thoughts on merger, page-20

Starting to get some positive press too.

From the Australian

One small step for mankind BUT one giant step for commonsense in Australian mining.

That is the meaning of this mornings announcement that Atlas Iron and Aurox Resources have agreed to merge.

Yes, there were imperatives driving this - such as the attraction to Atlas of port capacity through Aurox - but the key point here is strength through size and clout.

The whole junior sector is screaming out for rationalisation, but few CEOs can see above their salaries, perks and bragging rights to look for such opportunities.

Nowhere is this more obvious than iron ore in Western Australia. A stranger being briefed on the industry would come away with the impression that every man and his dog has an iron ore play in the west. Yet rationalisation has been largely avoided.

The victims in the long term are the shareholders who miss out on the chance to participate in one of the great industries this country has developed - this in the case of the juniors that seem to be perpetual explorers or have deals thrust upon them by the companies that control the railways and other infrastructure. Many will never achieve the critical mass necessary to be a real player, calling the shots rather than taking them.

The big gainers are the deep-pockets from Asia, which pick off companies one by one in terms of acquiring strategic stakes. While the shareholders benefit from the investments that provide the financing necessary to explore and develop, this trend means that Australia edges closer and closer to becoming a price taker rather than price setter.

The most compelling part of this mornings announcement is the profile of the new company once the merger is completed.

Under production targets, the company expects:

2010 6 million tonnes of direct-ship ore
2011 9m tonnes of DSO
2012 12m tonnes of DSO
2014 26m tonnes of DSO
Additional 10m tonnes a year from Auroxs Balla Balla magnetite deposit.
Additional 15m tonnes a year from Ridley magnetite deposit
Additional 2m to 4m tonnes a year DSO from Midwest project.

The combined company will control 15,000sqkm of the Pilbara, have access to 33m tonnes a year port capacity, a DSO resource of 187m tonnes, with an exploration target of between a further 430m tonnes and 750m tonnes.

In terms of magnetite, Ridley has a resource of 2 billion tonnes at 36.3 per cent iron ore, while Balla Balla has a resource of 456m tonnes at 45 per cent.

This is a red letter day for Australian mining. Hats off to David Flanagan at Atlas and Charles Schaus at Aurox for being able to see the long term.