Ground Breakers: IGO reluctantly ups Western Areas bid by 15% after wild nickel price ride
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Nickel’s done some weird, wacky and wonderful things in recent weeks.
That looked to be a formality after WSA’s share register stalker Andrew Forrest and his Wyloo Metals brand agreed not to block IGO’s $3.36 per share, $1.1 billion cash bid for the Forrestania and Cosmos nickel complex owner earlier this year (having built a potential blocking stake in the scheme of arrangement).
IGO’s CEO Peter Bradford had been staunch that he wouldn’t lift the offer after nickel prices rose from US$19,500/t when the deal was announced last year to the mid-20ks and then, in two days to US$100,000/t before trading was suspended and prices sent back to the ~US$35,000/t range.
But WSA’s independent expert KPMG forced his hand after declaring it was not fair and reasonable in the wake of super high prices for the battery and stainless steel metal.
IGO has now come back reluctantly with a $3.87 a share offer, still backed by Forrest, which will price WSA at $1.263 billion.
“Since first announcing the Initial Scheme in late 2021, we have observed continued strong nickel price performance and the subsequent impact on valuations of companies operating within the sector,” Bradford said.
“Notwithstanding our view that the recent extreme trading and volatility in the nickel market will be short term in nature, IGO recognises that these higher prices have resulted in stronger financial performance from WSA compared to IGO’s assumptions at the time the Initial Scheme was announced in December 2021.
“The Revised Scheme Consideration shares value with WSA shareholders, while maintaining a very strong value proposition for IGO shareholders over the longer term. IGO looks forward to building WSA shareholder support for the transaction, while in parallel continuing the important integration workstreams that have already commenced, as we work toward transaction completion.”
A serious payday for Western Areas holders, representing a 6% premium to its last closing price of $3.65 a share, 12.5% premium to the weighted average trading of $3.44 since the scheme was first announced and massive 56% premium on the undisturbed price of its shares on August 18 last year, the day before IGO and WSA revealed they were in merger discussions.
Western Areas chairman Ian Macliver said the new agreement reflected the positive impact nickel price volatility has had on its cashflow and asset value since the scheme was first announced on December 16.
“Forrestania is capturing the upside in near and medium term nickel prices, while Odysseus is positioned to capitalise on the longer-term nickel price driven by growth in electric vehicles,” he said.
The deal is a crucial one for IGO in terms of its long term ambitions of being a battery metals focused miner. It owns a share in the world’s best lithium mine, Greenbushes and a long life lithium hydroxide plant in Kwinana.
But its mainstay nickel division is facing an issue with short mine life, with IGO’s Nova mine currently set to run out of reserves in five years.
Securing WSA’s Odysseus mine and broader Cosmos Nickel Complex helps replace that production in the long run.
RBC Capital Markets mining analyst Kaan Peker said the investment bank sees strategic rationale for consolidating WA’s nickel sulphide producers around revenue sharing, costs, downstream processing potential and a stronger balance sheet that improves the amount that can be spent on exploration at WSA’s mines.
He said the deal prices WSA at a 9x EV multiple, compared to a long term historical average of 6x. RBC says WSA is worth $1.1-1.2 billion at its projected US$10-11/lb nickel price over the next year, but that would rise to $1.5-1.6b if US$15/lb spot prices held over FY2023.
West African gold developer Tietto Minerals (ASX:TIE) has seen its share price climb ~60% over the past year as momentum has built for the development of its Abujar mine in Cote d’Ivoire.
What we know from new gold mines is the key to making everything go smoothly is normally grade control, something the brains behind West African Resources (ASX:WAF) credited for the successful start up of their Sanbrado mine in Burkina Faso.
Tietto now has its maiden measured gold resource at Abujar, the highest confidence resource you can post under Australia’s JORC Code, of 7.7Mt at 1.4g/t for 350,000oz of gold.
Importantly that resource, based on infill drilling of the AG Core target to an average depth of just 110, “de-risks” the first two years of gold production at Abujar.
The overall mineral resource sits at 3.45moz. For context Tietto had just 700,000oz of inferred resources back in January 2018. Gold production is slated to begin in the fourth quarter.
“This significantly de‐risks Abujar and our mine planning team expects to declare Proven Ore Reserves for the project this quarter,” Tietto MD Caigen Wang said.
“Measured Resources provide an incredible tick of confidence for our Abujar gold project. These are robust estimates with conservative high‐grade cuts and search restrictions applied to manage the influence of the exceptionally high‐gold grades present at Abujar.
“In an extreme case where diamond drilling intersected 1.1m @ 2,853g/t Au, the highest top‐cut grade of 125g/t for the AG deposit represents only 4.4% of this intersection grade.
“We intend to refresh Abujar’s LOM production plan using the updated Mineral Resource. Within the DFS pit at AG Core, combined Measured and Indicated resources now account for 95% of mineral resources, with just 5% remaining as Inferred resources.”
Wang noted spot gold prices are 35% above the conservative US$1407/oz mark used in the Abujar DFS, something he expects will “materially increase both the open pit ore reserve and LOM mine inventory”.
Throughput optimisation work has also increased the scale of the Abujar project, increasing its mill capacity on a fresh ore basis from 4Mtpa to 4.5Mtpa.