Atlas Iron finalised a deal to buy Giralia Resources NL, the iron ore company is valued at about AUD$828 million to almost triple its resource of the steelmaking raw material.
Atlas is offering 1.5 of its shares for each of Giralia’s, or 1.33 Atlas shares and 50 cents a share, the Perth-based companies said in a joint statement to the Australian stock exchange. The all-share offer values the company at A$4.57 a share, 53 percent more than Giralia’s last closing price, the statement said. Giralia’s directors recommended the deal.
Buying Giralia, which explores for iron ore close to Atlas’s deposits in Australia’s Pilbara region, will boost output and reduce operating costs, according to Managing Director David Flanagan. The companies say there is a strategic and financial rationale for combining, with Atlas adding that the merged group will grow production, cut operating costs, maximise cash flows and deliver significant value to shareholders.
Giralia chairman Graham Riley said it would create a combined entity - capitalised at $2.5 billion - with the "critical mass and required infrastructure to be a significant power in the Pilbara iron ore sector."
Atlas would immediately increase its resource base with an eye to higher production, while Giralia would gain access to Atlas' port facilities, he said the companies had deposits that either joined or were very close to each other at Mt Webber, McPhee Creek, Beebyn Range and Western Creek.
"The merger is a great way to grow production, reduce operating costs, maximise cash flows and deliver significant value for all shareholders," Mr Flanagan said.
The Giralia board has entered into pre-bid arrangements with Atlas in regards to their combined 7.5 per cent stake in the target. The companies, who have signed an exclusivity agreement, have a minimum acceptance condition in place of 90 per cent.
Chris Drew, an analyst at Royal Bank of Canada, said by phone from Sydney. The projects should materialize Atlas’s plans to develop its Turner River operation, he said.
The acquisition would boost Atlas’ measured, indicated and inferred resource to 602 million metric tons, up from 205 million tons now.
“Atlas has got infrastructure that matches its existing production profile but it’s going to need more with this Giralia addition,” Peter Arden, senior mining analyst at Ord Minnett Ltd., said by phone from Melbourne. “It sort of prolongs Atlas’ life in the long-term rather than adds to it in the short- term.”
Atlas is paying 8.9 times the total assets of Giralia, according to data compiled by Bloomberg, compared with the median multiple of 2.5 times for 10 industry deals since 2003.
Global mining deals have more than doubled this year to A$137 billion, the highest since 2007. The deal comes after a surge in mining takeovers -- particularly in iron ore this year with deals worth $8.8 billion in the sector to date, compared with $1.8 billion last year. Riversdale Mining Ltd. halted its shares today after the Telegraph said Rio Tinto Group had raised an earlier A$3.5 billion offer. Sojitz Corp., a Japanese trading company, paid 17 billion yen ($203 million) to raise its stake in Australia’s Minerva coal mine to 96 percent from 45 percent.
Hartleys Ltd., based in Perth, is advising Atlas, with Credit Suisse Group AG acting as financial advisers for Giralia. The takeover deal carries a 90 percent acceptance condition and will close on Feb. 11 next year, unless extended.
UBS AG is forecasting seaborne iron ore demand to increase by 6 percent next year, with a further 2 percent to 3 percent annually to 2015.
Giralia's Daltons and McPhee Creek projects in the Pilbara, Western Australia, contain an aggregate mineral resource of 300 million tonnes. Giralia also holds numerous other iron ore and other mineral prospects, and a number of listed investments.
Atlas is currently mining and exporting at an annualised rate of 6 million tonnes a year from its Pardoo and Wodgina iron ore projects, also in the Pilbara, and has other projects in development. Atlas is targeting 12 million tonnes annually by 2012.