Australian iron ore producer, Atlas Iron has agreed to buy fellow Australian iron ore producer, Aurox Resources Ltd. for A$143 million (US$131 million) in shares to increase its ore resources and port capacity. Aurox’s board have unanimously recommended the offer.
Shares in both companies had been suspended yesterday pending a price-sensitive announcement. Aurox shares rose by 172 percent to 73.5 cents in after Perth-based Atlas offered one of its shares for every three of Aurox. The bid values Aurox at 73.67 cents each compared with its closing price of 27 cents on March 5.
The deal will give Atlas up to 12 million tons a year in port capacity at the Port Hedland terminal as well as the Balla Balla magnetite project in the West Pilbara region.
“It is all about resource quality, infrastructure access and economies of scale,” Atlas Iron Managing Director David Flanagan said in a statement to the Australian stock exchange.
Meanwhile, in a separate development, Atlas has announced that it will start selling its iron ore to Asian steel mills next month using a new mechanism combining both cash and benchmark prices.
About 70 percent of its production will be sold on a so-called “mutual fairness” basis. This is where mills pay the midpoint between the annual contract and the cash price, when the spot price is 20 percent above the benchmark. “We are definitely seeing a lot of upward pressure on pricing,” Mr Flanagan said today although he added that he doubted his firm was the only one with such a mechanism “There are hundreds of steel mills out there and surely Atlas can’t be the only one seeking that exposure to the spot market.”
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