Junior miners consolidate in the Pilbara

Date: 28.06.2011

Iron ore miner Atlas will buy FerrAus to form a $3 billion new company and consolidate assets and infrastructure in the Pilbara

By Anna Game-Lopata | June 28, 2011

Atlas Iron will buy FerrAus to form a $3 billion new company and consolidate assets and infrastructure in the Pilbara.

Atlas and FerrAus say the deal will deliver them a combined allocation of 46.5 Mtpa at the port facilities in Port Hedland’s inner harbour and a future allocation of up to 10Mtpa at Anketell Port, which is of significant strategic importance to FerrAus.

In an unusual two-step process, Atlas will sell some of its Newman iron ore tenements to FerrAus, then buy them back through an all-scrip offer for the entire company.

First, Atlas will buy a 38 per cent controlling stake in FerrAus, paying $24.3 million cash for 37.4 million FerrAus shares.

The iron ore exporter will then sell a group of its iron ore tenements near Newman for a further 121.8 million shares.

If all goes well and the deal
gains support from shareholders, Atlas then proposes to buy back both its cash and assets through a one-for-four scrip offer for FerrAus stock.

FerrAus Chief Executive Officer Cliff Lawrenson says the combined resource tonnage will lead to greater market penetration and presence.

"Atlas has a proven track record of exploration, developing iron ore mines and exporting iron ore," Lawrenson says. "The combination of our assets will create a significant, South East Pilbara focussed iron ore development company."

FerrAus directors unanimously agree the acquisition is a better alternative to the recent offer from Wah Nam International. Trumped by Atlas, the Hong Kong-listed company today withdrew its takeover bid.

"The acquisition will result in FerrAus owning a substantial resource inventory of 488.6Mt, with significant potential to rapidly grow those resources, and the financial capacity to do so," Lawrenson says.

"Not only does it significantly enhance FerrAus’ resource base and provide valuable economies of scale, but it also creates a larger, well-funded company with a strong supportive shareholder to provide for the development of those assets.

"Ultimately we believe there are significant additional benefits for all stakeholders flowing from a combination of FerrAus and Atlas through the consolidation of the wider Pilbara region."

Specifically, increased project scale delivered by the acquisition will also provide both companies with substantially greater ability to
access rail freight lines, a sore point for many smaller companies denied access to those operated by major players.

Atlas Managing Director David Flanagan confirms this notion.

"Our proposal substantially grows the resource inventory of FerrAus and injects considerable opportunity for rapid growth in resources through continued exploration, while providing the leverage required to pursue independent infrastructure in the region."