Atlas/Hancock: Rival bidder difficult to identify, Glencore interest downplayed
26 JUN 2018
Multiple bankers are struggling to identify a credible rival bidder for iron ore junior Atlas Iron [ASX:AGO] following Hancock Prospecting’s AUD 0.042 offer, despite the market’s apparent hope that one may be lurking.
Shares in Atlas, a Western Australia, Northern Pilbara focused iron ore miner, have traded slightly through the terms of the offer tabled 18 June by Hancock, which is owned by Gina Rinehart, the Australian mining magnate. The offer, which came shortly after it snapped up a 19.96% stake in Atlas, is set to open shortly.
Atlas’ share price suggests the minority shareholders in Atlas, which is dominated by retail shareholders, is hopeful “something is going to happen”, according to several bankers and a sector analyst. None of the bankers were able to identify with any conviction a credible rival bidder who would be prepared to top Hancock's offer.
This news service notes that with the shares trading slightly through the terms Hancock is prevented from being able to acquire more shares in Atlas on-market during the bid period, which it can only do at prices in line with the offer or below.
As reported, it is unlikely a counter bid will come from Fortescue Metals [ASX: FMG], which itself had acquired a near 20% blocking stake in Atlas prior Hancock’s bid. Fortescue looks to have achieved its primary intention which was to block an earlier agreed all-share deal between Atlas and Mineral Resources [ASX: MIN] (MinRes).
MinRes last week abandoned its bid in light of the cash offer from Hancock.
In terms of other potential interlopers one of bankers and an analyst said Anglo–Swiss multinational mining company Glencore[LON:GLEN], a former Atlas shareholder, is a possible potential interloper although identifying a clear rationale for such a bid is not straightforward.
In 2016, at the peak of Atlas Iron’s debt fueled woes, Glencore acquired a near 9% stake in the miner via a debt-to-equity deal. At the time the market viewed the move as a precursor to a takeover, the banker said. Glencore ceased to be a substantial shareholder in early February 2017.
Glencore subsequently itself ran into financial trouble but has now shored up its balance sheet and has in recent times shown it is willing to re-engage in deal making. “They’re in a position to make things interesting in the Pilbara [and] I wouldn’t rule them out of coming to the party,” the banker said.
JP Morgan Cazenove analysts recently said Glencore has “arguably the strongest balance sheet in the sector leaving it with strong scope to continue its growth through both organic and M&A opportunities”. However, the analysts also note that Glencore has materially underperformed peers in 2018 largely due to a series of risks it needs to resolve relating to its operations in DR Congo (DRC) including a potential UK Serious Fraud Office investigation.
Despite its previous involvement in Atlas, this news service understands Glencore is not interested in gatecrashing Hancock’s bid and is content to leave the situation to others to battle out.
Strategic issues and political risk
A bid by Glencore or any mining major would face some fairly hefty strategic issues, said the sector analyst.
While there is a view that what “everyone” is fighting for is port capacity, especially the 13mtpa at Port Hedland, one of the largest iron ore loading ports in the world, Glencore like any other major may not get such access even if they are successful, a second sector banker and the analyst noted.
Shares in Atlas briefly tanked after the State Government earlier this month notified Atlas that it does not have a priority right to develop new berths with export capacity of 50mtpa at Port Hedland. Effectively, Atlas via its North West Infrastructure (NWI) port project, has therefore been told it no longer has the exclusivity granted by the previous Liberal government after it had been unable to advance the project. This in turn affects the junior iron ore miner’s NWI port project, and will have implications for the successful suitor, the analyst noted.
As reported by local media Atlas believes it holds priority rights to the stalled NWI project and the State Government’s position represents a change in policy. It’s understood the new berths at Port Hedland have been set aside for junior miners, which means neither of the current suitors would get access, the analyst added.
However, the analyst and the first banker agreed that this did not preclude anyone from making a bid and/or being able to subsequently renegotiate with the State Government.e
A key issue at play for Atlas, MinRes, Fortescue, and Hancock, is the potential network congestion from the railway into the port berth that could arise, which is why Hancock and Fortescue have secured near 20% stakes in Atlas, the second banker and analyst said.
Various ministers of the State Government declined or could not be reached for comment.
Fortescue and Glencore declined to comment. MinRes and Atlas could not be reached for comment.