Fortescue makes a move on junior miner Atlas Iron

11 june 2018

Mining heavyweight Fortescue Metals Group has bought a significant stake in mining minnow Atlas Iron and could now play role of spoiler in the proposed corporate marriage of Atlas and Mineral Resources.

In a statement to the market Fortescue said it had agreed to buy 15 per cent of the ordinary shares of Atlas, a junior iron ore miner with assets in the northern Pilbara region of Western Australia, at a cost of 4 cents per share.

But Fortescue revealed its stake in Atlas would be well above that level, because it has an economic interest in Atlas through a “cash settled swap relating to notional shares equivalent to approximately 4.9 per cent of Atlas Iron’s ordinary shares”.

So its “aggregate physical and economic interest” in Atlas totalled 19.9 per cent of Atlas’ ordinary shares, Fortescue told the ASX.

In the statement FMG said that it “does not intend to support the proposed Scheme of Arrangement between Atlas Iron and Mineral Resources…but reserves the right to do so”.

The move means Fortescue can effectively block the deal.

Peter O’Connor, an analyst with Shaw and Partners, said Fortescue’s move could give it greater port capacity, greater iron ore resources/reserves and a “whiff of lithium” thanks to the assets of Atlas Iron in Western Australia.

Mr O’Connor said Fortescue was pursuing “an interesting and low cost option”, with its stake in Atlas coming at “a very modest” cost of about $US50 million.

Getting access to Atlas Iron’s port capacity (one operating and one project) “could be a handy way for FMG to expand, at some future date, incrementally and cheaply expanding its current port infrastructure which is world best kit”. Mr O’Connor described Atlas Iron’s port capability as “a very handy resource for the right company”.

On iron ore, Mr O’Connor said Atlas Iron’s iron ore assets could provide Fortescue with “potential grade/quality sweet spots”.

A third area of interest for Fortescue arising from its investment in Atlas could be “a segue into lithium – an area that FMG has highlighted as ‘of interest’ – via Atlas Iron’s lithium portfolio”.

Fortescue recently signalled an interest in commodities beyond iron ore.

Two months ago Mineral Resources entered into a binding Scheme Implementation Deed with Atlas which it said would result in a “combination of the two companies”.

Mineral Resources declined to comment on the surprise Fortescue move on Thursday.

Mineral Resources, which has a market capitalisation of about $3.5 billion, said that under the agreement it had agreed to acquire all of the shares of Atlas Iron via a scheme of arrangement.

Under the proposed deal, Atlas shareholders would receive one new Mineral Resources share for every 571 Atlas shares.

Atlas Iron chairman Eugene Davis told shareholders in the company in April that after a detailed strategic review that Atlas believed “that the combination with MinRes will not only protect, but also enhance, the Atlas business”.

The board of Atlas Iron had unanimously agreed to back the transaction with Mineral Resources.

Source: THE SYDNEY MORNING HERALD