Mineral Resources Limited (ASX: MIN) will acquire the Australian assets of American miner Cleveland-Cliffs Inc.
These include the Koolyanobbing iron ore project in Western Australia and Cliffs’ infrastructure assets at the Port of Esperance, from where Mineral Resources will be able to export materials with larger, more cost-effective vessels.
The terms of the transaction are confidential, but Mineral Resources acknowledged the role played by the WA Government in facilitating the deal. The company also thanked Arc Infrastructure for granting access to its railway line on favourable terms that allow continuing operations at a challenging time for low-grade iron ore operations like Koolyanobbing.
In fact, widening discounts on low-grade iron ore have resulted in adverse market conditions for the miners, and Mineral Resources itself has progressively shifted its business from iron ore to mining services, including logistics.
For instance, last week the company announced the progress of negotiations with the government of WA on Mineral Resources’ proposed Iron Valley to Port Hedland railway.
The same release also addressed the issue of control over Atlas Iron Limited (ASX: AGO), for which Mineral Resources is competing against heavyweight iron ore miner Fortescue Metals Group Limited (ASX: FMG).
Mineral Resources remarked that the WA Government always intended access to Utah Point – a part of Port Hedland where Atlas owns valuable port capacity – to be reserved to smaller-sized miners.
Atlas’ port capacity at Utah Point could be the primary reason for all the interest around an ailing low-grade iron ore miner like Atlas. A third contender for the control of Atlas might be Gina Rinehart’s Hancock Prospecting, which similarly to Fortescue, acquired a 20% interest in the company. Last week, Mineral Resources lifted the exclusivity clauses on its scheme implementation deed for the acquisition of Atlas, allowing the target to engage in talks with other parties.
All this competition is putting pressure on the Mineral Resources share price. After a 7% decline on Tuesday, the stock has fallen another 5% to $16.40 on Wednesday.
The acquisition of Atlas made perfect sense for Mineral Resources, fitting within the company’s transformation into an integrated mining services provider, while the acquisition of Cliffs announced today failed to excite investors.
With so much appetite for Atlas, I’m not sure Mineral Resources will be able to secure control of the target. As long as the situation remains so complex, I’ll be watching from the sidelines.
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Motley Fool contributor Tommaso Autorino has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.