WARWICK AND ATLAS IRON ANNOUNCE MERGER TO CONSOLIDATE PILBARA IRON PROJECTS

 KEY POINTS  

 

 

·        Warwick and Atlas Iron (ASX:AGO) have today announced their intention to merge by way of two Schemes of Arrangement (Schemes) under which Atlas will acquire all of the issued capital in Warwick

 

                       

·        Share Scheme consideration will comprise one Atlas share for every three Warwick shares (implied value of $0.55 per Warwick share based on Atlas share price of $1.65) 

 

 

·        Share Scheme consideration represents a 48% premium based on the price of Warwick shares over the past 30 days

 

 

·        Option Scheme consideration shall be payable in Atlas shares based on a ratio determined by the exercise price and expiry date of the respective options

 

 

·        The merged entity will have 154 million tonnes of DSO resources^[1], plus exploration targets of 165 to 338 million tonnes at 56% to 60% Fe^[2] and a Pilbara landholding of more than 15,000km²

 

 

·        Warwick’s shareholders will participate in Atlas’ cashflow, project pipeline, infrastructure access and production profile

 

·        Proposed merger has the full support of the Boards of both companies and in the absence of a superior prosposal, Warwick’s Board recommends Warwick Shareholders and optionholders vote in favour of the merger

 

Pilbara explorer, Warwick Resources Limited (ASX:WRK), is pleased to announce that Warwick and Atlas Iron Limited (ASX:AGO) have entered into a Merger Implementation Agreement pursuant to which they have agreed to merge by way of Schemes of Arrangement.

 

The proposed merger will create a new large-scale independent iron ore producer in the Pilbara, with an expanding production profile, a significant resource base and a large landholding with major resource growth potential.

 

The merger will be implemented via a share scheme (Share Scheme) in respect of all of the fully paid ordinary shares in the capital of Warwick (Warwick Shares) and an option scheme (Option Scheme) in respect of all options to acquire Warwick Shares (Warwick Options). Each of the Schemes is subject to a number of conditions precedents (a summary of which is set out in Annexure B).

 

Under the Share Scheme, Warwick Shareholders will receive one Atlas share for every three Warwick Shares held.  The Share Scheme consideration represents a 48% premium based on the price of Warwick shares over the past 30 days. Under the Option Scheme, all options will be cancelled in exchange for the issue of Atlas shares based on a valuation of the various options in accordance with the Black & Scholes valuation model (see Annexure B).

 

The Scheme consideration payable to Warwick shareholders and optionholders implies a total value of approximately $82 million.  Based on the closing prices of Warwick and Atlas shares on Friday, 4 September 2009, the merger proposal is equivalent to an offer price of 55 cents per Warwick share, representing a:

 

·         29% premium to the closing price of Warwick shares on 4 September 2009 of 42.5 cps;

·         48% premium to the 30 day volume weighted average price (VWAP) of Warwick shares of 39.6cps; and

·         112% premium to the 90 day VWAP of Warwick’s shares of 25.8cps.

 

Atlas is Warwick’s largest shareholder (22.25%) and is mining and exporting iron ore from its 100% owned Pardoo Iron Ore Project, located 75 kilometres by road from Port Hedland.  Atlas is planning to export one million tonnes during its first 12 months from Pardoo and together with Wodgina and Abydos the company is targeting exports at an annualised rate of 6 Mtpa in 2010, growing to 12 Mtpa with production from Mt Webber by 2012. 

 

Warwick has recently considered a number of alternatives in relation to the development of its portfolio of DSO projects near Newman.  The Board believes the proposed merger with Atlas provides Warwick shareholders with an outstanding opportunity to benefit from the development of the combined iron ore projects and become part of a larger, more diverse and financially sound company focused on iron ore development in the world-class Pilbara region of Western Australia.

 

The Directors of Warwick (excluding the Atlas nominee) have carefully considered the merger proposal and, in the absence of a superior proposal and subject to an Independent Expert’s Report concluding that the Share Scheme and Option Scheme is in the best interests of Warwick shareholders and optionholders respectively, intend to unanimously recommend that Warwick shareholders and optionholders support the Schemes.  Each of the Warwick Directors intend to vote in favour of the proposed merger in relation to the Warwick Shares and options held or controlled by them, in the absence of a superior proposal.

 

Commenting on the transaction Warwick Chairman, Will Burbury, said:

 

“Atlas has made a very attractive offer to Warwick shareholders which not only provides an immediate uplift in the value of Warwick shares but provides the opportunity to participate in the continued development of our projects, as well as exposure to existing production with a rapidly growing production profile and mining and marketing expertise.”

 

Atlas Managing Director, David Flanagan, said:

 

“This transaction with Warwick brings with it a very large South East Pilbara iron ore tenement portfolio with exceptional resource potential.  Developed in a project pipeline with our current north Pilbara Projects, we expect to be able to gain real operating synergies from this suite of projects.  The team at Warwick has done a fantastic job at securing this extensive landholding and building the resources and exploration targets at these projects. The next stage for Atlas will be to rapidly grow the resource inventory and bring them into production.”

 

The Merged Entity

 

The proposed transaction has the potential to create a large-scale independent iron ore producer in the Pilbara of Western Australia.  The merged entity will benefit from the economies of scale that flow from a large-tonnage project. Atlas will bring not only project execution experience and access to port capacity, but it also has existing relationships with providers of third party infrastructure access, iron ore customers, a number of potential development partners, international engineering firms and regional communities throughout the Pilbara. 

 

Development of the combined deposits is planned to coincide with the completion of the new Port Hedland berths being built under the auspices of the North West Iron ore Alliance.  This port is due to be completed in late 2013.  Achieving this target production rate will also be conditional on project related feasibility studies, environmental permitting, infrastructure access agreements and completing construction over the next four years.

 

The Atlas Board will remain unchanged.

 

Timetable

 

Security holders will be asked to approve the Schemes at meetings which are expected to be held in November 2009. Full particulars of the Schemes, merger proposal and recommendations will be provided to security holders though a Scheme Booklet which will include an Independent Expert’s Report considering whether or not the proposed Share and Option Schemes are in the best interests of Warwick’s shareholders and optionholders respectively. It is expected that the Scheme Booklet will be dispatched to security holders in October 2009. Shareholders and optionholders are not required to take any action at this stage in relation to the Schemes of Arrangement.