Post Market Wrap | IGO takeover of Western Areas delayed by up to two months

This Post Market Wrap is presented by KOSEC – Kodari Securities

• Takeover Scheme of Arrangement likely to settle in May/June 2022
• Ongoing suspension of LME nickel trading since March 8 following unprecedented price volatility
• Western Areas, advised by KPMG, are considering implications for the nickel market 
• IGO $3.36 per share cash bid price is locked-in and agreed by Western Areas
• IGO firmly on track to become a globally relevant lithium producer 

IGO Limited (‘IGO’) is a future-facing business with an exclusive focus on ‘clean energy’ metals that are essential to enabling clean energy production, particularly regards battery storage. IGO has a 49 percent JV stake in Chinese-owned Tianqi Lithium Energy Australia, that provides IGO with a 25 percent interest in the Greenbushes lithium mining operation and a 49 percent stake in the lithium processing plant at Kwinana.

The Greenbushes lithium mine in WA is the world’s largest lithium mine. Lithium is an essential element for the production of batteries. Other projects include a 70 percent Joint Venture exploration interest with Antipa Minerals Limited in the world class Paterson Province.

IGO also has a 70 percent stake in the graphite and nickel-copper Fraser Range Joint Venture with Carawina Resources.

Western Areas takeover delayed by nickel price volatility 

Extreme volatility witnessed in global nickel prices on March 8, which saw Nickel soar to above US$100,000 a tonne, resulting in the London Metal Exchange (LME) temporarily suspending nickel trading, has delayed IGO’s takeover of Western Areas Limited (Western Areas).  Western Areas, advised by their Independent Expert, KPMG, are considering the implications, if any, on nickel market fundamentals. The Takeover is being effected by a Scheme of Arrangement, where Western Areas shareholders will receive $3.36 cash for each share. IGO’s bid price for Western Areas is locked in at $3.36 per share. 

IGO has no obligation, nor any present intention to increase the offer price, in response to the current situation. The transaction values Western Areas at $1096 million. The delay is unlikely to be more than one or two months. The original Implementation Date of the Scheme of Arrangement was April 2022. The date is now scheduled for May/June 2022.    

The nickel market was thrown into turmoil following a major industry participant being subject to a short squeeze, resulting in a substantial financial obligation to counterparties overnight, that may result in default. This may have a contagion effect, where other parties are also impacted by failed settlement obligations. To put this nickel price volatility into perspective, nickel was trading at US$15,000 a tonne in June 202, up from US$8931 a year earlier. The price of nickel quoted on the LME spiked above US$40,000 a tonne two weeks ago, up US$10,000 in a single day, before spiking to US$100,000 on March 8. Nickel trading on the LME has been suspended from this date. 

Image: file

Implications for IGO

IGO have stated that their long-term assessment of nickel market fundamentals and the price outlook remains firm, in light of the current price volatility. 

The war on Ukraine has driven oil prices to a level which has accelerated the demand for Electric Vehicles. This demand in turn significantly increases the future demand for lithium batteries as an alternative energy source to petroleum. According to Electric Vehicle manufacturer, Tesla, lithium batteries comprise 85 percent nickel.  Given the International Energy Agency has forecasted that 125 million Electric Vehicles will be in use by 2030, the long-term price outlook for nickel is strong, fuelled by robust demand well into the future. 

The current nickel price volatility presently has no direct material impact on IGO or its offer for Western Areas. The Western Areas takeover puts IGO on a clear pathway to building a world-class and globally relevant lithium business capable of generating significant shareholder upside in the period ahead. 

This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.