Hancock adds to takeover bids for Atlas Iron

Australian entrepreneur Gina Rinehart, who is the major shareholder in iron ore mining firm Roy Hill, has launched an off-market takeover bid for Pilbara producer Atlas Iron despite rival iron ore mining firm Fortescue Metals' nearly 20pc stake in the takeover target.

Rinehart's investment firm Hancock Prospecting, which owns 70pc of the 55mn t/yr Roy Hill iron ore mine in the Pilbara, has offered to pay A4.2¢ for each Atlas share in a deal that is unconditional of due diligence, financing, regulatory approvals or its own internal company approvals.

The Hancock offer is at a premium to the deal offered by Western Australian mining firm Mineral Resources, which is offering one of its shares for 571 Atlas shares. The Mineral Resources offer equates to around A3¢ per Atlas share at Mineral Resources' opening share price today of A$17.10. The Mineral Resources offer is conditional on 75pc acceptance rate, which is unlikely given that Hancock already holds 19.96pc of Atlas and Fortescue holds 19.9pc. The Hancock offer is not subject to any minimum acceptance level.

Roy Hill operates berths at Port Hedland next to the two used by Atlas. It could benefit from the target's 15mn t/yr port allocation as the Roy Hill project looks to boost production through productivity improvements. Atlas last week warned that it may be ineligible for an additional 50mn t/yr of Port Hedland port capacity, but this has not prevented Hancock from making a full takeover bid for the firm. Hancock has other exploration and development projects in the Pilbara that could also benefit from Atlas' spare port capacity. There may also be some good blending options for the Atlas ores and those held within the Hancock portfolio, Hancock said in its bidder's statement.

Roy Hill, Fortecue and Mineral Resources all ship through Port Hedland, as does UK-Australian mining firm BHP Billiton. The port has a nominal maximum capacity of 577mn t/yr, after it was raised from 495mn t/yr by the state government three years ago. Shipments were at an annualised rate of 548mn t/yr in May, pushing towards the upper limit of what had been thought to be the maximum capacity of the shipping channel into the port. Port Hedland is becoming increasingly congested with more exports of lithium, salt and manganese adding to incremental growth in iron ore exports.

Atlas, which is struggling with a wide discount for its low-grade iron ore, expects to export 9mn t in the year to 30 June, using less than two-thirds of its Port Hedland allocation.

The 62pc Fe iron ore price has fallen to $66.15/t cfr China from $79.90/t at the end of February. The lower grade 58pc Fe ore has fallen to $55.40/t from $64.65/t over the same comparison.

The average price received by Atlas for its iron ore sales fell to $48.60/t cfr China in July-December from $49.80/t over the year-earlier period. Atlas' received price was driven down by a lower headline price and continued elevated discounts for lower grade product. Atlas' full cash costs were A$56.70/wet metric tonne (wmt) cfr China in the latest half from A$52.30/wmt a year earlier.