The IGO Ltd (ASX: IGO) share price is on course to end the week with a day deep in the red.
In morning trade, the battery materials focused mining company's shares have fallen 8% to $8.78.
Why is the IGO share price sinking today?
Today's decline by the IGO share price appears to have been driven by broad weakness in the resources sector and news that it is in talks to acquire nickel producer Western Areas Ltd (ASX: WSA).
In respect to the latter, this morning IGO responded to media speculation. It stated that it "is in preliminary discussions with Western Areas in relation to a change of control proposal and the basis upon which engagement and due diligence could proceed."
This was also confirmed by Western Areas. However, both companies are warning that there can be no assurance whether any transaction will eventuate. Nor is there any assurance in regard to the terms and conditions of any such transaction should one eventuate.
Nevertheless, that hasn't stopped investors bidding up the Western Areas share price and selling down the IGO share price today.
Why Western Areas?
Earlier this month IGO made an appearance at the Diggers and Dealers conference. In its presentation, management spoke very positively about nickel, noting that demand for the metal is expected to increase 5.2x by 2030 from 2021 levels. This is largely due to its use in the lithium batteries of electric vehicles.
Management appears to see Western Areas as a good addition to its growing battery materials portfolio. It would also help offset the declining production at its Nova operation, which is nearing the end of its mine life.
However, with the IGO share price falling heavily today, investors don't appear too keen on the idea.
This could be due to IGO finishing FY 2021 with a cash balance of $528.5 million. So, with an acquisition price of $1 billion being touted for Western Areas, IGO would either need to raise funds again or issue shares.
Another factor that could be of concern is Western Areas' underwhelming performance in recent years. Its addition could add some uncertainty, especially given the ongoing ramp up of Western Areas' key Odysseus mine at the Cosmos Nickel Operation.
Despite today's decline, the IGO share price is up 32% in 2021.
