Atlas-Aurox merger 'a bargain'

ATLAS Iron is paying a huge takeover premium to secure control of Aurox Resources and the extra 10-12 million tonnes of iron ore export capacity it can deliver. But there is broad agreement it has got a bargain.

By InvestSMART · 11 Mar 2010

By InvestSMART ·
11 Mar 2010

Atlas is offering one of its shares for every three Aurox shares, valuing Aurox at $143 million or 73.67? a share a 172 per cent premium to Aurox's pre-bid price of 27? a share. Takeover bids normally go through at premiums of 30 to 40 per cent.

Analysts at Hartleys in Perth said the agreed merger was an "excellent strategic move" by Atlas given the current export constraints at Port Hedland's inner harbour. Hartleys estimated the cost of extra port capacity that came with the Aurox acquisition was "just" $2.80 a tonne of iron ore shipped.

Iron ore is currently selling on spot markets at more than $US130 a tonne ($A142.18).

Aurox owns the Balla Balla iron ore/vanadium project in the West Pilbara but its main attraction is its paid-up allocation at Utah port at Port Hedland of 6 million tonnes a year from March 2010, increasing to 10 million tonnes a year from 2015. There is the potential to increase the Aurox allocation to 12 million tonnes a year.

Atlas is an iron ore producer from its Pardoo project, 75 kilometres by road from Port Hedland. It is also planning to develop the Wodgina and Abydos projects, taking its planned shipments from 6 million tonnes in 2010 to 12 million tonnes by 2012. It has a production target of 24 million tonnes a year in 2014.

Atlas managing director David Flanagan said the Aurox deal created a company with an "outstanding rapidly growing production profile, supported by port capacity in one of the world's greatest bulk export ports".

"Whether you are in Hunter Valley coal or Pilbara iron ore, it is all about resource quality, infrastructure access and economies of scale," Mr Flanagan said.

Atlas shares closed 10? higher at $2.31. Aurox shares shot 46.5? higher to 73.5?. That compares with the implied price of the Atlas offer of 77? a share.

The future of the Balla Balla project is uncertain within the merged group. Analysts said it could be sold off in conjunction with Atlas' plan to sell up to a 70 per cent interest in its Ridley magnetite project.