Hotly sought-after junior iron ore producer Atlas Iron is now telling shareholders to take the $390 million cash offer stumped up by Gina Rinehart.

“A majority of the Atlas board has determined that the Hancock Offer is superior to the MinRes scheme of arrangement,” Atlas (ASX:AGO) told investors this morning.

“Accordingly, a majority of the Atlas board has now withdrawn its recommendation of the MinRes scheme, and recommends that Atlas shareholders accept the Hancock offer.”

But the change in recommendation will cost the company $3.12 million.

Under the deal it previously struck with Mineral Resources (ASX:MIN), Atlas has to pay a “break fee” if it changes its mind.

MinRes said yesterday it would not be making a counter offer.

Ms Rinehart’s offer of 4.2c cash per share is definitely a much better one for shareholders, because apart from being a full cash return it is also a 40 per cent premium to the offer MinRes tabled.

The offer was made by a subsidiary of Ms Rinehart’s unlisted company Hancock Prospecting.

Hancock is interested in Atlas because it will enable the company to improve the quality of its ore further and extend the life of its operations.

“The Hancock Group iron ore interests produce iron ore products that are priced off the 62 per cent index,” director Tad Watroba said at the time Hancock made its bid.

“Some of the Atlas deposits contain elements that have complementary characteristics providing optionality and opportunity to improve the non-iron elements of ore quality further.

“The remainder of the Atlas resources could serve to extend the life of existing Hancock iron ore interests.”

Higher grade 62 per cent iron ore fetches a higher price than the lower grade 58 per cent iron ore.

While the majority of the Atlas board is recommending the offer, Atlas has advised shareholders not to act on the offer until an independent expert has determined that it is “fair and reasonable”.

It remains to be seen whether Andrew “Twiggy” Forrest’s Fortescue Metals Group (ASX:FMG) will emerge as a potential competing bidder.

Both Fortescue and Hancock raised their respective stakes to 19.9 per cent last week in a bid to block the MinRes deal.