A big test for IGO today as it learns if its $1.1 billion takeover offer for nickel rival Western Areas has a future.
The $3.36 per share all-cash deal for Western Areas was made in December last year, but IGO said last month that the recent volatility in nickel prices would delay the acquisition.
Then on Tuesday the situation worsened for IGO when it told the ASX it understood that Western Areas’ independent expert concluded its offer was not in the best interests of shareholders, while noting it had neither received nor reviewed the draft report.
IGO also reiterated its earlier stance that its valuation of the deal was based on its long-term view of the nickel market and that its had not materially changed – in other words the offer price was very unlikely to be lifted to make the offer more appealing to WSA shareholders.
IGO said it would consider its options once it received the draft report. That is expected to be today after a two-day trading halt called by Western Areas Tuesday, is due to end.
IGO has support from big shareholders, Perpetual and Wyloo Metals (Andrew Forrest’s investment company). The speak for around 24% of WSA’s shares.
If IGO shows price discipline it can blame firstly President Putin’s invasion of Ukraine which has pushed commodity prices higher – especially nickel of which Russia is a major producer and exporter, secondly it can also blame Chinese nickel group, Tsingshan Group Holdings which blew up the London Metal Exchange contract for the metal and created enormous price instability which has still not settled a month (yesterday) after the debacle happened.
One broker, however, believes there’s an opportunity in WSA even if the IGO deal doesn’t happen.
In a note yesterday Morgans upgraded its price target for Western Areas to $4.45 with an Add recommendation and says any termination of the deal may present a new buying opportunity.
WSA shares were at $3.65 on Monday before the trading halt was called for and granted, so at least some investors reckon the iGO deal won’t happen at the $3.36 price.
“We refresh our nickel price outlook on the back of recent market strength and tightening supply in the face of rising demand,” Morgans analyst Mat Collings said in a note.
“We have revised our nickel price forecast, reflecting our bullish outlook.”
He thinks there might still be a potential deal out there for Western Areas, but not with IGO.
“The next most likely transaction in the nickel space (in our view) becomes a combination of Western Areas and Panoramic Resources – where Western Areas holds a 19.9 per cent stake. This would create a significant alternative nickel investment option on the ASX for investors,” Collings wrote on his note.
IGO shares dipped 1.4% to $14.35 yesterday.
