Update Iron ore producer Atlas Iron is seeking to acquire Aurox in a $143 million scrip offer to secure additional port capacity as it beefs up production to meet Chinese demand.
Aurox said its board will vote in favour of the deal, which implies a value of 74 cents per Aurox share - a 172 per cent premium to its closing price on Tuesday.
Aurox shares ended the day 46.5 cents higher, or 172 per cent, at 73.5 cents while Atlas Iron shares recovered to end 10 cents higher, or 5 per cent, to $2.31.
Aurox holds prized allocations at Western Australia's increasingly congested main iron ore export terminal at Port Hedland to ship 6 million tonnes a year, increasing to 10 million tonnes from 2015 and 12 million tonnes after that.
The world's single largest iron ore deposit, Australia's 500,000 square kilometre Pilbara district, is undergoing an unprecedented rate of mine development by BHP Billiton, Fortescue Metals, Atlas and other companies, taxing limited export berthing space at the port.
Atlas plans to export 3 million tonnes of ore to Chinese steel mills in 2010, rising to 12 million by 2012.
"This merger creates one company with an outstanding rapidly growing production profile supported by port capacity in one of the world's greatest bulk export ports," Atlas managing director Dave Flanagan said in a statement.
Plans are underway to triple berthing capacity at the Port Hedland inner harbour terminal to 440 million tonnes annually within four years to accommodate growing freighter.
BHP is the port's biggest user and last year it shipped more than 100 million tonnes. It plans to mine 155 million tonnes annually by 2011 and 200 million by 2015.
Fortescue is the second biggest user, aiming to ship up to 55 million tonnes this year.
Great deal for Aurox
Aurox managing director Charles Schaus said the proposed merger was an outstanding opportunity for the Aurox shareholders to join with and participate in an impressive diversified iron ore growth company.
"The high premium offered by Atlas is a great deal for Aurox shareholders," Mr Schaus said.
"It reflects the high potential of the Balla Balla project, Aurox's access to infrastructure and regionally significant water resource.
"The merged groups port capacity of up to 33mtpa (million tonnes per annum) will allow the company to generate substantial synergies from production and development schedule optimisation.
"With iron ore prices expected to increase significantly in the coming year, this merger will give Aurox shareholders the opportunity to share in the benefits from immediate cashflows."
The proposed merger is subject to court and regulatory approval, approval from Aurox shareholders, and endorsement from an independent expert.
As part of the scheme implementation agreement, Atlas has agreed to extend an unsecured, interest-bearing loan of up to $7.7 million to Aurox to enable Aurox to redeem outstanding convertible notes that are due to mature on June 30, 2010.
The loan will be repayable on the earlier of four months from the date of draw-down and 20 business days after termination of the scheme implementation agreement.
Aurox shareholders will be asked to approve the scheme at meetings expected to be held in late May, 2010.
Aurox and Atlas shares were both in a trading halt this morning. Aurox last traded at 27 cents, Atlas at $2.21.
Reuters, AAP
