Gina Rinehart vs Andrew Forrest: battle of the iron ore billionaires puts Atlas in play

Billionaires Andrew “Twiggy’’ Forrest and Gina Rinehart have both emerged with strategic stakes in Atlas Iron (ASX: AGO), effectively scuppering a $300 million takeover deal by Mineral Resources (ASX: MIN).

Since picking up a 19.9 per cent stake in Atlas through his iron ore miner Fortescue Metals (ASX: FMG), Mr Forrest has already said that he will not be accepting Mineral Resources’ all-scrip bid at this stage, effectively blocking the takeover deal which had been agreed by Atlas Iron’s board.

Gina Rinehart’s Redstone Corporation, a subsidiary of her unlisted Hancock Prospecting company, will not comment on its plans for a 19.96 per cent holding in Atlas, which was bought after Mr Forrest had entered the battle.

Billionaires want a say in how the Pilbara is developed

However, analysts said both Forrest and Australia’s richest woman Rinehart would want to have a say in how Atlas’s assets are developed and how their port access is managed, given that they are primarily based in the Pilbara where both billionaires operate large iron ore mines.

Shares in Atlas Iron have now been placed in a trading halt while the company prepares to make an announcement in response to a letter from WA Transport and Planning Minister Rita Saffioti about the company’s investment in proposed port capacity at Port Hedland’s South West Creek.

Export port capacity one of the keys to the takeover

Atlas holds an existing 13 million tonne-a-year port capacity at Utah Point in Port Hedland – a facility that was built to exclusively service junior iron ore miners.

It also has its foot on a potential further 30mtpa capacity through its 63 per cent interest in the North West Infrastructure joint venture which is negotiating over new berths at South West Creek.

While both Forrest and Rinehart now have effective strategic blocking stakes to prevent the Mineral Resources bid proceeding in its current form, it is unclear whether either party wants to launch their own Atlas bid, given that are both just short of the takeover threshold of 20 per cent.

It is also unknown whether either of the bigger partners could overcome political opposition to larger players muscling in on the Utah Point port.

Rival offers on the way?

It is still unclear whether the Fortescue or Hancock stakes are precursors to rival offers for Atlas or whether they are strategic blocking stakes merely aimed at preventing a deal being done by others.

However, MinRes has now released Atlas from “no-shop, no-talk, no-due diligence” clauses in the takeover agreement between the two companies.

That move would allow Atlas to begin negotiations with Fortescue or Hancock Prospecting about a rival bid, should one of those parties decide to try for full ownership.

Atlas on the comeback trail after some very tough times

Atlas was forced to mothball its lower grade iron ore mines back in April 2015 because it was costing more to dig up the ore than buyers were willing to pay.

Since then Atlas has restructured and global iron ore prices have surged on the back of returning Chinese demand, which has led to the beginnings of a turnaround for Atlas, with its operations becoming cash flow positive, although not yet profitable due to steep price discounts for its lower grade iron ore.

The MinRes takeover would have expanded the amount of lower grade iron ore being exported from the Pilbara and reduced operating costs, something that may have harmed the interests of Fortescue and Mrs Rinehart.

Atlas also has lithium assets, which could be of interest to a takeover partner or could be sold off.