Leading China-focused commodities exporter Mineral Resources will acquire Western Australian iron ore miner Atlas Iron, with the $280 million deal to provide cost synergies by an amalgamation of Pilbara assets.
The companies announced the acquisition to the ASX this morning, with the transaction to take place via a scheme of arrangement, valuing Atlas at $280.2 million.
Mineral Resources said in a statement that Atlas shareholders would be offered 1 new Mineral Resources share for every 571 Atlas shares, representing a 59 percent premium to Atlas' last close. Atlas last traded at 1.9 cents on Wednesday last week, while Mineral Resources closed at $17.24.
Atlas directors unanimously recommended that shareholders vote in favour of the scheme.
Atlas shares were worth more than $4 in 2011, as iron ore prices surged. It was considered an emerging iron ore powerhouse, before getting hit by rapidly declining spot prices.
A debt restructure in 2016 saved Atlas from falling into administration but the company never really thrived again, leaving it little option but to accept the deal proposed by Mineral Resources.
"The scrip nature of the scheme also delivers a number of key benefits to Atlas shareholders, including; retained exposure to Atlas, the opportunity to benefit from potential synergies driven by the combination and greater diversification of revenue and commodity exposure," Atlas managing director Cliff Lawrenson said in a statement.
Mineral Resources said the amalgamation of its existing Pilbara iron ore assets with those of Atlas would lead to greater synergies and economies of scale, helping to drive down costs to ensure the consolidated iron ore business is sustainable amid lower prices for low grade iron ore.
Atlas has been exporting iron ore to China for around a decade but has recently embarked on a diversification strategy utilising its Pilbara port capacity to reduce the impacts of iron ore pricing volatility.
Early last month, Atlas unveiled an innovative offtake deal with Chinese commodities trading giant Sinosteel, for up to 1.5 million tonnes or raw lithium ore that Atlas will buy from Pilbara Minerals and on-sell to Sinosteel.
The company followed the Sinosteel lithium deal with a manganese arrangement with the privately-owned Horseshoe Manganese.
Under terms of that transaction, Atlas Iron will purchase up to 100,000 tonnes of manganese from Horseshoe and ship it to export markets using its existing chartered iron ore characters.
Atlas and Mineral Resources also entered an alliance agreement separate from the scheme of arrangement, to identify and explore future commodity opportunities.
Part of those opportunities is expected to be further moves in the lithium and manganese sectors, with a special purpose vehicle controlled by Atlas to be established to manage operations over those metals.
Mineral Resources will provide the initial working capital for the SPV, with Atlas providing funding going forward.
(Reporting by Susan Mathew in Bengaluru; additional reporting by ACBR staff reporter)