurox Resources have agreed to a friendly merger, with the deal being sealed over a beer before the AC/DC concert in Perth on Saturday night.
The two companies have been in a trading halt since Monday and the announcement saw Aurox shares soar by 144% or A39c to 66c.
The merger is set to take place via a scheme of arrangement with Aurox shares to receive one Atlas share for every three Aurox shares held.
Based on Atlas?s last closing price of $2.21, the merger implies a price per Aurox share of 74c, a 173% premium.
The deal values Aurox at $143 million, $90 million above its current market capitalisation.
The board members of Aurox ? who hold around 30% of the company ? have unanimously recommended the deal in the absence of a superior proposal, with Aurox managing director Charles Schaus describing the merger as a great deal for shareholders.
News of the merger comes just two weeks after the two companies signed the Utah Point Port Cooperation Agreement, granting Atlas the first right of refusal to use any of Aurox?s unused or surplus berth, ship loading and stockpiling capacity at the new Utah Point facility from March 2012.
Atlas MD David Flanagan told MiningNews.net the port deal was the first step in the merger process, with two separate shareholders of each company suggesting the two take it further.
?We went and announced that deal and someone who was a shareholder of ours and a shareholder of Aurox?s said ?if you?re going to do that, why don?t you put the two companies together and really get some synergies?, and he got his broker to call me and say that,? he said.
A material shareholder in Aurox also recommended a merger.
?That guy contacted Aurox and said ?for Christ?s sake, sit down with them? and we did and we came up with a deal which we all think is a good deal,? Flanagan said.
?I had a beer with Charles on Saturday night before I went to the AC/DC concert and it was literally that simple.?
Flanagan said the infrastructure was a key driver of the merger.
?Definitely the balance in the value of the transaction for Atlas leans more towards the infrastructure than the asset, no doubt,? he said.
The merged entity will hold up to 33 million tonnes per annum of allocated port capacity, subject to completion of Utah Point and the planned North West Iron Ore Alliance berth at Port Hedland.
Under the port deal, Atlas agreed to advance an interest-free loan to Aurox of $13.86 million to pay a facility charge to the Port Hedland Port Authority before March 31, while Atlas said today it would extend an additional unsecured, interest-bearing loan of up to $7.7 million, enabling Aurox to redeem the outstanding convertible notes which are due to mature on June 30.
Aurox had been in talks with a number of parties over funding for the Balla Balla project and Flanagan said that strategy would not change.
?At the moment, I don?t think it suits us to go in and borrow a shitload of cash,? he said.
?It?s something that needs a strategic partner and that?ll be the way it gets developed.?
The combined entity will hold around 15,000 square kilometres of land in the Pilbara, with direct shipping ore resources totalling 187 million tonnes at 56.6% iron.
Aurox?s flagship Balla Balla project will add 238Mt of magnetite reserves and 456Mt of resources to Atlas?s magnetite reserves of 970Mt and resources of 2 billion tonnes.
The new company will be targeting DSO production of 6Mtpa this year, 9Mtpa next year, 12Mtpa in 2012 and up to 26Mtpa from 2014, subject to feasibility studies.
Flanagan said there would be no change in the Atlas board following the transaction.
Shareholders of both companies will vote on the scheme in May.
On Monday, Indian media reports suggested the country's state-owned miner NMDC, Saudi Arabia's ABS Consulting and Australia's Boulder Steel had submitted a $US230 million ($A251 million) proposal to take up to a 70% stake in Atlas?s Ridley project.
?They didn?t actually deny that they had made Atlas that offer,? Flanagan said, refusing to make any further reference to the reports.
?I don?t want to prejudice anyone from getting the best out of the transaction and we do have confidentiality agreements in place.?
AGO Price at posting:
$2.25 Sentiment: Hold Disclosure: Held
