Atlas Iron wins MinRes’ heart; shares surge 42pc

Atlas Iron has attracted the attention of larger rival Mineral Resources (MinRes) – which is offering shareholders an attractive premium for the junior producer.

Atlas (ASX:AGO) told investors today that MinRes is offering 1 MinRes share for every 571 of its own shares, which implies a price of 3.02c per share – a 59 per cent premium to Atlas’ share price prior to the news.

MinRes (ASX:MIN) is a $3.2 billion company, with its share price closing at $17.24 before it went into a trading halt last Thursday.

The news sent Atlas’ share price up 42 per cent this morning to 2.7c by 11am AEST. MinRes shares, however, slipped 3.1 per cent to $16.72.

The deal is a friendly one, with both companies inking a scheme of arrangement and Atlas’ directors unanimously recommending that shareholders vote in favour of the tie-up.

Iron ore players have struggled in the past few years, ever since late 2015, when the price bombed below $US40 per tonne and companies were forced to mothball production.

In the last six months of 2017, Atlas slipped to a statutory net loss after tax of $21.3 million and sales dropped from $498 million to $308 million.

In March, Atlas inked a deal to export low-cost “DSO” lithium from Pilbara Minerals’ Pilgangoora project in Western Australia to China to help boost its earnings.

DSO lithium requires only simple crushing before it is exported, which keeps costs low.

Meanwhile, MinRes upped its revenue by 22 per cent to $962 million and net profit after tax by 16 per cent to $163 million in the second half of 2017.

“The acquisition of Atlas, including its portfolio of iron ore assets and its export capacity allocation at Utah Point, is on strategy for MRL,” MinRes managing director Chris Ellison said.

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Atlas says the scrip consideration provides shareholders with continued exposure to the Atlas business, as well as exposure to a diversified mining services and processing company.

This is “an attractive opportunity given the inherent risks associated with Atlas’ current primary single commodity exposure”, the company explained.

The marriage would also deliver potential synergies for the two companies, including transportation benefits, greater access to capital and diversification.

“The combined organisation will have the scale and financial security to support current operations, as well as providing access to capital to contemplate further development opportunities,” Atlas managing director Cliff Lawrenson said.