Atlas Iron Agrees to Buy Giralia for $822 Million to Expand Pilbara Mining

Atlas Iron Ltd. agreed to buy Giralia Resources NL in a deal that it said values the iron ore company at about A$828 million （$825 million） to almost triple its resource of the steelmaking raw material.

Atlas is offering 1.5 of its shares for each of Giralia’s, or 1.33 Atlas shares and 50 cents a share, the Perth-based companies said in a joint statement to the Australian stock exchange. The all-share offer values the company at A$4.57 a share, 53 percent more than Giralia’s last closing price, the statement said. Giralia’s directors recommended the deal.

Buying Giralia, which explores for iron ore close to Atlas’s deposits in Australia’s Pilbara region, will boost output and reduce operating costs, according to Managing Director David Flanagan. Global mining deals have more than doubled this year to A$137 billion, the highest since 2007.

“There’s some solid strategic rationale for Atlas getting hold of the McPhee Creek deposit and the Daltons deposit from Giralia,” Chris Drew, an analyst at Royal Bank of Canada, said by phone from Sydney. The projects should Atlas’s plans to develop its Turner River operation, he said.

The acquisition would boost Atlas’ measured, indicated and inferred resource to 602 million metric tons, up from 205 million tons now.

Giralia climbed as much as 43 percent before trading 40 percent higher at A$4.19 at 12:34 p.m. in Sydney. Atlas dropped 3 percent to A$2.87, trimming gains this year to 52 percent.

Deal Premium

“Atlas has got infrastructure that matches its existing production profile but it’s going to need more with this Giralia addition,” Peter Arden, senior mining analyst at Ord Minnett Ltd., said by phone from Melbourne. “It sort of prolongs Atlas’ life in the long-term rather than adds to it in the short- term.”

Atlas is paying 8.9 times the total assets of Giralia, according to data compiled by Bloomberg, compared with the median multiple of 2.5 times for 10 industry deals since 2003. Atlas ships iron ore from its Pardoo and Wodgina iron ore operations in the Pilbara region at an annualized rate of 6 million tons.

“The two companies have deposits that either join or are very close to each other at Mt. Webber, McPhee Creek, Beebyn Range and Western Creek,” Flanagan said in the statement.

Mining Takeovers

The deal comes after a surge in mining takeovers -- particularly in iron ore this year with deals worth $8.8 billion in the sector to date, compared with $1.8 billion last year. Riversdale Mining Ltd. halted its shares today after the Telegraph said Rio Tinto Group had raised an earlier A$3.5 billion offer. Sojitz Corp., a Japanese trading company, paid 17 billion yen （$203 million） to raise its stake in Australia’s Minerva coal mine to 96 percent from 45 percent.

Hartleys Ltd., based in Perth, is advising Atlas, with Credit Suisse Group AG acting as financial advisers for Giralia. The takeover deal carries a 90 percent acceptance condition and will close on Feb. 11 next year, unless extended.

UBS AG is forecasting seaborne iron ore demand to increase by 6 percent next year, with a further 2 percent to 3 percent annually to 2015.