Atlas Iron backs Gina Rinehart's $390 million takeover offer
Atlas Iron's board has given its approval for the company to be taken over by billionaire Gina Rinehart for $390 million, or 4.2 cents per share.
Ms Rinehart's all-cash offer — made by a subsidiary of her company Hancock Prospecting — trumps the previous bid, made by Perth-based Mineral Resources (MinRes) for $280 million.
Atlas Iron is a small miner and iron ore explorer that mainly operates in the Pilbara region of Western Australia and posted a half-year loss of $21 million earlier this year.
"Accordingly, a majority of the Atlas Board has now withdrawn its recommendation of the MinRes scheme, and recommends that Atlas shareholders accept the Hancock Offer," Atlas Iron said in a statement.
However, that recommendation depends on whether someone else makes a better offer, and is subject to an independent expert concluding Ms Rinehart's offer is "fair and reasonable".
MinRes has pulled out of the bid, and will not beat Ms Rinehart's offer.
Why Atlas Iron?
One of Atlas' key assets is its stake in the North West Infrastructure joint venture, which controls potentially valuable rights to one of the world's largest iron ore ports, Port Hedland.
But there is uncertainty over whether Hancock will be allowed to use the Atlas export berths since the Western Australian government has reserved it for "junior miners".
The WA government also told Atlas that it does not have priority rights to develop shipping berths at Port Hedland in mid-June.
Rob Brierley, head of research at RM Capital, does not believe think port access is the main driver behind the Hancock bid.
"I think Hancock [is] more interested in the resources," he said.
"I do recall that they did have a little bit of a hole in their production profile after a couple of years at Roy Hill" — of which Ms Rinehart's company owns a 70 per cent stake.
"So just being able to use the Atlas resources to top up their production profile is probably the major reason why they've bid for Atlas."
Forrest could block Rinehart bid
Ms Rinehart, who is Australia's richest woman, may not necessarily succeed in taking over Atlas Iron.
Rival mining boss Andrew Forrest could frustrate her takeover plan, since his company Fortescue Metals owns a 19.9 per cent stake in Atlas.
Ms Rinehart owns a similar stake in Atlas, totalling 19.96 per cent — through her companies Hancock Prospecting (14.97pc) and Redstone Corporation (4.99pc).
Fortescue has yet to confirm whether it will enter a rival bid for Atlas, or sell its stake.
Earlier this month, Fortescue said it would not throw its support behind the initial MinRes offer.
"They [Fortescue] may have blocked the Mineral Resources merger more out of defence than anything else," Mr Brierley said.
"[To] keep an opponent from getting bigger in the market."
Where to next?
Atlas also needs to pay MinRes a $3.12 million "break fee" after breaching an agreement to recommend MinRes to its shareholders.
The board of Atlas Iron will give its formal response to Ms Rinehart's offer in the next few weeks, but has urged its shareholders to "take no action" until then.
In the meantime, Mr Brierley expects Fortescue Metals will reveal its cards next week.
"I think they will look carefully at whether they will extract any sort of synergy from acquiring Atlas in their own right, or whether they just become a blocker for the deal."
Atlas shares have plunged 4.4 per cent to 4.3 cents (at 2:00pm AEST).