Austral Resources Ltd (ASX: AR1) recently announced a binding agreement to acquire fellow mining project developer Hammer Metals Ltd (ASX: HMX), valuing the smaller company at $80.7 million.
The analysts at Shaw and Partners have issued a new research note on Austral following the deal's announcement and set a very bullish price target for the company, which I'll get to shortly.
First, let's look at the deal.
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Building a regional copper resource
Austral will issue Hammer shareholders 1.29 Austral shares for each Hammer share held, valuing the shares at about 8 cents each.
Hammer shareholders will also retain shares in a new company to be spun out, which will hold Hammer's Western Australian gold assets.
The deal is being recommended by the Hammer board and major shareholders, who own about 16% of the company.
Austral Chair David Newling said regarding the transaction:
The execution of the Scheme Implementation Deed marks an important step in Austral Resources' strategy to build a leading Queensland copper company. Hammer's resource base and exploration portfolio are highly complementary to Austral Resource's existing operations, infrastructure and development plans. The combination creates a stronger regional platform, with the potential to unlock significant value through greater scale, infrastructure utilisation and future resource development. Importantly, the transaction delivers a substantial premium for Hammer shareholders while allowing them to retain meaningful exposure to the future growth of the combined business.
This ASX mining stock has some serious upside
Shaw and Partners said in a note to their clients that the deal provided another potential source of ore for Austral's Rocklands processing hub.
They added:
Key to the acquisition is Hammer's 39.2mt Kalman copper resource that provides a future feed source for Rocklands. By combining Kalman with Rocklands' existing 3mtpa processing infrastructure, Austral can extend and improve utilisation of its processing platform while building greater scale across its northwest Queensland copper business.
Shaw and Partners said beyond the Kalman resource, "the acquisition expands Austral's regional resource scale, widens its prospective exploration footprint, and maximizes long-term capacity utilisation across the Rocklands processing infrastructure''.
Austral also announced in early August that the Queensland Critical Minerals Fund had invested $15 million in the company through a non-dilutive royalty financing arrangement.
That funding is to support a stage 2 expansion of the Rocklands processing facility, and would initially fund a scoping study.
Shaw and Partners has a price target of 28 cents on Austral, compared to the current price of 6.5 cents.
The company is valued at $188.5 million.
