Pilbara iron ore producer Atlas Iron (ASX: AGO) has announced it will merge with fellow Pilbar explorer Warwick Resources (ASX: WRK).
Atlas will offer 1 Atlas share for every 3 Warwick share. At current Atlas share price bid values Warwick at 55.6 cents per share. Last sale for Warwick was 46.5 cents.
Atlas is currently the largest shareholder of Warwick and owns 22.2% of the company.
Reasoning behind the merger, which Warwick directors have recommended, is the combined entity would stand to reap substantial benefits from higher tonnage production including lower costs, increased buying power and greater marketing strength.
David Flanagan believes the logic of the merger is compelling, marrying Warwick’s SE Pilbara projects, with production growth from Atlas' projects in the north Pilbara.
The combined entity would have 154mt of Direct Shipping Ore (DSO) resources, plus exploration targets of 165 to 338mt at 56% to 60% Fe and a Pilbara landholding of more than 15,000km.
Atlas currently mining and exporting from its 100%-owned Pardoo iron ore project, located 75 kilometres by road from Port Hedland in the Pilbara region of Western Australia. Atlas is planning to export 1 million tonnes during 2009 from Pardoo.
However, once the Utah Point port facility is completed, Atlas aims to ship 2.4 mtpa in 2010, increasing to 6mtpa when Wodgina and Abydos DSO projects are on-stream.
The merger would be implemented by a scheme of arrangement.
For Warwick shareholders, the uplift in the valuation of the company with the proposal in the absence of a competing offer is tangible.