Atlas Iron is going to Mineral Resources in a $280 million all-scrip deal

Iron ore. Image: Atlas Iron.
  • Atlas Iron is under an all scrip offer a 3.02 cents a share, a premium of 59%.
  • The buyer is Mineral Resources Limited, a Perth-based company with a diversified portfolio including significant lithium resources.
  • Atlas’s Pilbara iron ore assets will be consolidated with that of Mineral Resources, lower per tonne costs.

Atlas Iron is under takeover in a $280 million all scrip deal with Mineral Resources Limited, a Perth-based company with a diversified portfolio including significant lithium resources.

Based on the closing price of Atlas and Mineral Resources on shares on April 4, the offer implies a price of 3.02 cents for each Atlas share, a premium of 59%. Atlas shares last week closed at 1.9 cents each and Mineral Resources at $17.24.

In early trade today, Atlas Iron jumped 42% to $0.027. Mineral Resources fell 2% to $16.90.

The deal, which will see Atlas’s Pilbara iron ore assets consolidated with that of Mineral Resources, is via a Scheme Implementation Deed to acquire all of the shares of Atlas.

Atlas shareholders will get one new Mineral Resources share for every 571 Atlas shares.

The Directors of Atlas have unanimously recommended that shareholders vote in favour of the scheme.

A key benefit to the combined business will be a lower per tonne cost for iron ore. Mineral Resources a says the economies of scale which will drive down costs and ensure the business can compete in the global market for low grade iron ore.

Atlas Iron was an early victim of falling iron ore prices. Atlas in April 2015 announced it was mothballing its mines because it was costing more to dig up the ore than buyers were willing to pay.

The crash in iron ore prices was then driven by softening Chinese demand. Since then the company has restructured, global prices have surged and the miner is cash flow positive.

In the latest half year results, Atlas posted a statutory net loss after tax of $21 million. Sales were $308 million, down from $498 million.

Over the same time, Mineral Resources increased revenue by 22% to $962 million and net profit after tax by 16% to $163 million.

Atlas Chairman Eugene Davis says the proposed business combination provides Atlas shareholders with the opportunity to gain exposure to a diversified commodities and services business with a strong balance sheet and multiple revenue streams.

“The combined operating expertise of the expanded organisation is likely to facilitate the exploitation of a number of opportunities that currently exist within the Atlas portfolio, transforming the combined operations into a diversified commodity business,” he says.

Chris Ellison, Managing Director of Mineral Resources, says the acquisition of Atlas, including its portfolio of iron ore assets and its export capacity allocation at Utah Point, is on strategy for Mineral Resources (MRL).

“The culture that has been developed within Atlas is an exceptionally good fit with that which has been fostered in MRL,” he says.

“The majority of the Atlas senior leadership team have been running the business for many years and their skillset, experience and intimate knowledge of the Atlas business will be an extremely valuable asset within the consolidated Atlas-MRL business.

“I look forward to them integrating into the MRL team over the coming months.

“The amalgamation of MRL’s existing Pilbara iron ore assets with those of Atlas will enable us to exploit greater synergies and economies of scale which will drive down costs to ensure the consolidated iron ore business is sustainable in the new environment of lower global prices for low grade iron ore.

“Creating a sustainable iron ore operation enables us to protect Western Australian jobs and ensures that our consolidated iron ore operation in the Pilbara continues to deliver a range of social and economic benefits to Western Australia.”

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.