Market sources believe that BHP could be propelled into takeover mode while trying to tie up the sale of its petroleum and coal assets, after it emerged that IGO has been in talks to buy Western Areas.
IGO told the market on Thursday that it had held preliminary talks with Western Areas about an acquisition of the nickel miner at a time it plans to sharpen its focus on minerals used for environmentally friendly technology such as batteries in electric vehicles.
Market participants say that an acquisition by the Perth-based IGO of Western Areas is a threat to BHP because the company has valuable offtake agreements in place for its Nickel West business.
Nickel West owns a smelter, a sulfate plant and a refinery. IGO gaining control of Nickel West would be detrimental to BHP, which locked in nickel supply agreements with electric car maker Tesla.
Others say that a more strategic play could be broader consolidation of listed nickel miners in Western Australia’s Kambalda District, where not only Western Areas and IGO come together, but the $350m Poseidon Nickel and the $530m Mincor Resources.
BHP could then make an acquisition of a consolidated group at a later stage.
Western Areas is advised by Rothschild & Co and Goldman Sachs, while IGO is working with Macquarie.
The situation is unfolding as BHP continues work on finalising a sale of its coal assets.
Peabody Energy, which counts BHP shareholder Elliott Management as its major shareholder, is said to be far out in front in the sales process and the preferred bidder.
However, there is talk that Peabody buys BHP’s two metallurgical coal mines in Queensland held as part of an alliance agreement with Mitsui Coal, known as BMC, but its Mt Arthur coal mine in NSW could be dealt with separately.
New Hope Coal is known to have some interest in Mt Arthur and recently raised about $200m for a convertible bond, but the question is whether it is offering a high enough price for the coal mine.
Some believe a recent $200m issue of senior, unsecured convertible notes was related to a Mt Arthur acquisition and designed to signal to BHP it had the money to pay up for the assets.
New Hope’s Bengalla thermal coal mine in the Upper Hunter Valley is close and could extract synergies.
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