Resource News

Miner goes the whole hog, bulks up in a big way

 

TWO weeks after lending Aurox Resources $13.6 million interest free to secure a valuable option over potential port capacity at Port Hedland, Atlas Iron Ore has decided to go the whole hog and acquire Aurox.

So Atlas proposed a merger, via a scheme of arrangement, with a scrip consideration of 1 Atlas share for every 3 Aurox shares, which implied a price of 74c an Aurox share — a whopping 173 per cent premium to Aurox’s pre-announcement share price of 27c. Not surprisingly the Aurox directors found that to be an offer which was too good to refuse and have unanimously recommended that shareholders vote in favour of the offer, in the absence of a superior proposal.

For Atlas the deal will give it full ownership of Aurox’s entire port allocations, whereas the option agreement only gives it first right of refusal over any unused or surplus ship-loading and stockpiling capacity at the Utah Point port facility in Port Hedland.

Moreover, it will further bulk up Atlas and give it a deeper project portfolio — in particular, Aurox’s promising Balla Balla magnetite project, south of Port Hedland, which has a resource of 465 million tonnes at a grade of 45 per cent. And it will enable Atlas to optimise its development schedule, accelerating the development of some of its haematite DSO (direct shipping ore) projects, to take advantage of the port capacity obtained from Aurox. Atlas is already producing from its Pardo DSO mine and is due to bring another DSO project, Wodgina, into production by June. It also has two other DSO development project in Abydos and Mt Webber.

The acquisition of Aurox will enable Atlas to target DSO exports at an annualised rate of 6 million tonnes in 2010, growing to 12 million tonnes by 2012 and to 26 million tonnes by 2014.

The merged group will have a port capacity of up to 33 million tonnes at Port Hedland — 15 million tonnes at Point Utah and 18 million tonnes at South West Creek, where North West Iron Ore Ming Alliance, of which Atlas is a member, has plans to build a 50 million tonnes a year port facility. Balla Balla, which also includes vanadium and titanium as byproducts, has the potential to be one of the world’s lowest cost magnetite concentrate producers. This is because it is located near a huge, sustainable, aquifer which would enable it to utilise up to 5 gigalitres a year to pump the magnetite to Port Hedland via a 110km slurry pipeline, where it would be dewatered and shipped. That would result in transport costss of about $1.10 a tonne, compared with $12 a tonne using road transport.

Balla would require up to $2 billion to develop. Before the GFC, Aurox was capitalised at more than $200m and was looking at traditional finance — but that dried up, and the market capitalisation has dropped to $50m, reflecting uncertainty over the need for further equity, and possibly scepticism as to whether Aurox would be able to secure funding for Balla Balla.

But the company has already satisfied many of the preconditions for developing the project, including securing the mining leases, completing iron ore and vanadium studies, obtaining a ministerial environmental sign-off and securing a 10 million tonnes a year offtake agreement with Chengdu Iron and Steel, which is part of Hebei Iron and Steel.

Last month, Aurox entered into binding agreements with China’s leading mining engineering services provider, MCC, to provide engineering, procurement and construction services for Balla Balla. MCC also agreed to assist Aurox in securing debt finance from Chinese banking institutions.

That indicated Aurox was far more advanced than had been realised and it may have spurred the Atlas offer. The merger would create an ASX200 company, with a market capitalisation of more than $1bn and a much deeper market liquidity. Iron ore prices are expected to rise significantly and because it’s a scrip offer Aurox shareholders will participate in the benefits that this is likely to produce.

Nufarm woes

IF they didn’t realise it before, Nufarm shareholders yesterday found out just how much their fortunes have deteriorated in recent months.

Nine months ago, Nufarm’s share price topped $14, but since then there have been four earnings downgrades, and a proposed takeover by Sinochem fell through in late January after the Chinese group, following due diligence, wanted to reduce its offer price from $12 to $11 a share.

Instead, Nufarm opted for an alliance with Sumitomo Chemicals, which included the Japanese group acquiring 20 per cent of Nufarm via a tender offer to shareholders at $14 a share.

The latest downgrade — to an expected loss of $40m for the January half year — came only last week at the shareholders’ meeting which approved the tender offer. Nufarm’s share price at that time had drifted from $10.50 when the Sinochem takeover fell through, to $9.75.

It fell further after the latest downgrade, closing at $9.20 on Tuesday. But that price was inflated by including an element for the partial offer from Sumitomo. Books close tomorrow to determine the holders entitled to participate in the offer, and Nufarm shares were yesterday quoted ex-entitlement to the tender offer. As a result, the share price fell 83c, or 9 per cent, to $8.37 — the lowest level in six years. It could have been worse. At Tuesday’s close of $9.20, the implied see-through price, after adjusting for the tender entitlement, was $8. Yesterday’s close of $8.37 implies a cum-entitlement share price of $8.50. Sinochem’s proposed reduced price of $12 a share represents a premium of 43.5 per cent to Nufarm’s present share price and shareholders may now regret that the board turned down that proposal in favour of the Sumitomo deal.

Nufarm has entered into a memorandum of understanding with Sumitomo which includes exclusivity, non-solicitation and notification obligations in the event that Nufarm receives a third party proposal before the tender offer closes, but they are subject to the directors’ fiduciary duty to act in the best interests of the company and its shareholders. If the Sinochem proposal were to be revived it would have to be before the tender offer closes on April 9 and Sumitomo secures a 20 per cent stake. Nufarm holders who accept into the tender can withdraw their acceptance at any time up to the close.

It’s unlikely to happen…read more at The Australian

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